2 elements of their strategic profiles. 3 Market

 
 
 
 
 
 
 

2       Introduction

The United Kingdom grocery retail
market constitutes the largest part of the retail industry and the fastest
growing sector in the economy. Discount supermarkets such as Aldi and Lidl are provoking
the traditional retail business model both in Europe and United States. They
have transformed the parameters that ruled in the British grocery market and captured
a significant size of the market share becoming prominent players not just in
the discount sector but the general grocery retail sector as well. (Mintel,
2017)

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The primary aim of this paper is to analyse
and compare the ways in which Aldi and Lidl operate in the United Kingdom, in
order to identify the key elements of their strategic profiles.

3       Market
oriented and Marketing Oriented Companies

Operating inside out or outside in, is
one of the crucial decisions managers have to take. According to Doyle, many of
the managers still do not understand the difference between the market and
marketing led organizations. (Doyle, 2008)

However, Aldi and Lidl have developed a
deeper understanding of the UK marketplace. The two discounters are completely
engaged in the minds of the consumers looking for ways to expand demand. They
have deviated from their entirely own-label product ranges to including more
national brands to adapt in the British marketplace. Their value propositions
derive from getting close to the customers in order to solve their problems,
and satisfy their needs for high-quality products and receive value for their
money.

The two discounters have shown a clear
understanding of the market they operate in and their customers, which is the
recipe that led them to outperform the rest of the discounters in the UK.

It can be summarized that Aldi and Lidl
are both market oriented companies who have revolutionized the industry with
their customer-led marketing strategy.

4       Generic
Strategy

Aldi’s cost
leadership strategy is aggressively constructed by reducing costs in all
elements of their business model and achieving operational excellence. Frugality
and efficiency are the key building blocks of their cost-leadership strategy.

Comparatively,
Lidl is as well applying the cost leadership strategy with no-frills approach,
cost minimization and efficient operations.

The two
discounters have gained a significant market share by constant improvement of
their lean business model.

5       Strategic
objective

Choosing a
strategic objective is the first step to maintaining a healthy generic strategy.
It represents the foundation of the current and future operating guidelines.
Based on the market attractiveness and differential position, we assess Aldi
and Lidl’s preferred strategic objective.

Figure
1
Market attractiveness (SOURCE: mintel “food and NON-FOOD discounters
report 2017”, kantar worldpanel grocery market share 2017)

According to
the results of the Strategic Characterization Matrix presented below, the two
discounters should show continuance in their growth strategy. Both Aldi and
Lidl are well placed to achieve further gains in the marketplace.
A Mintel research on the discount sector has shown that it will continue to
show a strong growth through to 2022, backed by store expansion (Aldi is setting
the stage to open 300 new stores by 2022) and positive trading environment.
(Mintel, 2017). When operating in a growth market, “all the competitors can
grow, which acts to reduce destructive price competition and margin erosion.”
(Doyle, 2008, p.158)

Figure
2
Strategic characterization map

6       Strategic
Focus

Employing the growth strategy means
that company’s strategic focus should be to increase sales volume. This includes
“marketing tasks such as: convert non-users, enter new market segments,
increase rate and win competitors customers”. (Lukas, 2017, Marketing
Management class presentation 1)

With a
view to continuing their growth strategies Aldi and Lidl should increase usage
rate of their existing target group or attract broader consumer segments from
all social classes and income levels. (Zielke,2014)
Introducing the premium brand product lines has broadened the market
segmentation and consumers from the highest socioeconomic groups can now be
seen doing their weekly shopping at Aldi or Lidl. This has also been part of
their strategy to win over competitor customers from Waitrose, Marks & Spencer,
Sainsbury’s, Morrisons etc.

Increasing the customer loyalty and
trust, stands at the center of attention for the both discounters. A recent
study “has shown that 80% of Aldi’s customers has also shopped at other
supermarkets. Therefore, Aldi’s marketing strategies should focus on generating
customer loyalty” (The Times 100 Business Case Studies, 2017, p.3). Lidl has
launched their loyalty-based website ‘My Lidl’ in May 2016. It represents an
online community where users can rate products, discuss topics about Lidl’s
products or service etc. Furthermore, Lidl launched the ‘smart shopper’ loyalty
cards in August 2015, as a step further to increasing customer loyalty.

 

7       Competitive
advantage/ Unique Selling Proposition

The UK grocery retail market is known for its
complexity and intense competition. The past decade the two
discounters had put on outstanding performance and are currently the most powerful players and in the
discounter segment, with Aldi “now championing”. (Thompson, et al,. 2012,
p.143)

Aldi’s unique
selling point is very clear and enthralling, low price proposition that doesn’t
compromise on quality. Aldi’s successful communication of their unique selling
point has helped them to build customers trust.

