Marketing Mix Critique of ALDI Stores, Australia - Case Study Example

Running Head: ALDI STORES, AUSTRALIA Marketing Mix Critique of ALDI Stores, Australia Student’s Name Course Title Instructor’s Name 12th October 2012 Introduction ALDI is a discount supermarket chain that originated in Germany in 1913. Privately held by brothers Theo and Karl Albrecht, ALDI Group is a top competitor grocery store in the international retail food industry. The chain has found success by going against virtually every standard of super marketing, from its renowned reticence to the austere atmosphere of its warehouses. In Australia, the initial ALDI store operated in Sydney in 2001 and in just less than eight years, ALDI has expanded to over two hundred stores operating fruitfully across New South, ACT, Victoria, Queensland and Wales. ALDI operates what are recognized in the grocery business as hard discounters. It has taken this trade concept, which has low overhead and scarce selection, to its meanest, leanest extreme. Not like the vast majority of superstore chains, which are constantly increasing their product contributions and selling space, ALDI controls selection at its stores to about five hundred items. The majority of these items are boxed dry goods or grocery. Up to ninety five percent of ALDI's offers are sold under packer or private labels, and some of these goods are made specifically for the chain. A 1993 study of the limited-assortment recess noted that thriving discounters such as ALDI work directly with manufacturers to devise products that are cheaper to ship, sell and stock than name-brand products. National brands are at times offered, but many business observers hypothesize that ALDI only stocks them to draw attention to its own discounts. 1. Marketing Environment Analysis– Micro Trends The micro marketing environment comprises of certain forces that are part of the organizations marketing process, but are external to the organization. This micro marketing environment that surrounds organizations can be naturally complex, however the corporation has an aspect of control over how it operates in this environment. Marketing assists the firm to manage and add up this complexity. Therefore, it has to analyze and monitor closely some elements of the microenvironment with the aim of adapting to rapid s and staying competitive. They are: 1.1 Customers Customers are critical to the growth and sustainability of the business. In order to develop it must establish customers, recognize their needs and then fulfill those needs both profitably and efficiently.ALDI’s marketing plan seeks to attract and retain consumers through products that meet their needs and outstanding customer service (Zimmerman, 1987). Alan has reported that ALDI's efficiencies gave its clients twenty-four percent savings over membership in a store club during the early 1990s. He further noted that ALDI's low prices attract individuals as it creates a lot of enthusiasm and heavy word-of-mouth publicity, in so doing allows the chain to avoid traditional and pricey media advertising. Hauptman also emphasized that the ALDI occurrence was not just recession-driven, but that regardless of the economy changes twenty percent or more of the populace was going to find ALDI attractive from a price perspective. Even though ALDI does not employ advertising regularly, it has been known to position itself as "The Stock-Up Store" in occasional print and television placements (Alan, 1991). An examination of the industry reveals that hard discounters like ALDI, enjoy a favourable cash flow as they often sell their products before the bills of the suppliers come due. This has an effect of attracting more customers in the future. 1.2 Competitors ALDI’s competitors have the same remit as the firm when it comes to sourcing and fulfilling the needs of the consumer. Mostly, these competitors make it difficult for ALDI to liaise with consumer groups, as by definition they are mostly pursuing the same sets of consumers ALDI. Therefore, a study of the competitive situation is essential for ALDI, particularly threats from competition. Competition shapes business. ALDI’s success has come from its ability to cut costs in all ways possible. Such costs may consist of the extra freight of free bags, packers and the taking of cheques. Compared with Woolworths and Coles, these costs are passed onto the consumer whether they utilize them or not, but ALDI has created a more accessible market that cuts costs where they can, to keep these costs being passed onto the customer. ALDI has also driven the development of private-label brands in Australia and has been more successful than Woolworths and Coles in gaining consumer approval of these products. Because of its tremendous success with an assortment of goods, as well as, its cheaply priced goods, ALDI’s competitors are going to find it hard to outdo ALDI in future. In the meantime, ALDI is going to remain the leading grocery store. 2. Marketing Environment Analysis– Macro Trends The company and each of the other actors function in a larger macro environment of elements that influence opportunities and present threats to the business. Some of the macro elements include: 2.1 Economic Environment The economic environment comprises of those factors that influence consumer purchasing power and expenditure patterns. Major economic trends in the Australia include Value marketing whereby retailers try to offer the consumers greater value for their dollar, and this has been a very serious strategy (Kotler, Keller, Brady, Goodman, & Hansen, 2009). Another economic trend is Income distribution, which is still much skewed in the Australia, and not all classes have shared in prosperity, (see appendix 1). Additionally, spending patterns indicate that food, transportation and housing still account for the bulk of consumer dollars. ALDI must monitor carefully economic changes so they will be capable of prospering with the trend, and not suffer from it. There is always a segment of the population that is attracted to low prices, and this appeal to ALDI’s limited assortment. It thus attracts price sensitive buyers from lower socio-economic groups (Leamy, 2011). This will have an impact in the future operations of the company, in that, these customers will remain loyal to ALDI and in an attempt to satisfy them ALDI have to satisfy their needs by establishing more branches in the ghettos. Other companies might follow suit in an attempt to seek customers. 