INTRODUCTION to Strategic management
Strategic management is the concept that helps an organization to achieve common as well as long term goals. There are various strategies that can be used for the purpose of improving strategic aspects of marketing (Crossan and et. al., 2011). Strategic aspects of the company allow managing innovation and change projects within a company’s marketing function and also at corporate and strategic level. The present research report has been made on the brief discussion of strategic analysis of Aldi which is one of the most low cost supermarkets at Germany. The sales ratio of the company has been increasing from past many years and pricing factor is the major reason for its increased profitability. Aldi is a private limited retail company which is operating business in more than 9,235 locations with revenue of around €53 billion.
With the help of above table, strength, weaknesses, threats and opportunities of Aldi are evident; however a brief discussion is also required here. It is the strength of Aldi that it is the only retail supermarket in Germany which has range of low priced products. Even focusing on low prices, the company has selling only to quality products to the customers. Because of such effective pricing strategy, Aldi has acquired larger market share of Germany from past many years. The presence of Aldi in more than 15 countries states that customers like the products and this also leads the business to place itself internationally (SWOT analysis of Aldi. n.d). Due to selling affordable merchandises, the customer base and profit ratio of Aldi is increasing. Apart from strengths, Aldi also has some weaknesses which reduce the brand identity of the company in customer’s mindset. Due to low brand image, most of the customers termed it as low quality as well as cheaper goods. Aldi has been capturing price conscious as well as middle class people under their target group. The brand has still low recognition from people as compared to others because of not having global presence.
The company sometimes also faces severe competition from LIDL as it is also the one which delivers low cost as well as discounted products to the customers. Problems are also coming from supplier’s side which affects the demand as well as supply aspects. Aldi needs to invest huge resources in advertising so that to give cut throat competition to other players. It has the opportunity to expand the business in other overseas such as Asia and Africa. With the help of innovative as well as attractive products, Aldi can acquire greater market share. Aldi cannot cater complete shopping experience to the customers thus it is a threat to company (Saloner, Shepard and Podolny, 2008). The other well established brands can diminish the brand identify of Aldi because the life cycle of private label brands remains relatively low as compared to others.
PESTEL analysis of Aldi
In UK, the political situations are quite stable and balanced; however the performance and business decisions of Aldi is highly influenced by the political and legislative conditions of German countries, including the European Union. With the help of sound political forces, Aldi is able to generate huge opportunities of employment. In order to reduce employee turnover rate, political parties have become supportive in nature (Sadler, 2003).
The economy condition of UK is relatively strong and has been able to avoid recession after the year 2008; however there are high unemployment and uncertainty in the economic conditions. It is the economic factors of Aldi that are likely to influence the demand, cost, prices and profits. These economic factors are not controlled by Aldi but their effects on performance can be profound.
The business and marketing decisions of Aldi gets affected by the changes in needs and demands of customers (Trim, 2004). Impact of population on Aldi’s business decisions are high as customers are changing their demands and preferences as per market trends. Due to low level of education and competitive market prices, customers are changing their preferences and demands.
Customers require more convenient and high tech experience and technology plays a crucial role in impacting the experience as well as preferences in terms of demands. Though Aldi has been using latest technology to meet the requirements of customers but still the level of competition is high. Aldi can get number of advantages from technical facets as this may also develop the competency of the firm.
UK stands on the 9th position as it is the only one that uses large amount of energy resources for the purpose of safeguarding environment (Partington, 1996). It is the concern of Aldi towards natural forces that leads the firm to introduce poly and paper bags by banning plastic bags. In order to cope up with the increasing risks of climate change, the company has introduced “The Carbon Plan” so as to achieve the emissions reductions.
The market of UK is highly regulated by the amendments mentioned in European policies. The policies and amendment mentioned in EU highly influences the performance of Aldi for instance the Food Retailing Commission has set some laws in which the firm is not allowed to change the norms and procedures without giving any notice.
