The Fashion Channel
Course: Marketing Management MBA 752 Case: The Fashion Channel The Fashion Channel should choose scenario 3 as the strategy of market segmentation with the goal of increasing its industry standing. They should do this for the following reasons: 1) to make maximal profit in expected advertising revenues and return on investment, 2) to capture significant piece of market share in the chosen target market, and 3) to increase their Cost Per Thousand Impressions (CPM) on advertising revenue. In viewing the financials and expected ad revenues, scenario 3 stands above the rest in terms of profit maximization. By choosing to segment their market to target Fashionistas and Planners/Shoppers, TFC is looking at an increase in margin of 20% over the 2007 base projection. This would mean a $138M bump in revenue that translates to $114M net income. Scenario 3 also leads scenario 2 with a $23M bump in revenue, a 2% increase in margin, and $17.4M that can be taken to the bottom line (Exhibit 1-B). By targeting the right viewers, scenario 3 overshadows scenario 1 with a higher pricing scheme and sponsor willingness to pay, in addition to, beating out scenario 2 in terms of the sheer number of viewers. With more viewers at a more desirable sponsor price scheme, scenario 3 leads all options in average revenue/ad minute (Exhibit 1-A). By analyzing the market segmentation (Exhibit 2), a significant opportunity cost arises if scenario 2 were to be chosen instead of scenario 3. Scenario 2 only targets 15% of the market by focusing on the Fashionistas whereas Scenario 3 focuses on 35% with both the Fashionistas and the Planners and Shoppers. Looking at the demographic highlights, there is a significant overlap in the market segment. 50% of the market for the Fashionistas and 25% for Planners/Shoppers are aged between 18-34 years. Additionally, 61% of the Fashionistas and 53% of the Planners and Shoppers are Female. Dana Wheeler estimated that there would be a $5