Likewise,
Lidl’s “Big on quality, Lidl on price” slogan represents their unique selling
point which is identical as their rival Aldi’s one.

This USP has
been the background of Aldi and Lidl’s success and revolutionized the UK
grocery industry.

8      
Target Market and target segment

Aldi and Lidl have a similar target
market, value-conscious consumers who shop frequently, from the C1, C2 and D consumer
base that live close to the supermarket.

There has been a shift in the
socio-demographics of the two discounters. Even though they are still targeting
their core audience are customers coming from the C1, C2 and D income group,
their efforts to attract A and B income groups, have been gradually increasing
by offering high profile foods and wines.

Figure
3
target segmentation (data based on mintel’s “supermarkets November 2017
report” and ” food and non-food discounters September 2017 report”)

 

9       Brand
positioning

The brand is often considered to act as
identifier that lives in consumers’ minds. (Lukas, 2017, Marketing Management
class). Branding produces points of differentiation against competitors and
“allows for market positioning”. (Wood and Pierson, 2006, p. 904)

The Albrecht family launched their
grocery business as the “Albrecht Discount Company”. Aldi’s brand name comes
from the “Albrecht Discount” which was shortened to Aldi in 1962.

Figure 4 Aldi logo through the years (source:
https://www.designweek.co.uk/issues/13-19-march-2017/aldi-rebrands-appear-contemporary/)

Lidl,
formally known as Schwarz Group, bought the name from Ludwig Lidl’s name back
in 1977., because “Schwarz Market” meant “black market”.

Quality and price play a key role when
it comes to Aldi’s and Lidl’s brand positioning. When presented on a
positioning map it can be clearly seen that they fall under high quality, low
price quadrant with Lidl falling behind Aldi on the quality axis.

Figure 5
quality-price positioning map (source: http://t-houghton1316-cop3.blogspot.co.uk/2016/01/)

 

 

 

 

 

 

 

 

 

 

 

10  Brand
image

Aldi’s brand positioning has always
been fundamentally different then it’s rival’s brands. The high-quality
products sold by low prices and value for money, has tackled every marketplace
Aldi has penetrated so far. Although, Aldi did alter their product range and offer
once they entered the UK market to satisfy the British customer needs.

Lidl shares the same brand positioning
of a discounter that differentiates itself by offering high quality products by
low prices, offering a value for money for their customers.

Table
1 Brand identity of Aldi and Lidl

 

The brand attributes according to
Mintel’s “Supermarket Report November 2017” has shown that Aldi and Lidl are
offering good value and are widely available to their customers.

Figure
6
Aldi and Lidl brand attributes (source: mintel, food and non-food report, September
2017)

The results from the Brand Asset
Valuator (Fig.6), shows that Aldi is currently enjoying a “Leadership” position
in the discounter sector with high levels of awareness, favorability, strength
and uniqueness.

On the other hand, Lidl is slowly
moving towards the leadership position and is currently wedged between the
niche market position and leadership position.

 

Figure
7
young brand asset valuator based on data from mintel supermarkets
november 2017 report

Aldi has shown a synergy across their
brand positioning and brand image, where the fragments of the both are
complementing and strengthening each other. Lidl is still showing a healthy
growth in their strength and uniqueness positions however, Aldi is championing
for now in the discounter sector.

11  Product

Aldi’s approach concept of limited
assortment of fast moving products. So, the company typically use two similar
brands for all category of the product. Aldi own brands accounts for around 95%
of all stock and the rest are national brands (Mintel, 2017). This structure
allows the supermarket to have a large range of products but less variety. The
product range includes, food items such as fresh produce as well as frozen
produce, wines and non-food items such as health and beauty, clothing,
household products and small electronics.

If we now turn to Lidl, it can be
observed that the stores showcase their private label products or products from
less familiar brand. Lidl stores allocates almost 20% of their store area to
the sale of non-food items, such as electronics or household products. In-store
bakery departments represent a point of difference when it comes to Lidl’s
product range. Other new addition to Lidl’s product range has been the launch
of their new fashion range in cooperation with the supermodel Heidi Klum. The
product range includes clothing, footwear and accessories and was a part of New
York Fashion Week 2017. (Lidl, 2017)

Furthermore, both discounters have
added premium lines to their product range, as a move towards the middle-class
grocery retailing. For example, in 2016 Aldi’s Christmas range included caviar
while Lidl sold a whole cooked lobster. Furthermore, both supermarkets have
introduced their award-winning wine and spirits product lines, organic food,
Italian cuisine. According to a Mintel’s report, 66% discount shoppers think
that food discounters’ premium ranges are just as good as elsewhere.