Porter’s five forces
Here in the present report, researcher has been applying Porter’s five forces model so that to analyze the impact of competitor’s forces on business decisions. Competition is prevailing at the market place because of availability of so many forces which are being mentioned in the below study.
Threat of New Entrants:
The retail market of UK is primarily dominated by most of the largest retail firms such as Tesco, Asda and Sainsbury (Pahl and Richter, 2009). These companies have acquired market share of UK thus it becomes difficult for other players to enter in retail market of UK. Aldi has been planning to establish the business in the countries as well as but due to legal regulations, the firm mat get some threats while entering into Africa and Asian markets.
Bargaining power of customers:
The customers are possessed with huge bargaining power in terms of having range of substitutes. Aldi may face the situation of customer switch over as other businesses are emphasizing on customer retention strategy which may affect the profitability factor of Aldi. It has been seen that Tesco has been retaining their customers by customizing service, ensure low prices and providing better choices to them (Nijssen and Frambach, 2000). Though the need for super markets is high especially in European countries; however consumers are also aware about the issues associated with the operations.
Threat of substitutes:
Threat of substitutes is high as similar products exist at the market place even with low as well as discounted prices. It is essential for Aldi to analyze the availability of substitutes as this has a huge impact on company’s performance. This may also reduce the demand of regular products and this also provides a threat regarding customer switch over to other brands.
Bargaining power of suppliers:
This force represents the power of suppliers that can be influenced by major grocery chains and that fear of losing their business to the large supermarkets. The suppliers have the power to influence the functions of Aldi as they can directly deliver goods and services to the potential users. The effective relationships of Aldi with sellers can have a similar effect on the strategic freedom of company. The suppliers of Aldi can restrict the supply and demand facet (Munro, 2009).
Bargaining power of competitors:
The major competitors of Aldi are growing at the market place and this has led the market to enhance the size and characteristics of sector. The competitors of Aldi can acquire competitive position and this could work as a threat. This many restrict the firm to outsource the business even in global market. Competition is high in terms of local market but due to high use of technical gadgets, Aldi may face trade restrictions while entering into other dominant regions.
Thus to conclude the competitor analysis, it can be said that Aldi is at growing stage but due to the presence of huge competition, the identity of business may diminish, thus the firm is suggested to enhance the competency level so as to retain its position at market place. It is the low prices and competent strategies enough which has helped the business to manage its success in retail market of UK. Currently Aldi is at growing position in which the company has been focusing on acquiring huge customer base by providing them low cost as well as quality products; thus this makes the company to stand in between the rivalries (Koning, 2007). This has also assisted the company to experience significant sales. It is the staff members of Aldi that is getting much benefit from the low cost strategy and this is also proven as significant for organization. Aldi has been planning to expand the business in African and Asian market which may help to develop its identity in other markets and the targeted groups can also be expanded.
Porter’s Generic Strategies
With the help of Porter’s generic strategies, the firm can identify the profitability ratio whether it is above or below the industry average. When getting above profitability ratio, the business is said to be competent enough to acquire its position in subsequent industry. Considering generic strategies, Aldi can ascertain the ways by which competitive edge can be accomplished (Khandekar and Sharma, 2005). Strategies mentioned under porter’s generic model could help Aldi to acquire competitive advantage. Cost leadership as well as differentiation both are two distinct categories which can be adopted in the present case. In order to create high demand for the products, Aldi can emphasize on cost as well as pricing facets. This is will also assist the firm in acquiring competitive edge. The company can enhance the profitability ratio by offering the goods at lower prices which currently they even have adopted.
This would also aid in increasing market share. It is relatively a fact that Aldi can achieve same profits even by selling the goods at discounted prices (Jeffs, 2008). In the present case, Aldi is required to make proper alignment between inbound and outbound activities as that will help the business to render quality as well as cost effective products. The production department plays an immense role in adopting cost leadership strategy. With the help of differentiation strategy, Aldi can also bring new products to the customers at same prices as this ensures the company to acquire retail market of UK.
