MKTG Report 2 - Tim Hortons Marketing mix analysis PDF

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Tim Hortons Marketing mix analysis...

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Tim Hortons Marketing Mix Analysis

Prepared for Joshua Riker-Fox, MKTG-260 Instructor

Prepared by Elena Tofan, Sasheen Osbourne, Taryn Dachuk BA Students School of Business SAIT

Requested by Joshua Riker-Fox, MKTG-260 Instructor SAIT

December 3, 2018

TABLE OF CONTENTS LIST OF ILLUSTRATIONS………………………………………………………………………………iii INTRODUCTION.......................................................................................................................................1 PRODUCT STRATEGY.............................................................................................................................2 PRICING STRATEGY................................................................................................................................4 DISTRIBUTION STRATEGY....................................................................................................................5 PROMOTION STRATEGY........................................................................................................................6 Advertising..............................................................................................................................................7 Public Relations.......................................................................................................................................8 Sales Promotions.....................................................................................................................................9 Direct Response.....................................................................................................................................10 CONCLUSIONS AND RECOMMENDATIONS.....................................................................................11 REFERENCES..........................................................................................................................................14

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LIST OF ILLUSTRATIONS FIGURES

Figure 1: Tim Hortons’ Supply Chain…………………………………………………………….6

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INTRODUCTION Tim Hortons is one of the most famous Canadian coffee chains. It was founded in 1964, in Hamilton, Ontario, by the “hockey legend” Tim Horton. The company tries to keep up with consumer trends by introducing healthier menu items. It also makes use of the newest technology, as it owns an app and a tv channel [ CITATION Tim18 \l 4105 ]. However, it cannot control some external factors such as the government regulations (minimum wage increases in Canada), which can increase the company’s production costs. Over time, the chain has expanded all over Canada, the United States, as well as other countries around the world. Franchising opportunities are available across the U. S. and Canada. The cost of a Tim Hortons franchise differs, and it depends on the restaurant size, location and several more factors. In order to qualify as a potential franchisee, a person must have $500,000 in net worth and $100,000 cash [ CITATION Tim18 \l 4105 ]. The chain’s major competitors are fast food restaurants such as McDonalds, A&W and Starbucks because they are starting to provide their customers with the same product that Tim Hortons is offering (Financial Post, 2018). Even though it started out as a coffee shop, known for its coffee and donuts, over time, the coffee chain has diversified its menu. Tim Hortons has two product lines. The food product line includes: soups, fresh wraps, sandwiches and freshly baked products. It also offers a beverage product line which will be further examined in this paper [ CITATION Tim18 \l 4105 ]. The main product analyzed in this report is the coffee offered. The report explains how the company makes use of its supply chain and its indirect marketing approach, in order to bring the coffee to customers. Tim Hortons provides an every-day value price to its customers, meaning that its prices are set below the typical prices presented by its main competitors. Therefore, Tim Hortons has the opportunity to increase its customer satisfaction, offering a similar quality product line as its competitors, but with a lower price (Paul, 2015). Tim Hortons is also a leader in corporate social responsibility. It created a children’s foundation in honor of Tim Horton, with the objective of improving communities. Another example of giving back to the community is the Coffee Partnership. In 2005, Tim Hortons started a Coffee Partnership in the countries it sources its coffee [ CITATION Tim18 \l 4105 ]. The company uses its corporate social responsibility to

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target its customers and that represents its earned media. People believing in what the chain does for the

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community will more likely purchase Tim Hortons’ products. Additionally, the company is making use of the paid and owned media along with different promotions which appeal to its customers. Overall, the report examines Tim Hortons marketing mix, including details about the product, price and distribution strategies, as well as the integrated marketing communications used by the company.

