2 Lidl is as well applying the
2 IntroductionThe United Kingdom grocery retailmarket constitutes the largest part of the retail industry and the fastestgrowing sector in the economy. Discount supermarkets such as Aldi and Lidl are provokingthe traditional retail business model both in Europe and United States.
Theyhave transformed the parameters that ruled in the British grocery market and captureda significant size of the market share becoming prominent players not just inthe discount sector but the general grocery retail sector as well. (Mintel,2017) The primary aim of this paper is to analyseand compare the ways in which Aldi and Lidl operate in the United Kingdom, inorder to identify the key elements of their strategic profiles.3 Marketoriented and Marketing Oriented CompaniesOperating inside out or outside in, isone of the crucial decisions managers have to take. According to Doyle, many ofthe managers still do not understand the difference between the market andmarketing led organizations. (Doyle, 2008)However, Aldi and Lidl have developed adeeper understanding of the UK marketplace.
The two discounters are completelyengaged in the minds of the consumers looking for ways to expand demand. Theyhave deviated from their entirely own-label product ranges to including morenational brands to adapt in the British marketplace. Their value propositionsderive from getting close to the customers in order to solve their problems,and satisfy their needs for high-quality products and receive value for theirmoney.
The two discounters have shown a clearunderstanding of the market they operate in and their customers, which is therecipe that led them to outperform the rest of the discounters in the UK.It can be summarized that Aldi and Lidlare both market oriented companies who have revolutionized the industry withtheir customer-led marketing strategy.4 GenericStrategyAldi’s costleadership strategy is aggressively constructed by reducing costs in allelements of their business model and achieving operational excellence.
Frugalityand 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 twodiscounters have gained a significant market share by constant improvement oftheir lean business model.5 StrategicobjectiveChoosing astrategic 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 Aldiand Lidl’s preferred strategic objective. Figure1Market attractiveness (SOURCE: mintel “food and NON-FOOD discountersreport 2017”, kantar worldpanel grocery market share 2017)According tothe results of the Strategic Characterization Matrix presented below, the twodiscounters should show continuance in their growth strategy. Both Aldi andLidl are well placed to achieve further gains in the marketplace.
A Mintel research on the discount sector has shown that it will continue toshow a strong growth through to 2022, backed by store expansion (Aldi is settingthe stage to open 300 new stores by 2022) and positive trading environment.(Mintel, 2017). When operating in a growth market, “all the competitors cangrow, which acts to reduce destructive price competition and margin erosion.”(Doyle, 2008, p.158) Figure2Strategic characterization map6 StrategicFocusEmploying the growth strategy meansthat 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, MarketingManagement class presentation 1)With aview to continuing their growth strategies Aldi and Lidl should increase usagerate of their existing target group or attract broader consumer segments fromall social classes and income levels.
(Zielke,2014)Introducing the premium brand product lines has broadened the marketsegmentation and consumers from the highest socioeconomic groups can now beseen doing their weekly shopping at Aldi or Lidl. This has also been part oftheir strategy to win over competitor customers from Waitrose, Marks & Spencer,Sainsbury’s, Morrisons etc.Increasing the customer loyalty andtrust, stands at the center of attention for the both discounters. A recentstudy “has shown that 80% of Aldi’s customers has also shopped at othersupermarkets. Therefore, Aldi’s marketing strategies should focus on generatingcustomer loyalty” (The Times 100 Business Case Studies, 2017, p.3). Lidl haslaunched their loyalty-based website ‘My Lidl’ in May 2016. It represents anonline community where users can rate products, discuss topics about Lidl’sproducts or service etc.
Furthermore, Lidl launched the ‘smart shopper’ loyaltycards in August 2015, as a step further to increasing customer loyalty. 7 Competitiveadvantage/ Unique Selling PropositionThe UK grocery retail market is known for itscomplexity and intense competition. The past decade the twodiscounters had put on outstanding performance and are currently the most powerful players and in thediscounter segment, with Aldi “now championing”. (Thompson, et al,.
