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ID: 10152489

Course: Marketing Management

Alliance Business School

University of Manchester

Strategic profile of the two leading discounters in the United Kingdom: Aldi and Lidl

Introduction

The United Kingdom grocery retail market constitutes the largest part of the retail industry and the fastest growing sector in the economy (Anon,2017).  Discount supermarkets such as Aldi and Lidl are challenging the traditional retail business model both in Europe and United States. They have captured a significant size of the market share and have become prominent players on the market. (Mintel, 2017)

The primary aim of this paper is to explore and compare the ways in which Aldi and Lidl operate in the United Kingdom, in regard to building their strategic profile.

Discount supermarkets such as Aldi and Lidl differentiate themselves from the traditional supermarkets by their continuous focus on competitive pricing, heavily depend on their own brand labels and offering a small number of store keeping units per product line. (Aggarwal, 2003)

Market oriented and Marketing Oriented Companies

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

However, Aldi and Lidl have a clear vision on this matter. The two discounters are completely engaged in the minds of the consumers looking for ways to expand demand. Their value propositions derive from getting close to the customers in order to solve their problems, and satisfying their needs for high-quality products.

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.

Generic Strategy

Michael Porter outlines three general types of strategies used by companies to achieve a strong competitive position in an industry.  The strategies are defined as cost leadership strategy, differentiation strategy and focus (niche) strategy.

Aldi has a unique business model by providing high quality products at the lowest possible prices. (Aldi, 2017).  Aldi's cost leadership strategy is aggressively constructed by reducing costs in all elements and achieving operational excellence, and represents a significant building block of their business model.

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 continuous implementation of cost-leadership strategy and constant improvement.

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, it can be assessed what is Aldi and Lidl's preferred strategic objective.

Market Attractiveness (Opportunities/ Threats) Aldi

Lidl

Size of the market 6 6

Growth of the market 5 6

Competitive structure of the market 5 5

Competitor hostility 5 5

Supplier power 5 5

Threat of substitutes 3 3

Buyer power 3 3

Threat of new entry 4 4

The cyclicality of the market 6 6

Market risks 5 5

Market attractiveness score: 4.7 4.7

The UK grocery retail market is known for its complexity and intense competition. Aldi and Lidl are currently the most powerful players in the discounter segment. A Mintel research on the discount sector has shown that the sector will continue to grow through to 2022, backed by store expansion 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)

Differential Position (Strengths/ Weaknesses) Aldi Lidl

Cost Factor 6 6

Differential Factor 2 3

According to the Strategic Characterization Matrix

Strategic Focus

Marketing tasks involved with a volume focus:

-convert non users

-enter new market segments

-increase usage rate (shifted the shopping habits; ppl now shop more frequently)

-win competitors customers

With a view to continuing their growth strategies Aldi and Lidl should have increased 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 demand and consumers from the highest socioeconomic groups can now be seen doing their weekly shopping at Aldi or Lidl. This has also helped them win competitor customers.

Competitive advantage/ Unique Selling Proposition

The UK grocery retail market is known for its complexity and intense competition. Competitive advantage represents the core of a company's performance in highly competitive markets. (Porter,1985)

Aldi's unique selling point is very clear and enthralling, low price proposition that doesn't compromise on quality, which builds 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.

Target Market

“A market is the set of all actual and potential buyers who have sufficient interest in, income for, and access to a product” (Keller, 2003, p.99). Aldi and Lidl are sharing the same target market, that is people who shop frequently, from the CD income group and live close to the supermarket.

Target Segment

Target Segment

Socioeconomic CD

Psychographic or lifestyle Urban areas of the city

Value-conscious customers

Behavioral Efficient shopping

Regular shopping

Brand positioning

Price

Aldi and Lidl hyped the price-agressive discount format by continuously increasing their market share in different parts of Europe and the United States. (CITE)

The two discounters have permanently changed the dynamic of the grocery retail market by forcing down margins. The los prices are built in their initial business model. (Gale, 2017) The combined impact of Aldi and Lidl on the general price sensitivity becomes larger, putting extra pressure on incumbent competitors such as Sainsubury's, Tesco, Morrisons to also decrease prices. (Hausman and Leibtag, 2007)

Promotion

The promotion helps reinforce or strengthen the brand. The promotional activities of Aldi include

above the line promotion and below the line promotion (Marketing Week, 2014).

When visiting an Aldi store or their website, consumers can see the “Like Brands” AND “Swap and Save” Campaigns.

Aldi's Above-the-line promotions include TV advertisements (The “Like Brand" campaign

features 20 second TV adverts which focus on a particular product. Through the “Like Brand”

campaign Aldi reinforces the message that their products are cheaper than other brands however

they are equal in quality. They represent people from different backgrounds as well as humor which helps them build trust and emotional connection with the target audience. Additionally to this, Aldi has printed leaflets within stores which showcase products with limited availability and seasonal offers available in stores.

