Tim Hortons Final.docx
Transcript of Tim Hortons Final.docx
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Tim Hortons Strategic Plan
Submitted By: Corrina
Submitted To:
Course Code:
Date:
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To: Canadian Tim Hortons Franchisees
From: Corrina, Chief Executive Officer
Date: October 23, 2013
RE: Increasing Canadian market share by improving customer retention with the implementation
of a loyalty program, called Tim Points.
Current Situation
Tim Hortons opened its doors in 1964, in Hamilton, Ontario and today is one of the largest quick
service restaurant chains in North America. Also, based on capitalization, is one of the biggest
publically traded restaurant chains in North America. In Canada it holds roughly 42% of the
market share in this industry, with loyal customers visiting three or more times every two weeks.
Presently there are more than 4200 restaurants operating successfully in several countries around
the world. Over the past two-decades there have been positive same-store sales growth even with
the poor economic conditions the world is facing. However, as competition intensifies, we must
improve our competitive strategy to compete with substitute products and services. Tim Hortons
will implement a loyalty program called Tim Points, which is a system based on points, in an
attempt to maintain and increase its market share in Canada.
Decision Process
The reason that we will be offering a loyalty card is partially because of the fragile economic
conditions in Canada. Because of the economy, people have become more frugal with their
money and are willing to go to the competition to get greater value. For example, McDonalds
offers a coffee and a muffin combo where a customer purchases the coffee at regular price and
then has the option to add a muffin to the purchase for an extra $0.10. We also need to keep our
current market share satisfied and ensure customer retention, which we heavily rely on.
McDonalds alone has increased its market share in the quick-service restaurant-brewed coffee
sector by nearly 100% from 5.4% to 10.7% (Krashinsky, 2013) in 2009 with the introduction of
McCafe. Although their share isnt increasing as quickly as in 2009, it has still continued to rise,
threatening our current share of the market.
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We want to focus on implementing the strategy in Canada first because we are a Canadian
company and this is where the majority of our market share is. We dont want to risk losing
anymore to our large competitors such as Second Cup or McDonalds, who also offer loyalty
programs. A substantial decline in Canadian business would greatly affect our financial
performance as it accounts for roughly 94% of our reportable segment revenues and 97.5% of
segment operating income (Strauss, 2013).
The benefits of using a loyalty program consist of acquiring new customers and providing
incentive for repeat purchases. Some buyers are continuously looking for the best deal available
and are easily persuaded by loyalty programs because there is perceived value. It will also
encourage existing dedicated customers to continue purchasing products at Tim Hortons rather
than a competitor because they are now receiving benefits for being loyal. Another advantage is
that it will increase the amount of spending by current and future customers because they are
eager to gain points and be rewarded for being loyal. A loyalty program also prevents having to
discount prices or the necessity of price matching competitors, which increases the risk of losing
a substantial amount of revenues.
Program Overview
During our research we analyzed the loyalty programs that other companies and competitors
have in place. This gave us the opportunity to research the strengths and weaknesses in their
current systems. We were then able to create a point system that will be feasible for Tim Hortons
to maintain and ensure positive impact on customer satisfaction.
Enrollment in the program is free to join for residents over the age of fourteen with a valid
Canadian address. Tim Points cards will be available in stores, and will look and work similarly
to the Tim Cards. The same company that makes the current Tim Cards will also produce the
Tim Points cards to ensure that the technology and design is comparable. Employees will swipethe Tim Points card and then the points, based on a pre-tax dollar amount, will be added to their
account. Members will first have to create an online account where they can then log in to check
their point balances and expiry dates. Tim Points cardholders will be able to earn and redeem
points at all Tim Hortons locations across Canada. If the program is only offered in certain
regions, it would confuse and anger customers because they would likely be unaware of what
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stores are participating and not. We do not want this program to have a negative impact on the
company and the program itself.
If a card is lost or stolen, customers can access their online account to report the missing card.
They will have the option of transferring the balance of their points to a new Tim Points card,
which will automatically deactivate the old card. The new card will be mailed to the most recent
valid Canadian address associated with their account.
Earning Points
Points will be earned based on the pre-tax dollar amount spent at Tim Hortons. For every dollar
spent of eligible items, 10 points will be added to the account and we will allow partial points for
the increments between every dollar. An example of the point system can be seen in Exhibit F.
However, only prepared food and beverages products will be eligible to gain points. Items not
eligible for point accumulated include purchases of accessories, gift sets, fine grind coffee and
tea for home brewing and Tim Cards.
