Lidl in the UK Market - Essay Example

Lidl in the UK Market Introduction Lidl is a German discount chain of supermarkets which own about 8000 stores worldwide. It is the chief competitor of similar discount chain by the name of Aldi. It was founded in 1930 by a member of the Schwarz family and is now present in about 20 countries all over the world. The first discount store of Lidl was opened in 1973 by copying the concept of Aldi. Lidl entered the UK market in 1994 with a philosophy to supply the very best products at the lowest possible price in the market. They do so by sourcing local products from their centres of excellence. They are able to receive bulk discounts for the large purchases they make and follow the philosophy of minimizing operational costs and thus passing on the benefits to the customer in the form of low cost. It has presently 500 stores in UK with a turnover of 44 billion Euros. Due to the recession of 2007-2010 Lidl has gained a lot of foothold in 2010.Due to the credit crunch available in the market because of recession , people look to reduce their budgets in the food and household items. This is where Lidl comes in. It provides quality products to the customer at very low prices and has been able to give challenge to established retailer stores in UK such as Tesco. Lidl has gained its reputation as a no-frills supermarket ( others in this category are Aldi & Netto) that sell food , drink and non-food products at extremely low prices but no extras are offered to the customers at a Lidl store. They do not provide even free carrier bags. No help is provided to pack your shopping and it’s stores are marked by the absence of any service counters. The success of Lidl has been primarily based because of the reason that it provided value for money to the people in the times of recession. This document analysis the Lidl stores from the point of view of services marketing Literature Review. Marketing can be in a general sense divided in to two - Marketing of services Marketing of products. Services marketing is known to be a marketing based on relationship and value. It is used to market service which is intangible form of product that is provided to the customer. Marketing a service is different from the marketing of prodcuct.The main differences in services marketing are as follows – Intangible nature of the purchases made by the buyer. Inseparable nature of the service from the point where it is consumed and from the provider of service. The service provided is perishable in the sense that the experience once provided to the customer cannot be repeated again in the same way. You do not take the right of ownership in a service – you can only experience the service Along with the four traditional Ps that are associated with regular marketing – Product ,Place , Price , Promotion ; three other Ps are essential features for a services product which consists of People , Physical evidence and process. (Donnelly, 1981) As more and more developed economies as well as the developing economies of countries like India and china move from focus on industries to services ; the importance of services marketing is increasing day by day. Many researchers are of the view that the basics of marketing like the need to have a well defined marketing strategy, targeting the markets best suited and the proper positioning for this target segment is essential in the marketing of both – goods and services. Theodore Levitt propagates that instead of talking about goods and services we should talk about tangibles and intangibles. (Levitt, May-June, 1981).He also goes on to say that a physical product usually has more intangibles associated with it than the act of only conducting the physical of the product. An important example regarding this has been the comment made by Charles Revson regrading Revlon Inc in which he says that factories only make our cosmetics but our retail stores sell hope to the customers. Service industry marketing approaches the same problem from the opposite end of the spectrum. (Beckwith, 1997) The service quality gap model which is also called as the “5 gaps model” of service quality is considered as an important tool for customer satisfaction in services marketing. Five major gaps which have been identified according to this model which are faced by organisations and need to be resolved to provide excellent service quality have been described below (Parasuraman & Berry, 1985)– Consumer expectation – Management perception gap – This is the gap between what the consumers actually expect and what the managers of the firm think that they expect. Management perception – Service quality specification gap Service quality specifications – service delivery gap Service delivery – External communications gap Expected service – experienced service gap. Each gap for a service oriented firm can provide to be fatal. The management can try to fulfil these gaps through proper diligence and research. The five gaps model has been described below with the help of a figure - Source : (Henning, 2009) Analysis of Lidl Case The UK Grocery Market The UK grocery market is dominated by large supermarket chains. Their size , visibility and their large influence on the grocery market of UK have made them the focus of much attentions The UK grocery retail market consists of convenience retailing, traditional retailing , supermarket & superstores and various alternate channels like chemists , kiosks , farmer’s market and home shopping in the future. (Seth, 1999).Profit margins in the grocery market are usually low in UK. They range from 2 to 6 %.Because of the low margins which are available most of the players look to gain operational efficiencies and buy in bulk in order to reduce their prices, pass on the benefits to the consumer and compete with other supermarkets on price. It’s present value is evaluated to be 140 billion pounds and is expected to grow at an annual growth rate of 4% for the next 4 years. Discounters – it is believed in increase their market share form the present 3.9 % in 2009 to 5 % by the end of 2013. (Rothwell, 2008) The present recession from 2007 brought major challenges to the grocery market of UK. Food price inflation , high fuel prices had a major impact on the grocery market all across UK. Many big retailers like Tesco had to face downward price pressures. Shopping patterns of the customers are changing and due to recession most of them are desperately looking for value for money offers. This has improved the chances of success of retail stores like Lidl whose focus is on providing great quality products to the customer at affordable prices. 