PRODUCT STRATEGY The coffee offered by Tim Hortons is a consumer-based product. It is classified as a convenience product, as it is an item that consumers want to purchase regularly, immediately and with a minimal effort [ CITATION Gau181 \l 4105 ]. Tim Hortons’ main goal is to “deliver high quality products and services for their guests and communities through leadership, innovation and partnerships” [ CITATION Tim18 \l 4105 ]. The chain values its customers and pays special attention to its staff’s training, so the employees are well-mannered and very efficient. The service is a key element of the purchase process. At any Tim Hortons restaurant, the staff is trained to provide the best experience for the consumers, all the restaurants have a uniform layout, the customers can make use of an online order platform and of an app. All of these, along with the franchisee best practices, represent the inconsistency of Tim Hortons’ service. The chain has numerous product lines. The beverage product line consists of high quality coffee and espresso-based cold and hot specialty drinks. It includes: cappuccinos, lattes, espresso shots, teas and smoothies [ CITATION Tim18 \l 4105 ]. Considering the product that was chosen to be analyzed in this report, one of Tim Hortons main product is coffee. Its depth includes the sizes: small, medium, large and extra-large; as well as the types of coffee provided, such as: double doubles, dark roast, expresso, etc. [ CITATION Tim18 \l 4105 ]. Currently, Tim Hortons is a mature company. It has almost saturated the Canadian market. The chain’s profit has been decreasing for several years. In 2014, the company’s third-quarter profit was $98.1 million, which decreased from $113.9 million, a year earlier (McKinnon, 2014). In addition, in the three months ended June 30, 2016, the profit decreased from $90.9 million to $89.5 million in the same period, 2017 (CBC News, 2017). According to a survey, in 2017, Tim Hortons’ brand position among Canadians has considerably fallen (Thomas, 2018). Therefore, when taking a look at the product lifecycle stages, it can be assumed that Tim Hortons’ coffee is 2

in its maturity stage, characterized by sales volume peak, the market starts to become saturated as there are less new consumers, decreasing market share and decrease in profits [ CITATION Gau181 \l 4105 ]. Tim Hortons differentiates itself from other fast food chains by emphasizing on a more traditional and healthier menu such as sandwiches, soups and salads, as well as creating a product that customers love. Analyzing how its main product, coffee, is different from its competitors’, the main difference is Tim Hortons’ Coffee Partnership with Brazil, Colombia, Guatemala and Honduras [ CITATION Tim18 \l 4105 ]. The chain generated this partnership in order to improve the lives of farmers and teach them the skills that they need to succeed. Tim Hortons believes helping the farmers will improve the production of their farms and the superiority of their coffee beans in an environmentally sustainable way. An improved productivity will allow the farmers to grow a higher quality coffee, which would enable them to facilitate a higher price in the coffee market. Other models take a flat price approach and therefore the farmers have little incentives to improve the quality of their coffee (Tim Hortons, 2018). Tim Hortons built its brand based on the fact that they have been in the market for such a long period of time, so generations of Canadians have grown with the brand and they have modified and changed they brand based on the change in market demand and consumer need and sensitivities. They communicate a story with its slogan stating, “You’ve always got time for Tims”, because Tim Hortons started out as just a breakfast provider, this presented a story to customers that the service will be efficient and not time consuming. As the years went by, its slogan changed to “Always Fresh”, as individuals are starting to appreciate fresh food (Tim Hortons, 2018). However, Tim Hortons took a dramatic fall when it fell from the 4th place to the 50th within the annual ranking of the most admired companies in Canada (Dunham, 2018). As a result, Tim Hortons brand equity decreased because consumers began to question their credibility due to the fact that there weren’t supportive of the minimum wages and started to lay off workers (The Canadian Press, 2018).

