(Lubiana Ahmed) (1914272)
Professor: Dominik Beckers BUSI 601: Business Environment, Strategies and Ethics
18th of October 2019
The purpose of this analysis paper is to discuss the six strategies in Capsim which include, Broad cost leader, Broad differentiator, Niche Cost Leader (Low Technology), Niche Differentiator (High Technology), Cost Leader with Product Lifecycle Focus and Differentiator with Product Lifecycle Focus). I have chosen to elaborately explain the Broad cost leadership strategy and took Tim Hortons Canada an example of this strategy as I found out that its core strategy is to operate on cost leadership strategy.
I will be providing some detail information on how this company is operating on this strategy and also provide some relevant examples about its successful operation in broad cost leadership.
Broad cost leader: The companies that follow broad cost leader strategy focuses on both segments of the market and gains competitive advantage by keeping all the costs very low.
These costs include, Research and development, material and cost of production that they tend to keep as low as possible. As a result, the company gets the chance to set low prices for their products and services which is below the average market price. The level of automation is done more in a traditional manner as they believe it may limit them to reposition their products with R&D and automation will be raised to increase margins. Overall, the focus of this strategy sells low price goods with good quality.
Broad Differentiation: This strategy followers emphasize on differentiating their product from other competitors and spends a lot on Research and development to bring in new designs and awareness of the product. They try to stay ahead of time with innovative products and satisfy customers with improved designs and at the same time low price. This team aggressively spends on marketing and gets their finance from stock issues and cash from operations. Their capacity is adjusted according to the demand of the product.
Niche Cost Leader: This strategy least likely concentrates on high Tech segment, rather focuses on low tech. This type of companies tends to reduce the overall R&D and production cost as low as possible which allows them to charge low prices for their products gaining a competitive advantage. Most of their finance comes from bond issuing. They moderately spend on marketing and level of automation will be higher in their products to adjust margins and overtime costs. Their primary stake holders are bondholders, customers stockholders and management.
Niche Differentiator: These types of organization highly prefer to use high tech. Their product designs and innovation will be up to date with the help of technology. As a result, the pricing of the product will be quite high compared to others in the market. They prefer to aggressively market their products, creating an impression of producing superb, up to date products at premium price. Their stake holders include, customers, stockholders, bondholders and management.
Cost Leader with Product Lifecycles Focus: This strategy emphasize on charging low price for their products by keeping production and R&D costs at minimum, but they gain competitive advantage by earning the highest from every new product line introduced in High Tech segment, which they introduce every two years. Then the same products will mature into Low-Tech products. Marketing investments will be moderate according to the situation of the market and prices will be charged below average.
Differentiator with Product Lifecycle Focus: Their Focus is mainly to differentiate their products with high quality and innovative designs; therefore, they end up spending a lot on the R&D section to keep up with new market trends. They plan to introduce a new product to the High segment and keep two products each in the High, Traditional, and Low-End segments. Their focus is to offer customers products that match their ideal criteria for positioning, age, and reliability. The price will be higher than competitors and they market their products aggressively.
Tim Hortons operating on Broad Cost Leader Strategy
The largest and most dominating fast food restaurant chain in Canada is currently Tim Hortons which provides different variety of products to satisfy a broad number of customer preferences at lower prices. The company’s product line consists of premium coffee, espresso-based hot and cold specialty drinks and as well as home-style soups, fresh sandwiches, wraps, hot breakfast sandwiches and fresh baked goods. Tim Hortons operates in an industry that has low growth opportunities with high level of competitors, high threat of new entrants and substitutes. However, there have some good opportunities for them to grab from the Canadian demographics, technological and sociocultural trends.
As they are operating on Broad cost leadership strategy, they are constantly looking ways to reduce production and material costs. Their cost reduction is backed up by efficient operational systems and outbound logistics. They are enjoying economies of scale through their centralized production, warehousing and distribution system. Firstly, they reduced cost of operation through vertical integration which gave them the power to control costs and reduce supplier power. This in turn, allowed them to gain competitive advantage as they charge minimum for their coffees. For example, most of their coffee prices are ranged from 1$ to 3$. Moreover, they spend on R&D and marketing which include, raising customer awareness through different promotions and through interviewing them asking about the brand and Canadian identity.
As restaurant industry in Canada is quite competitive and fragmentised therefore Tim Hortons has less power to dominate the market with high prices. New entrants are easy as there is low start up costs and changes in customer tastes and segments are also increasing. As a result, to survive in the market, Tim Hortons adopted the cost leadership strategy and focused on quick service policy. As compared to other competitors like Starbuck or Dunkin Donuts, their prices are comparatively low. Tim Hortons focuses on mass customers and makes it affordable especially for students to consume their products. The low cost of production and materials allow them to save costs which are beneficial for customers as the final product is relatively cheaper than other competitors. On the other hands, they do not compromise the quality and provide the finest Arabia coffee and provides excellent customer service. Therefore, they enjoy the advantage of providing superior quality at a low cost. Moreover, they roast 75% of its coffee itself and shares factory space with their joint venture partner (IAWS Groups Limited) which also saves huge cost for them. According to Canadian Press (August 02,2019) Tim Hortons parent company reports $257 million Q2 profit.
Broad cost leader strategy is enabling Tim Hortons, to introduce new products, Such as Tim bits, and burgers. They constantly try to keep up with today’s generation and specially the Canadian culture. In addition, the money saved from low production costs are contributed in different marketing strategies. Although their marketing campaigns are not aggressive, but they are smart. For example, “Tim Hortons has some of the most loyal guests in Canada and Tim’s Rewards allows us to say thank you,” says Alex Macedo, President, Tim Hortons. Also, according to Tim Hortons Corporate online page, in 1978, Tim Hortons pioneered the reusable cup program with the TimMug and guests who bring in a reusable cup today continue to enjoy a discount on their coffee.
Furthermore, the cost broad leadership strategy allowed Tim Hortons to gain a significant amount of market share, allowing them to pass these savings to their customers in form of minimum price. It can be argued that, they do apply differentiation to certain extent which may conflict wit their cost leadership strategy as they are constantly innovating their products and quality management. However, their core strategy is cost leadership, for example to save cost they replaced home baked foods with frozen foods.
Broad cost leadership has brought Tim Hortons a long way. It’s efficient tactics to reduce cost and provide good quality enabled it to gain a high market share in Canada. This strategy is continuously making them popular among younger generation and allowing them to constantly improve and innovate their product line. This in turn will create more value for them in future, making it a promising brand in Canadian market. However, their differentiation strategy may conflict with the cost leadership strategy and they must be cautious about making future decisions in differentiating their products which may raise the overall cost of R&D and Tim Horton’s marketing costs.
Michael R. Brett. (2018). Cost Leadership or Differentiation? Applying Porter’s Competitive Strategies in Ecotourism: A Case Study of Mkhuze Game Reserve. African Journal of Hospitality, Tourism and Leisure, (2). Retrieved from
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