Newspaper adverts communicate their Swap and Save campaign which demonstrates the target audience how much they could save if they swapped their weekly shopping to Aldi. In certain stores might be seen “Swap and Save” posters.

Below-the-line promotion is applied through their social media such as Facebook and Twitter pages through which platforms the supermarket engages with their target market. Aldi also uses direct emails communicating variety of seasonal messages. Aldi's website is an integral part of their below-the-line promotion. It features all of Aldi's key promotional messages as well as additional content to engage consumers.

When it comes to above-the-line, online display and direct mail expenditure, Lidl has been the leader advertising spender during 2016 and 2015. (Mintel, 2017).

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)

 During January Lidl presented the “Big on quality, Lidl on price” slogan, with the intention to reinforce their position as a high quality brand. The campaign compared Lidl products with those of the rivals in order to increase to focus on Lidl's quality position. This was a continuance of their quality position followed by their Lidl Surprises campaign launched in 2014.

 Out of all the above-the-line methods, it has to be put the notice that both Aldi and Lidl spent a significant expenditure on TV Commercials. The two discounters account for around 90% of the TV spend recorder by the discounters in the first half of 2017. (Mintel, 2017)

Product

According to The Times 100 Business case studies (2010), the key idea that makes Aldi's approach work is the concept of limited assortment. 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, non-food items such as household products, electronics and beauty and healthcare products.

If we now turn to Lidl, it can be observed that the stores showcase their private label products or products from less familiar brand.  This speed up the restocking time and requires less manpower. Lidl stores allocates almost 20% of their store area to the sale of non-food items, such as electronics or household products.

Both supermarkets 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 wine and spirits product lines, which includes organic food, Italian cousine, award winning wines and champagnes. 66% of discount shoppers think that food discounters' premium ranges are just as good as elsewhere (Mintel, 2017)

It can be concluded that both Aldi and Lidl aim to keep their product range as simple as possible, and the product differentiation within a product category is much more restricted. This technique seems like it takes away the choice from the customers, but when it comes to managing product selection, 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 an array of products can lead to lower purchase likelihood and lower customer satisfaction. (Chernev, 2003)Aldi and Lidl sell predominantly their own private label brands however it should be put to notice their increasing portfolio of national brands. From the perspective of a discount supermarket, national brands can increase the appeal of the store to more profitable buyers i.e. consumers that are buying both private label and national brands. (Corstjens & Lal, 2000).

As the British supermarket landscape gets more saturated, retailers such as Lidl and Aldi are continuously extending their assortment with attractive national brand offerings as a strategy to distinguish themselves from the rest. Besides that it is important to mention that offering national brands helps them build strong and sustainable customer relationships and strengthen their competitive position (Deleersnyder et al., 2007)

References:

Aggarwal, Rachael. "European Discount Retailing uncovered.(European News Analysis)." European Retail Digest. Oxford Institute of Retail Management. 2003. HighBeam Research. 30 Nov. 2017 <https://www.highbeam.com>.)

Hausman, J. and Leibtag, E. (2007). Consumer benefits from increased competition in shopping outlets: Measuring the effect of Wal-Mart. Journal of Applied Econometrics, 22(7), pp.1157-1177.

Keller, K. and Richey, K. (2003). Strategic brand management. Upper Saddle River, N.J.: Pearson Education, p.99.

Deleersnyder, B., Dekimpe, M., Steenkamp, J. and Koll, O. (2007). Win–win strategies at discount stores. Journal of Retailing and Consumer Services, 14(5), pp.309-318

Doyle, Peter. (2008). Value-based Marketing: Marketing Strategies for Corporate Growth and Shareholder Value. Wiley & Sons (2nd Edition)., pp. 158

https://www.managementtoday.co.uk/why-aldi-lidl-will-keep-growing/article/1386497

https://www.theguardian.com/business/2014/sep/29/how-aldi-price-plan-shook-up-tesco-morrisons-asda-sainsburys

Madhav N. Segal, Ralph W. Giacobbe, (1994) "Market Segmentation and Competitive Analysis for Supermarket Retailing", International Journal of Retail & Distribution Management, Vol. 22 Issue: 1, pp.38-48

Marcel Corstjens, Rajiv Lal (2000) Building Store Loyalty Through Store Brands. Journal of Marketing Research: August 2000, Vol. 37, No. 3, pp. 281-291

Robert C. Duke, (1989) "A Structural Analysis of the UK Grocery Retail Market", British Food Journal, Vol. 91 Issue: 5, pp.17-22,

Porter, M. (1985). Competitive advantage : Creating and sustaining superior performance. New York : London: Free Press ; Collier Macmillan.


 Zielke, S. (2014). Shopping in discount stores: The role of price-related attributions, emotions and value perception. Journal of Retailing and Consumer Services, 21(3), pp.327-338.

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