2012,p.143)Aldi’s uniqueselling point is very clear and enthralling, low price proposition that doesn’tcompromise on quality. Aldi’s successful communication of their unique sellingpoint has helped them to build customers trust. Likewise,Lidl’s “Big on quality, Lidl on price” slogan represents their unique sellingpoint which is identical as their rival Aldi’s one.This USP hasbeen the background of Aldi and Lidl’s success and revolutionized the UKgrocery industry.8 Target Market and target segmentAldi and Lidl have a similar targetmarket, value-conscious consumers who shop frequently, from the C1, C2 and D consumerbase that live close to the supermarket.There has been a shift in thesocio-demographics of the two discounters.
Even though they are still targetingtheir 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 increasingby offering high profile foods and wines. Figure3target segmentation (data based on mintel’s “supermarkets November 2017report” and ” food and non-food discounters September 2017 report”) 9 BrandpositioningThe brand is often considered to act asidentifier that lives in consumers’ minds. (Lukas, 2017, Marketing Managementclass). Branding produces points of differentiation against competitors and”allows for market positioning”. (Wood and Pierson, 2006, p. 904)The Albrecht family launched theirgrocery business as the “Albrecht Discount Company”. Aldi’s brand name comesfrom 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 backin 1977., because “Schwarz Market” meant “black market”.Quality and price play a key role whenit comes to Aldi’s and Lidl’s brand positioning. When presented on apositioning map it can be clearly seen that they fall under high quality, lowprice 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 Brandimage Aldi’s brand positioning has alwaysbeen fundamentally different then it’s rival’s brands. The high-qualityproducts sold by low prices and value for money, has tackled every marketplaceAldi has penetrated so far. Although, Aldi did alter their product range and offeronce they entered the UK market to satisfy the British customer needs.
Lidl shares the same brand positioningof a discounter that differentiates itself by offering high quality products bylow prices, offering a value for money for their customers. Table1 Brand identity of Aldi and Lidl The brand attributes according toMintel’s “Supermarket Report November 2017” has shown that Aldi and Lidl areoffering good value and are widely available to their customers. Figure6Aldi and Lidl brand attributes (source: mintel, food and non-food report, September2017)The results from the Brand AssetValuator (Fig.6), shows that Aldi is currently enjoying a “Leadership” positionin the discounter sector with high levels of awareness, favorability, strengthand uniqueness.
On the other hand, Lidl is slowlymoving towards the leadership position and is currently wedged between theniche market position and leadership position. Figure7young brand asset valuator based on data from mintel supermarketsnovember 2017 reportAldi has shown a synergy across theirbrand positioning and brand image, where the fragments of the both arecomplementing and strengthening each other. Lidl is still showing a healthygrowth in their strength and uniqueness positions however, Aldi is championingfor now in the discounter sector.11 ProductAldi’s approach concept of limitedassortment of fast moving products. So, the company typically use two similarbrands 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 structureallows the supermarket to have a large range of products but less variety. Theproduct range includes, food items such as fresh produce as well as frozenproduce, wines and non-food items such as health and beauty, clothing,household products and small electronics.
If we now turn to Lidl, it can beobserved that the stores showcase their private label products or products fromless familiar brand. Lidl stores allocates almost 20% of their store area tothe sale of non-food items, such as electronics or household products. In-storebakery departments represent a point of difference when it comes to Lidl’sproduct range. Other new addition to Lidl’s product range has been the launchof their new fashion range in cooperation with the supermodel Heidi Klum. Theproduct range includes clothing, footwear and accessories and was a part of NewYork Fashion Week 2017. (Lidl, 2017)Furthermore, both discounters haveadded premium lines to their product range, as a move towards the middle-classgrocery retailing.
For example, in 2016 Aldi’s Christmas range included caviarwhile Lidl sold a whole cooked lobster. Furthermore, both supermarkets haveintroduced their award-winning wine and spirits product lines, organic food,Italian cuisine. According to a Mintel’s report, 66% discount shoppers thinkthat food discounters’ premium ranges are just as good as elsewhere.As the British supermarket landscapegets more saturated, retailers such as Lidl and Aldi are continuously extendingtheir assortment with attractive national brand products as a tactic todistinguish themselves from the rest.