Similar to the Tim Card, point balances can be viewed either online or at the bottom of the
customers receipts as long as the points card was used during the specific purchase.
Point promotions will be run during the first quarters, when sales are generally lower because of
post-holiday spending patterns and a lower number of new restaurant openings. The point
promotion will run from January 5th to February 5th since this period falls between gift-giving
holidays. This time period was chosen because sales increase during holiday seasons regardless
of any promotions, it is our intention to increase our sales during predictable downtime.
The promotions will be used to encourage spending at Tim Hortons by providing customers
with an incentive of earning double the amount of regular points earned per purchase. As the
promotion is running during the winter months, we forecast that the majority of point
redemptions will be for hot beverages. Hot beverages have a lower sales price, which will
therefore have a lesser impact on our overall revenues in comparison to having the promotion
run during the summer.
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Redeeming Points
Once the customer has accumulated 250 points ($25 spent pre-tax), they will be able to redeem
their points for any single beverage of their choice. The reason they will only be able to redeem
points on drinks is because they have a lower cost for the company,decreasing the overall effect
on sales revenue.
The points card will be used like a Tim Card, it will be swiped at the checkout and the
information on available points will be displayed on the screen. Employees can then notify the
customers if there are enough redeemable points for a free beverage purchase. This will be useful
because customers may not always have access to the internet or be familiar with using the
internet to check their point balance themselves. After redemption, any point balance on the card
that is in excess of the 250 points will remain on the card and can be applied to future
redemptions providing the card remains active.
If the card is not used for any purchases for a period of six consecutive months, it will become
inactive and the points will expire. If a card remains active but the points have not been
redeemed within a year from accumulation date, they will also expire.
Legal Issues
A privacy policy has been put together to ensure that customers know that we will protect their
personal information. The policy consists of how we will collect and handle personal
information; this includes not selling this data to third parties unless required by law. Information
is collected for the purpose of administering the loyalty program and to gather a better
understanding of our customers preferences to effectively meet their needs.
Marketing
Major marketing for the strategy will be completed through several media outlets. Firstly, we
will update tweets and statues on Facebook and Twitter because these channels for marketing are
free for us to use. Currently, we have over 100,000 followers on Twitter and 2 million friends of
Facebook. These methods also allow us to market to a younger generation who make up the
majority of social network users. Secondly, we will send out notification e-mails about the
loyalty program to our current customer list, who have already given us their e-mail address
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when registering their Tim Cards. This list is valuable for us because these people are already
customers of Tim Hortons, with the majority of them likely to be interested in receiving more
benefits for purchasing products they already enjoy. We will advertise the new program on
popular television networks within the Bell Media group because they have higher ratings in the
Canadian market. Their station CTV has coverage across Canada, as seen in Exhibit G. By
utilizing Bell Media, we will have access to over 100 radio stations, also seen in Exhibit G. Costs
for additional advertising can be found in Exhibit I. We intend to cover these advertising costs by
increasing the advertising contributions from our franchisees by 0.5 percent. Currently, they are
being charged 3.5 percent but we reserve the right to increase this to a maximum of 4 percent
when we see fit. After the three-month initial introduction period, the rate will return to 3.5
percent.
Human Resources
Training will need to be completed by all franchise owners, managers and employees to ensure
that they have an accurate understanding of how the program will function and how to use it
effectively. We will create a short video that will outline how the program works and show an
example of an employee serving a customer with a Tim Points card. This video can easily be
viewed by workers before starting their shifts, or during their break. It is important for them to
recognize what the program is being used for and the benefits it will provide customers so that
they can extend this knowledge to buyers interested in joining.
Measuring Success
Success can be measured using a variety of different methods. The first is the number of
registered and active accounts; this will be monitored to ensure the program is meeting the needs
of our customers. If a large portion of cards has become inactive, we know that the program is
not as effective as research had initially predicted. This will provide us with feedback needed to
make positive changes to the program.
We will also monitor the average number of card uses per customer during a yearly period. This
will allow us to determine whether the program was successful in increasing the retention of
loyal customers.
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Sales increases will also be examined in comparison to the average number of active program
users. If a positive correlation exists, we can conclude our strategy was effective in reaching our
desired goals.
Looking Forward
Once the program is functioning smoothly and we show signs of positive customer response in
revenues, we can apply this same strategy to our stores in other countries. This program will be
a good opportunity to capture market share especially in the United States where our presence
isnt as dominant.