Aldi may even apply Ansoff matrix which also avails range of strategies and which aims to maximize the growth possibilities (Hill and Jones, 2009). Within all the strategies mentioned, one of the best and appropriate strategies can be adopted for the purpose of maximizing sales and profit ratio. As the firm is trying to establish the business in other countries therefore application of Ansoff matrix is relevant. In order to expand the business in other markets, Aldi can adopt the strategy of market penetration in which Aldi can sell more as well as same products in the existing market. This may result in market share expansion and enhancement in business identity. With the help of such strategy, Aldi can retain its potential customers and this also safeguards position of business in existing market place. Other than this, Aldi can also start selling its goods in new markets with same products and this will help the company to expand the business entity (Henry, 2008). This may also help the company to develop the image of all products present in subsequent product line.
Besides this, the strategy of product development can also be adopted in which Aldi can introduce new products to the same customers that are in the existing market place. The company may acquire competitive advantage as well as brand identify by operating business in the same market. This also enhances success as well as growth opportunities of the business and thus life cycle of business may be ascertained. Ansoff matrix also facilitates the strategy of diversification in which the firm can introduce range of new products at new market place that is to new customers. The strategy is risky as well as beneficial in nature that is Aldi cannot access the level of competition prior to entering in any market (Guest, 1997). Diversification is one of the widely used strategies which most of the companies in retail sector are using for the purpose of business expansion. The business cannot identify the life cycle of products because of operating in other known market. The most common way for a business to diversify is to develop new products that take advantage of the core competencies of the organization. But the strategy is also known to spreads risks.
Value chain analysis
Aldi has been managing internal business functions with the help of value chain analysis and this also aids in analyzing the core weakness as well as strength of the company. With the help of mentioned value chain analysis, the activities can be segregated into two types such as primary and supportive activities (Schmitz, 2005). In primary activities, marketing and sales are the only activities that support Aldi and its other business functions. With the help of marketing activities, the company has been acquiring greater market share and this also aids in managing different types of services. Inbound logistics of the company also comes under primary activities in which Aldi has to manage these so that to maintain profit margin. Inbound logistics is concerned with the management of activities regarded with dissemination and storing of the data which can help in the production process. The operation department of Aldi is also managing distinct types of services along with further processes. Under supportive activities, there comes firm infrastructure that builds the competency level as the products are arranged in suitable manner. Human resource management of the firm is also managing the internal processes (Graham, 2008). The company is also focused towards technological development.
Corporate social responsibility
The business has been focusing on corporate social responsibility in which they are using energy resources at wider extent so as to safeguard environment. Under CSR activities, Aldi has started taking initiative on banning the use of plastic bags; the company has been using paper as well as poly bags with more resources of natural and solar energy (Devanna and et.al., 2006). It is the development of go green strategy that aids Aldi to promote its business identity at market place and also to reflect how much the business is considering the benefits of environment. It has also been seen that business is also acquiring many benefits from CSR initiatives and which also aids in maximizing the profit aspects.
- To go for business expansion
- To target other customers
- To manage internal functions by analyzing competency ratio
- Expansion and diversification in Asian and American states
- As the company wants to establish the business in other markets therefore it is suggested to use technological resources at higher extent.
Attributing the entire report, it is clear that effective strategic implementation requires the workforces to be more proactive rather than reactive as it can help the organization in shaping the culture with organizational strategies.
Books, Journals and Online
- Aldi Group in Retailing. 2014. [online]. Available through: < http://www.euromonitor.com/aldi-group-in-retailing/report>. [Accessed on 22nd April 2014].
- Crossan, M. M., and et. al., 2011. Strategic Analysis and Action. 8th ed. Pearson Education Canada.
- Devanna, M. A. and et.al., 2006. Strategic planning and human resource management. Human Resource Management. 21(1). pp.11-17.
- Graham, H., 2008. Marketing Strategy and Competitive Positioning. 4thed. Pearson Education India.
- Guest, D.E. 1997. Human Resource Management and Performance: A review and research agenda. International Journal of Human Resource Management, 8(3), pp. 263–276