Currently, 70% Lidl’s products are sourced in theUK (Mintel, 2017). Besides that, it is important to mention that offeringnational brands tailored to the UK customer, helps them build strong and sustainablecustomer relationships and strengthen their competitive position. (Deleersnyderet al., 2007)In conclusion, both discounters aim tokeep their product range as simple as possible, and the product differentiationwithin a product category is much more restricted. This method seems like it istaking away the choice from the customers, but when it comes to managingproduct range, offering more variety is not always the best option.
Empiricalresearch in the field of retailing, consumer packaged goods and financialservices has shown that in many cases offering a large variety of products can causelower purchase likelihood and lower customer satisfaction. (Chernev, 2003). 12 PricingStrategyAldi and Lidl glorified the priceaggressive discount strategy by constantly increasing their market share indifferent parts of Europe and the United States. They have permanently altered thedynamic of the British grocery retail market by pushing down margins. The lowprices are built in their initial business model. (Gale, 2017) The combinedimpact of Aldi and Lidl on the general price sensitivity becomes superior,putting extra pressure on their rivals such as Sainsubury’s, Tesco, Morrisonsto also decrease prices. (Hausman and Leibtag, 2007)”ALDI practices an important type of good-value pricing atthe retail level called everyday lowpricing (EDLP)”.
(Kotleret al.2017, p.327)By employing the “Everyday low pricing”strategy Aldi and Lidl have managed to introduce innovation in the UK grocery pricingby representing a point of differentiation from the competitors.
The strategyhas reduced their costs of running irregular discounts.Besides the previously mentionedstrategy, other commonly used pricing strategies by Aldi, include:· Competitivepricing- Aldi always places their prices lower than the competition. · Marketpenetration- Aldi charges low prices for their products as a strategy to enternew 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 PromotionTacticsThepromotional activities of Aldi have been transformed once they entered the UKretail market. Aldi’s policy of limited advertising in Germany, has beenaltered into advertising on mass media in the UK. Aldi’s promotions have beenextensively introducing TV advertisements such as the “Like Brand”campaign featuring TV adverts which are focusing on specific products. Throughthis campaign Aldi reinforces the message that their products are cheaper thanother brands however they are equal in quality. They represent diversity aswell as humor which helps them build trust and emotional connection with thetarget audience.
Additionally, Aldi uses leaflets within stores which displays productswith limited availability and seasonal offers available in stores. The Swap andSave campaign proves the target audience how much they could save if theyswapped their weekly shopping to Aldi. Moreover, Aldi is present on socialmedia channels, Facebook and Twitter pages through which platforms theyincrease the outreach to their target market. Aldi also uses direct emails communicatingvariety of seasonal messages. Aldi’s represents the fundamental part of theirbelow-the-line promotion.
Whenit comes to above-the-line, online display and direct mail advertisements, Lidlhas been the leader advertising spender during 2016 and 2015. (Mintel, 2017). MidstJanuary, Lidl launched their “Big on quality, Lidl on price” campaign, with theintention to reinforce their position as a high-quality brand. This was acontinuance of their quality positioning followed by their Lidl Surprisescampaign launched in 2014. Collectively, the two leading discounters Lidl andAldi accounted for 88.6% of the total recorded above-the line, online displayand direct mail advertising.
(Mintel, 2017)14 SummaryThe aim of this report has been to exemplifythe strategic profile of the discounters Aldi and Lidl. The first part of thereport argues their generic strategy along with the objectives and strategicfocus 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 onproduct quality and value for the money. Lourenço, C. and Gijsbrechts, E.
(2013)argue that “Hard discount chains have realized that growth strategies based onprices are not without limits, and that an overreliance on price-basedcompetition makes them vulnerable to incoming discounters”. This the reason whyboth Aldi and Lidl are moving into e-commerce and multi-channel strategy.As presented in this paper, it can beconcluded that Aldi’s and Lidl’s strategic profiles show a great proportion of similarities,continuously aiming on keeping low prices, accentuating the quality of theirown brand labels and offering a small number of store keeping units per productline. (Aggarwal, 2003)