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Bibliography
News. (2013, September 26). Canadian population surpasses 35 million . CBC.ca - Canadian
News Sports Entertainment Kids Docs Radio TV. Retrieved October 15, 2013, from
http://www.cbc.ca/news/canadian-population-surpasses-35-million-1.1869011
Friedman, W. (2013, March 13). MediaPost Publications Trad 30-Sec Spot Shines, Costs Up 5%
.MediaPost News and Conferences for Media, Marketing and Online Advertising
Professionals. Retrieved October 15, 2013, from
http://www.mediapost.com/publications/article/195725/trad-30-sec-spot-shines-costs-
up-5.html#axzz2iORtXWmi
Friend, D. (2013, September 17). New Tim Hortons CEO Reviewing Everything From Coffee
Cups To Doughnuts. CTV News | Top Stories - Breaking News - Top News Headlines.
Retrieved October 17, 2013, from http://www.ctvnews.ca/business/new-tim-hortons-
ceo-reviewing-everything-from-coffee-cups-to-doughnuts-1.1459270
Krashinsky, S. (2013, October 7). Gourmet brew? New Tim Hortons campaign tells story behind
the coffee - The Globe and Mail. The Globe and Mail. Retrieved October 19, 2013, from
http://www.theglobeandmail.com/report-on-business/industry-news/marketing/gourmet-
grounds-new-tim-hortons-campaign-tells-story-behind-the-coffee/article14717767/
Labour force, employment and unemployment, levels and rates, by province (Newfoundland and
Labrador, Prince Edward Island, Nova Scotia, New Brunswick). (2013, April 1).
Statistics Canada. Retrieved October 17, 2013, from http://www.statcan.gc.ca/tables-
tableaux/sum-som/l01/cst01/labor07a-eng.htm
Loyalty Marketing Best Practices. (n.d.). CRM Best Practices - Customer Relationship
Management. Retrieved October 18, 2013, from http://www.crmtrends.com/loyalty.html
McCafe Loyalty Program . (n.d.). McDonalds. Retrieved October 18, 2013, from
http://www.mcdonalds.ca/ca/en/help/mccafe_loyalty_program.html
McClellan, S. (2013, January 29). MediaPost Publications Costs For TV Spots Rocket 7% .
MediaPost . Retrieved October 19, 2013, from
http://www.mediapost.com/publications/article/192213/costs-for-tv-spots-rocket-
7.html#axzz2iORtXWmi
Nordicity Group Ltd. (2009). Analysis of the Economics of Canadian Television
Programming. Toronto, ON
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Strauss, Marina. (2013) The Globe and Mail. Can Tim Hortons fight off McDonalds attack?
http://www.theglobeandmail.com/globe-investor/can-tim-hortons-fight-off-mcdonalds-
attack/article8993325/?page=all
Tim Hortons Inc. (2013). 2012 Annual Report.
Retrieved October 15, 2013 fromhttp://www.timhortons.com
Wheelen, T. L., & Hunger, J. D. (2012). Concepts in strategic management and business policy:
toward global sustainability(13th ed.). Upper Saddle, N.J.: Pearson Prentice Hall.
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Exhibit ASTEEP Analysis (Focusing on Canadian franchises)
Sociocultural
Lifestyle changespeople are starting to look for healthier options because of health risks and
problems.
Career expectationsbecause level of education is rising, people wanting careers are looking for
better paying jobs with benefits and retirement plans.
Growth rate of populationCanadasgrowth rate has been steady at 1.2%, which means there
are that many more potential customers.
Regional shifts in populationshift towards the west which now claims 30.7% of the
population.
Birthrates and Life expectanciesalthough birth rates are declining in Canada, life expectancies
are rising, which means there is potential to get customers to become loyal while they are young
and buy their products for a longer period.
Level of education - rising, making it harder to find and retain employees for low wage jobs.
Unionization - some of the franchises in Quebec and Ontario have unionized employees,
including the workers at the Windsor Regional Hospital who make $26/hour in wages and
benefits. However, most are not unionized.
Technological
New Productsopportunity for new products such as menu items and recyclable or thicker cups
and lids.
New developments in technologyTim Hortons now has offers Tassimo disks for at-home
brewing, people still drinking their coffee, but wont have to wait in drive thru.
Internet availabilityTheir website can be used for a variety of things such as checking gift card
balances, ordering online products (gift baskets, coffee makers, etc.), reading up on nutritional
information, and applying for jobs.