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PRICING STRATEGY Tim Hortons’ coffee is the main staple of the company, and each year the corporation serves approximately “2 billion cups of coffee worldwide” (Tim Hortons.ca, 2018). Its pricing objectives fall under two different categories, profit and market share. This is demonstrated by the corporations’ mass production of goods with low pricing, and wide scale franchise expansions that emphasize on profit growth [ CITATION Tim18 \l 4105 ]. For its coffee products, Tim Hortons employs a value-oriented pricing strategy, as the company is a high-volume retailer and can afford to set lower prices [ CITATION Gau181 \l 4105 ]. They are priced moderately low and in regard to what consumers believe, a quick and convenient coffee beverage, should be worth. Moreover, Tim Hortons has found massive success pricing its coffee at a low rate, and this can be shown in the company's annual financial statement. In 2017, the corporation earned $2.23 billion, worldwide (Statista, 2018). Due to coffee being an elastic product, Tim Hortons must keep its price relatively low in order to increase profits. The company tries to keep its price at the same or even lower level than its competitors, so it can maintain its customers’ interest in the product. The demand for its coffee is very high, as the product has the highest amount of sales and represents what the company is best known for. In fact, it is estimated that nearly “15% of Canadians visit Tim Hortons Daily” (Tim Hortons, 2018). In addition, the company’s production costs have recently risen, due to the Canadian minimum wage increase (CBC News, 2018). In contrast to its competitors, Tim Hortons’ pricing varies based on the company in focus. For instance, Tim Hortons will be most similar in cost to its competitor McDonalds and its “McCafé” pricing, which can range anywhere from $1 to about $4 depending on the size and specifications of the coffee purchased [ CITATION McD18 \l 4105 ]. Whereas, on the opposite price spectrum, Tim Hortons’ price range will be very low compared to its other major competitors, such as Starbucks or Second Cup, whose prices range from around $4 to $7 on average. The company also makes use of some proactive pricing tactics such as price lining, shown by the series of prices that it charges for its coffee products and price bundling, represented by the different options that are offered in form of combos. It is believed that some customers will opt for the more expensive products, and others will settle for the price conscience items. The company also opts to use the 4

odd pricing tactic for its coffee products, which stands for high value. The pricing of Tim Hortons coffee products is listed below: Small: 1.59

Medium: 1.79

Large: 1.99

Extra Large: 2.19 [ CITATION Tim18 \l

4105 ].

DISTRIBUTION STRATEGY According to the statistics portal, as of 2017, Tim Hortons operates 3802 stores in Canada and 811 in the United states with a total of 4748 worldwide (Statista, 2018). Factors that affect Tim Hortons channel choice and management can be described by its market, product and producer. Its market is primarily North American, and its coffee is derived through the intricate process described on the company’s website (Figure 1). It includes starting off at farms in Central and Southern America before making its way to franchises and into the cups of consumers. Tim Hortons distribution strategies are categorized under indirect channels. These channels can be described by the organizations acquiring the product (coffee) from the un-named intermediaries. The intermediaries obtain it from the producers of coffee in Central and South America, and then it is processed and packaged into the final product sold at franchises. Tim Hortons also uses milk and cream for its coffee that originates from strictly Canadian milk farms (Tim Hortons, 2018). Similarly, the corporation’s indirect method of selling can also be shown by its products that are sold through grocery stores like Walmart and Costco. These products can be found in either instant coffee form in the shape of pods, or on a larger scale in the classic bulk coffee cans. Consumers can even buy Tim Hortons Keurig pods on Amazon, for a price of $19.99 for a pack of 30 (Amazon, 2018). The intermediaries or marketing channels that Tim Hortons uses to distribute its products to consumers are through standard, non-standard and co-branded retail stores or franchises. The company uses these rather than wholesalers or brokers to supply its customer base. Examples are Tim Hortons standard dine in restaurants, its self-serve kiosks found mostly in gas stations or school campuses and any co-branded locations through the corporations’ partnerships with institutions such as Wendy’s or Seven Eleven [ CITATION FDD17 \l 4105 ].

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Figure 1: Tim Hortons’ Supply Chain. Source: Adapted from Tim Hortons. (2014). Tim Hortons’ Sustainability and Responsibility Report

PROMOTION STRATEGY All promotional activities used to generate an integrated message, which focuses on the customer, represent integrated marketing communications (IMC). IMC have the following components: advertising, sales promotions, personal selling, direct response and public relations [ CITATION Gau181 \l 4105 ]. Knowing that Tim Hortons is in its maturity stage, the mother company, RBI, introduced an aggressive plan to improve the coffee chain in Canada and expand it beyond Canadian borders[ CITATION Str15 \l 4105 ]. 6