As the British supermarket landscape
gets more saturated, retailers such as Lidl and Aldi are continuously extending
their assortment with attractive national brand products as a tactic to
distinguish themselves from the rest. Currently, 70% Lidl’s products are sourced in the
UK (Mintel, 2017). Besides that, it is important to mention that offering
national brands tailored to the UK customer, helps them build strong and sustainable
customer relationships and strengthen their competitive position. (Deleersnyder
et al., 2007)

In conclusion, both discounters aim to
keep their product range as simple as possible, and the product differentiation
within a product category is much more restricted. This method seems like it is
taking away the choice from the customers, but when it comes to managing
product range, offering more variety is not always the best option. Empirical
research in the field of retailing, consumer packaged goods and financial
services has shown that in many cases offering a large variety of products can cause
lower purchase likelihood and lower customer satisfaction. (Chernev, 2003).

12  Pricing
Strategy

Aldi and Lidl glorified the price
aggressive discount strategy by constantly increasing their market share in
different parts of Europe and the United States.

They have permanently altered the
dynamic of the British grocery retail market by pushing down margins. The low
prices are built in their initial business model. (Gale, 2017) The combined
impact of Aldi and Lidl on the general price sensitivity becomes superior,
putting extra pressure on their rivals such as Sainsubury’s, Tesco, Morrisons
to also decrease prices. (Hausman and Leibtag, 2007)

“ALDI practices an important type of good-value pricing at
the retail level called everyday low
pricing (EDLP)”. (Kotler
et al.2017, p.327)

By employing the “Everyday low pricing”
strategy Aldi and Lidl have managed to introduce innovation in the UK grocery pricing
by representing a point of differentiation from the competitors. The strategy
has reduced their costs of running irregular discounts.

Besides the previously mentioned
strategy, other commonly used pricing strategies by Aldi, include:

·      Competitive
pricing- Aldi always places their prices lower than the competition.

·      Market
penetration- Aldi charges low prices for their products as a strategy to enter
new marketplaces and gain significant market share.

Figure 8 Price comparison (source:
http://www.dailymail.co.uk/news/article-2902084/Budget-supermarkets-strike-blow-against-big-boys-15-item-shopping-basket-Aldi-proves-1-87-cheaper-closest-rival-Asda.html)

 

 

13  Promotion
Tactics

The
promotional activities of Aldi have been transformed once they entered the UK
retail market. Aldi’s policy of limited advertising in Germany, has been
altered into advertising on mass media in the UK. Aldi’s promotions have been
extensively introducing TV advertisements such as the “Like Brand”
campaign featuring TV adverts which are focusing on specific products. Through
this campaign Aldi reinforces the message that their products are cheaper than
other brands however they are equal in quality. They represent diversity as
well as humor which helps them build trust and emotional connection with the
target audience. Additionally, Aldi uses leaflets within stores which displays products
with limited availability and seasonal offers available in stores. The Swap and
Save campaign proves the target audience how much they could save if they
swapped their weekly shopping to Aldi. Moreover, Aldi is present on social
media channels, Facebook and Twitter pages through which platforms they
increase the outreach to their target market. Aldi also uses direct emails communicating
variety of seasonal messages. Aldi’s represents the fundamental part of their
below-the-line promotion.

When
it comes to above-the-line, online display and direct mail advertisements, Lidl
has been the leader advertising spender during 2016 and 2015. (Mintel, 2017). Midst
January, Lidl launched their “Big on quality, Lidl on price” campaign, with the
intention to reinforce their position as a high-quality brand. This was a
continuance of their quality positioning followed by their Lidl Surprises
campaign launched in 2014. Collectively, the two leading discounters Lidl and
Aldi accounted for 88.6% of the total recorded above-the line, online display
and direct mail advertising. (Mintel, 2017)

14  Summary

The aim of this report has been to exemplify
the strategic profile of the discounters Aldi and Lidl. The first part of the
report argues their generic strategy along with the objectives and strategic
focus of being cost leaders with a vast growth potential in the British market.

However, as seen throughout the report,
the discounters are enhancing their price oriented strategies with highlight on
product quality and value for the money. Lourenço, C. and Gijsbrechts, E. (2013)
argue that “Hard discount chains have realized that growth strategies based on
prices are not without limits, and that an overreliance on price-based
competition makes them vulnerable to incoming discounters”. This the reason why
both Aldi and Lidl are moving into e-commerce and multi-channel strategy.

As presented in this paper, it can be
concluded that Aldi’s and Lidl’s strategic profiles show a great proportion of similarities,
continuously aiming on keeping low prices, accentuating the quality of their
own brand labels and offering a small number of store keeping units per product
line. (Aggarwal, 2003)