7P’s Framework of Services Marketing in case of Lidl Product Lidl has about 1600 products in its stores in UK and 1200 of them are private labels. Lidl claims that these products which are available in Lidl stores are at par in quality with the branded products. However in marketing perception about the quality is as important as quality itself. These products are claimed to have the same features as any branded product but at a lower price. The product lines available at Lidl stores is also limited as compared to the other retailers who are not major discounters. Place Lidl’s stores are usually smaller than the stores of its competitors like TESCO. They are also located closer to the city and people do not have to travel long distances in order to access them. This provides easy accessibility to the consumers of their products. Price This is the most important P in the case of Lidl. The only factor on which they are competing against other firms is price. In spite of the fact that they provide very limited customer service and even charge the customer for a bag ; people visit them more and more often because of the fact that they provide products at very cheap prices. These prices are usually 10-20% cheaper than the competing retail stores. Keeping only private labels and an efficient supply chain are the factors responsible for keeping such a low price for Lidl. Promotion Lidl’s price has been its best promotion during the times of recession and credit crunch. People used to throng these stores which came to be knows as discounters during recession time as they provided good value for money. Word of mouth is a very important tool for Lidl .however to be successful in times when recession ends the value provided by shopping at Lidl should be emphasised by the firm through promotional campaigns People This is an important aspect and the staff is the only point of contact of the customers with the firm. Lidl is however infamous for treating its employees badly .It is known for making them do overtime without any charges and spying on them. It needs to improve drastically on this P to be successful in retail sector. Process This is a very important factor for the success of a grocery store like Lidl. The supply chain processes which includes mass purchases from their suppliers and maintain minimum amount of inventory – all these processes are paid great attention at Lidl. Integration with suppliers and hard bargaining to get bulk discounts have been used by Lidl to reduce the cost of doing processes for the firm. This reduced cost is them transferred to the customer in terms of low price. Physical Evidence This element of the 7 Ps allows a customer to make judgements and to be able to physically examine the good and services that they have bought from the other retail stores.People generated the image of Lidl as a low cost high valur retail store by comparing the prices of its private labels and their quality with the branded Activities like having to pay for wrapper also gives a physical evidence and conveys to them that it is a low cost retailer where you will get only what you pay for. Reasons for Lidl’s success Lidl has been the among the new brand of retail stores which have entered UK and have succeeded in capturing about 3.9% of the market share in UK. These retail stores are generally called as the discounters. There are many reasons for the success of Lidl in UK ; some of them are mentioned below – 1)Value for Money This is perhaps the most important reason for the success of a discounter like Lidl. It aim is simple- to sell quality products to the customers at the least possible price. Lidl claims that it will provide the best products that the customers will found at any other retail stores but will do so at lesser price. 2)Simplicity The cornerstone of Lidl’s philosophy is simplicity. The company believes in pure retail – it simply buys and sells. Its management and employees are totally focused on one aim – to offer customers everyday top quality products at the best possible prices. The supermarket goes even to the extent of charging customers for carrier bags - there are no freebies in the store. Whatever you pay for – you will get ; the store is running on this simple yet efficient philosophy. 3)Private Labels and Benchmarking with brands Lidl stores have very limited branded products on display in the store Lidl has a range of 1600 products out of which only 200 are branded. Rest of them are private labels of the retailer. The presence of some brands make the customer who enters the store for the first time comfortable and also allows Lidl to benchmark its products against those which are branded. Selling of private labels also goes with the company’s philosophy of providing cheap products. As the retailer does not have to spend on the brand building of these private labels; they can usually price their products lower and are able to provide almost the same quality as branded products through benchmarking techniques. 4)Recession and Credit Crunch Many analysts believe that the recession from 2007-2010 has played a major role in the success of Lidl. Due to the credit crunch caused by recession customers started looking for cheaper alternatives in retail stores for saving money. The discounters such as Lidl started coming into prominence then. They were able to provide to the market what it actually needed – cheap products and was thus able to succeed and increased its market share aggressively even during recession when the market share of other retailers was on the decline. 5)Efficient supply chain management and bulk purchases. This phenomenon is experienced not just in the case of Lidl but all superstores. They usually eliminate middleman from the supply chains in order to increase the margins that they can have. These margins are passed on to the consumers by Lidl. Lidl also invest in IT infrastructure to connect its suppliers to the retail stores. This not only gives an idea which product is selling well and should be manufactured but also provides knowledge of when to ship the products. By utilizing the just in time philosophy Lidl is able to successfully reduce its inventory cost. Thus efficient supply chain is identified as one of the reasons for the success of discounters like Lidl. The 5 Gap Model Analysis of Lidl The 5 Gap model has been described in the literature review section. The section explains what the model is , here we will apply the model to Lidl and examine how the retailer can improve it’s performance with the application of the 5 Gap model. 