Marketing communications involve one of the two strategies: push strategies, related to personal selling and pull strategies, which imply pulling the customers in by using sales promotion and advertising [ CITATION Gau181 \l 4105 ]. Tim Hortons uses the pull strategies. The company makes use of websites, search engines and mobile devices as well as traditional mediums of advertising: broadcast media (radio and television) and out-of-home (OOH) advertising (billboards beside freeways, ads inside or outside public transit, posters). It also uses different sales promotions and sponsorships which attract more customers. Advertising In the beginning, Tim Hortons didn’t have a distinct brand identity and most of its successes were from its origins in the neighbourhoods it operated in. The company started with very little financial support and for a long time, advertising outside the store was unaffordable [ CITATION Bui111 \l 4105 ]. In the ’70s, most marketing focused on the food, and the “Always Fresh” slogan was introduced. As it moved into the ‘80s, the company started focusing on broadcast media, mostly television advertising. It had many TV spots which used products, not actors. The TV-centric method was very successful, resulting in a big sales increase. In 1994, the wellknown commercial was launched with the slogan “You’ve always got time for Tim Hortons”. People were not just buying regular coffee, but Double-Double, which was introduced as a word in the Oxford Canadian Dictionary [CITATION Meg14 \t \l 4105 ]. The company conducted many research studies looking for what Canadians value most. Using the information gathered, the “True Stories” campaign was launched in 1996. The secret to the success the company had was that the commercials included characteristics which where important to Canadians. So, in the mid-2000s, the “Proud Fathers and “Welcome Home” spots were launched. Simultaneously, people’s tastes and preferences started changing and the sales started to decrease. The company had to do something about that and it started renovating its locations and introduced Wi-Fi, so the people stay longer. Additionally, in 2013, TimsTV is launched all over Canada[ CITATION Meg14 \l 4105 ]. It streams news, weather, community events and other companies can advertise on Tims TV for a specific fee[ CITATION Dav15 \l 4105 ]. 7

For many years, Tim Hortons was associated with hockey only through Timbits Hockey. However, before the Sochi Olympics, in 2014, the brand started working with Sidney Crosby and revealed a new TV spot, “Jump the Boards”, declaring hockey to be a Canadian game [CITATION Meg141 \t \l 4105 ]. Ever since, the brand is recognized for its hockey focused commercials but has lately started to use advertising which shows Canada’s diversity and the importance of family[ CITATION Ros17 \l 4105 ]. The campaign “Coffee with Neighbours” brought people living in the same communities together and increased sales by 9.4% [CITATION Str \l 4105 ]. Even though Tim Hortons uses broadcast media advertising frequently, the company is also making use of out of home advertising. It has many billboards beside freeways and transit posters, which cost the company a lot of money. In the US only, the amount spent on advertising is over $11.3 million. While in Canada, the company invested around $65 million.[ CITATION Sta181 \l 4105 ]. Public Relations Tim Hortons’ commitment is to “Make a true difference”. The company is helping the communities by having different community initiatives. It invests in youth living in the neighbourhoods it operates in, through Tim Hortons Children Foundation. The foundation has all year-round camps for young people from low-income families. Tim Hortons sponsors diverse sports programs all over the United States and Canada, providing the chance to play hockey, lacrosse, baseball, soccer and ringette, for over 300,000 children. Additionally, the Smile Cookie program helps raise funds for local charities across Canada and the U.S. It consists of selling $1 cookies and the full amount goes to over 500 charities and organizations and in 2018 it helped raise $7.8 million. Moreover, Tim Hortons sponsors the Pitch-In Week program, the largest environmental improvement campaign in Canada, which takes place every year from April 17th to April 23rd. In 2018, as a part of the brand’s yearly marketing, Tim Hortons flew 12 members of the Ice Lions team, from Kenya, to Canada to play their first game against an opposite team. They were given new hockey equipment and personalized jerseys. Moreover, they got the chance to meet

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the hockey stars Sidney Crosby and Nathan MacKinnon. The idea came from the Tim Hortons’ hockey trading cards[ CITATION Jus18 \l 4105 ].

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The company has also initiated the Tim Hortons Coffee Partnership to enhance the lives and businesses of coffee farmers in the areas where it sources its coffee. So far, it has worked with more than 4,000 farmers and has changed the lives of more than 20,000 people in four countries: Brazil, Colombia, Guatemala and Honduras [ CITATION Tim18...