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Economic
Interest Rates: Interest rates are low if Tim Hortons should need a loan, but this is unlikely
considering they had approx. 120,000,000 in cash and cash equivalent at their 2012 fiscal year
end.
Inflation Rates: inflation rates are low, which means prices on products wont have increase like
they did in 2009 and 2011.
Unemployment Levels: Moderate level of unemployment in comparison to the last 10 years
(7.2% in 2012), which means those individuals are less likely to spend money on items they
dont see value in.
Disposal and Discretionary Income: Because unemployment levels are moderate, people may
choose not to purchase Tim Hortons products because they arent necessary products. They are
more willing to shop around to get the best bang for their buck.
Ecological
LocationsTim Hortons has a we fit anywhere philosophy that allows them to operate in
many prime locations and can reach the maximum amount of potential customers.
Recycling - issues because only certain stores offer a recycling program for their paper cups.
With over 3 million cups of coffee sold a day, this can lead to an enormous amount of litter.
Political-legal page 59 etc.
Tax lawstax is high in Canada which means their net income will be lower than if they wererunning in a different country with the same market share.
Laws on hiring and promotionCRTC has regulations on what content they can have in their
advertising.
Stability of governmentthe Canadian government is stable unlike the current state of the US
government where there are more than 300,000 people currently laid off.
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Exhibit BExternal Factor Analysis Summary
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Exhibit CInternal Factor Analysis Summary
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Exhibit DIndustry Matrix
Exhibit EAnalysis of Porters Five Factors
Threat of New Entrants (High)
The threat of new entrants is high in the quick service coffee industry. Entry into this market
doesnt require extensive resources and capital because it is not necessary for similar companies
to build stores, they can easily rent and renovate a space in a prime location. Thousands of
competitors both on a corporate and locally owned scale can enter the fast food/coffee market on
a regionally, nationally, and internationally.
Rivalry among Existing Firms (High)
The rivalry between existing competitors is high both nationally and internationally. Tim
Hortons has wide brand recognition nationally; however their international recognition is not as
extensive. Regardless of their recognition, the level of competition is high in this industry
because the offerings and prices are very similar for coffee and bake shops. This means that
businesses in this industry have to attempt to differentiate themselves through marketing (Exs
slogans, advertisements, sponsorships).
Threat of Substitute Products or Services (High)
Threat of substitute products or services for the quick service industry is high. For example,
people can easily make hot and cold beverages at home using a kettle, coffee pot or
Tassimo/Keurig which is faster and cheaper. However, Tim Hortons does sell fine grind coffee
and Tassimo cups. People can also buy groceries to make their own
sandwiches/soups/cookies/donuts etc. By doing this they also have the option to make food
healthier by using ingredients such as whole wheat or gluten free products. Energy drinks are
Key Success Factors Weight
Rating 1=poor to
5=outstanading
Weighted
Score
Rating 1=poor to
5=outstanading
Weighted
Score
Pricing 0.20 4 0.8 4 0.8
Advertising 0.05 3 0.15 3 0.15
Community Involvement 0.05 4 0.2 3 0.15
Product Quality 0.20 4 0.8 4 0.8
Location 0.25 5 1.25 3 0.75
Product Variety 0.10 5 0.5 3 0.3
Customer Service - Speed 0.15 3 0.45 4 0.6
TOTAL 1 4.15 3.55
McDonaldsTim Hortons
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also a popular substitute for coffee/tea because of the high caffeine levels. Also, all other forms
of fast food such as subs, hamburgers, milkshakes, pizza etc. are substituting for the products
that Tims offers.
Bargaining Power of Buyers (High)
The bargaining power of buyers in the quick service food and beverage industry is high.
Customers have the option to shop around similar products and services from thousands of
competitors in the same price range. It is especially easy for buyers in this industry because most
of the competitors are located in/around the same operating areas. This is why it is important for
Tim Hortons to constantly differentiate their products and influence buyers to purchase their
products over the competition and create strong customer relationships.
Bargaining Power of Suppliers (Moderate)
The bargaining power of suppliers in this industry is moderate. This is because Tim Hortons has
the option to buy products from many different suppliers. However, there is price volatility with
some of their key commodities and even with secure commitments and forward hedging
programs they may still feel the effects. In turn they will have to either absorb these higher costs
or pass them down to franchise owners and customers.
Exhibit FPoint System
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Exhibit GBell Media Coverage and Advertising Options (TV and Radio)
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Exhibit HTelevision Advertising Rates in Canada
Exhibit IAdvertising Costs