1) Gap 1 is the difference between customer expectations and what the mangers think is customer expectation. Lidl could face this problem in the near future. Lidl benefitted and increased it’s market share during the days of recession. During this time the only thing customers are looking for is cheap products .However this might not be the case 2 or 3 years down the line when UK comes out of recession. At that point customers might be looking for quality products and the experience of shopping. Lidl needs to change it positioning accordingly in order to ensure that a gap between customer’s expectations and managers perception of them do not occur. The best means for Lidl to overcome this gap in the near future is to conduct market research regularly. This keeps on providing an insight in to the customers mind and will allow the retailer ample amount of time to change it’s positioning according to the changing times. 2)Gap 2 is the difference between management perception and service quality specifications. Lidl provides very little service to its customers and neither do they expect great service from a hard discount retail store like Lidl. It does not help the in packing nor does it provide any other assistance services that are usually available in stores like TESCO. It is very essential for the company that service quality specifications are clearly laid down by the company and listed and displayed for the benefit of the employees and customers. A difference in the management perception and the specifications can lead to increased cost to the retailer or might lead to highly dissatisfied customers if even the basic level of service is not provided to the customers. Managers need to make sure that organization is properly defining the level of service they believe is needed. The main danger in the case of Lidl is extra service provided by employees leading to inefficiencies for the retailer. 3)Gap 3 is difference between service specifications and service delivery. Lidl provides minimal services to its customer’s .These services should be provided promptly and without any delay. In order to motivate it’s employees to give proper delivery of the services that have been specified it can benchmark itself against MacDonald’s. Lidl had to face many accusations that it does not treat it’s employees fairly. It has been accused of breaching European directives on working times , they are made to work overtime and are even asked to sign themselves out of working time directives when they work with Lidl. It has also been accused of spying on its employees with cameras and excessively trying to control employee behaviour. (Pidd, 2007).These tactics might have been employed by Lidl to keep its work force in line and to reduce costs .However if it wishes to be a serious player visited by people even during times when recession is not there , it needs to treat its employees with respect. If employees are mistreated Gap 3 will increase tremendously as unhappy employees will not deliver the requisite service quality standards ; however little they may be. 4)Gap 4 deals with the external communication of the service provided. The main service provided by Lidl is value for money. It provides quality products at cheap prices to the consumers. The store is not about discounting. It is about giving the customers value for money. This communication has to be properly conveyed to the customer. There was a time when Lidl’s private labels were looked down upon and people might buy them due to lack of money but no one wanted to be seen with them. Reputation of these private labels should be enhanced. These are quality products and their quality is at par with the branded products. Customers should be made aware of the fact that price of the products is not low because of low quality but because of the money saved in creation of a brand. The actual value which will be available to the customer in a Lidl store should be properly conveyed by Lidl ; neither exaggerating it and raising customer’s expectations ; nor understating it and turning away the customer. 5) Gap 5 is the gap between customer’s perception of the service to be obtained and the actual service obtained. Customer’s expectation of the service is created through word of mouth, their personal needs and the past experience that they might have had with Lidl. Transactional surveys can be used by the company in order to know about the perception of the company in the market. Once this perception of Lidl in the market is known to the company ; different promotion techniques can be used to change this perception and make it come at par with the actual experience of the company. The perception about Lidl in the market usually is that it is a cheap store which should be visited only if you are short of cash ; products are perceived to be of moderate quality. This is in contrast to the fact that Lidl stores products whose quality is indeed very high. Lidl should work on campaigns to fill this perception gap. Conclusion and Learning Lidl is an interesting example of retail store in UK. It copied the business model but has made it quite efficient. It shows how certain retail stores can even grow during the recession by proper positioning. Lidl provides very minimal customer service but depends on the low cost , high quality nature of its products. This document analyses Lidl from the perspective of service marketing. A great insight was taken during the preparation of this document of retail stores chain in UK. Different type of retail stores were analysed and compared with Lidl. We have also done an analysis of Lidl case through concepts of services marketing like 7 Ps and 5 Gaps model. This helped in the internalization of the theory learnt in services marketing course. Bibliography Beckwith, H. (1997). Selling The Invisible: A field Guide To Modern Marketing. USA: Warner Books. . Donnelly, J. e. (1981). Marketing of services. Chicago: American Marketing Association. Franklin, M. (2006). Performance Gap Analysis: Tips, Tools, and Intelligence for Trainers. Chicago: American Society for Training and Development. Henning, J. (2009, June 4). Service Quality Gap Model. Retrieved January 9, 2010, from Vovici: http://blog.vovici.com/blog/bid/18271/Service-Quality-Gap-Model Levitt, T. (May-June, 1981). Managing intangible products and product intangibles", . Harvard Business Review , 94-102. Parasuraman, A., & Berry, V. A. (1985). A conceptual model of service quality and its implication for future research. The Journal of Marketing , 22-32. Pidd, H. (2007). Cheap but not so cheerful,. London: The Guardian. Rothwell, G. (2008, 11 11). The UK grocery sector :2009 and beyond. Retrieved 1 9, 2010, from Fodd and Grrocery Information: http://www.igd.com/index.asp?id=1&fid=1&sid=7&tid=10&cid=719 Seth, A. a. (1999). The Rise and Rise of Supermarkets. London: Prentice Hall. Read More