2.2 Political Environment The political environment comprises of laws, pressure groups and government agencies that influence and limit different organizations and people in a given society. Different forms of legislation regulate businesses. ALDI prevents public disclosure of its activities whether financial or physical. Agencies such as Office of Fair Trading limit the way in which supermarkets price or sell their branded products, as was the case with ALDI in 1991. By maintaining its secrets, ALDI reserves its reputation and in the long run acts as a form of competitive strategy. If this is not done well, it might impact the company and the limited assortment stores in general, in that, they will not grow or be a threat in the market. 3. Marketing Mix– Evaluation and Critique 3.1 Overview of Current Marketing Approach Maintaining an attractive facade is not ALDI’s stores priority. Instead, the company often buys second-class locations as part of its financial prudence strategy. No other store sells its products at cheaper prices than ALDI, (see appendix 3). On top of that, ALDI’s products are of high quality and this has enabled the store win loyalty of the consumers. Mark (1994) quotes ALDI’s philosophy from a company brochure that "When you buy a can of peas at ALDI, you're paying almost entirely for the can of peas”. The brochure continued, "ALDI doesn't need to tack on one more penny to pay for any army of stackers or piped-in music or fancy display or check cashing or gimmicks and games. So your food dollar pays for what it's supposed to pay for . . . food" (Mark, 1994). This makes it evident that ALDI caters for their expenses while letting their customers pay only for what they are supposed to. Owing to the lowered prices, their customers tend to make repeat purchases, and they also spread the news through the word of mouth hence bringing more customers to ALDI. 3.2 Evaluation of Effectiveness To some consumers, the low price ambiance is a negative stimulation. Some customers find it depressing at ALDI stores because of the congestion that they want to buy their items speedily and get out of the store. Nevertheless, other consumers find the store’s counter-culture sensation as one of its most influential selling points. Still, some customers get overwhelmed by the big formats and extensive selections provided by modern supermarkets. They are intimidated in huge stores and favor lack of assortment. In order to evade competition, ALDI does not discuss their business with the media. They have a company policy of secrecy, which is a main part of their competitive strategy. This allows them to often creep up on the competition with its low-tech operation, catching the competitors unawares. Moreover, this method has been effective in that enabled ALDI realize a successful and stealthy international expansion to its current stature. 4. Marketing Mix- Redesign 4.1 Products ALDI has most of its products made in Australia and loads of its house-brand products are produced by famous brand manufacturers. ALDI centers on its own brands to continue being independent, thereby enabling it to avoid the soaring marketing costs often linked to national brands and to lay down its own price, products and quality policies (Pervaiz & Rafiq, 1993). ALDI has done well in this part except that it needs to provide free packaging and not charge their customers for the shopping bags. 4.2 Promotions This refers to all sorts of communication that relate to a particular marketing campaign. This comprises of communication with distributors and retailers, communication with buyers and customers and internal contact with the sales force and other employees. Minimising costs at every level in the value chain is the means to the business strategy of ALDI. Marketing is an area where ALDI saves expenses. ALDI has no marketing section and its marketing budget is approximately 0.3 percent of the entire revenue. Advertising is minimal. They mostly rely on catalogues, Web updates and local press advertising. ALDI centres on product-oriented communications, predominantly concerning price and new unexpected buys. It usually does not make use of advertising agencies and does not use up money on market research. Although ALDI has maintained its popularity among customers, it still needs to do some improvements. ALDI should use advertisements in order to reach more customers. 4.3 Price This refers to decisions concerning how much to charge for commodities and services. Decisions over price have an effect on the viability of a trade name and the profitability of an organization. ALDI claims ninety per cent of consumers to find their standard weekly shopping list in their storehouse. ALDI also reduces the cost of products only in the most popular shopping moment, usually from nine am to seven pm Monday to Saturday, ten o'clock to six pm, Sunday. Most of ALDI’s prices are cheaper as compared to other stores, (see appendix 3) and this attracts more customers. In addition, they have a variety of discount formats, which is aimed at maintaining and attracting more customers, (see appendix 2). ALDI has done well in this area and it needs to keep up offering discounts in order to realize repeat purchases. 4.4 Place This refers to distribution. It means all aspects relating to how goods and services are distributed from the producers to the consumers. ALDI stores and delivers all of its items, thereby eliminating the need for direct store delivery and regional warehousing on the part of vendors. However, it situates its smaller stores mostly in farm towns or blue collar or low-income neighborhoods. By selling directly to consumers, ALDI has brought itself close to their customers, an area well done. However, it needs to establish internet services where they can sell and receive payments directly via it. 4.5 People Services are predominantly dependent upon people, not just the sales force but also every contact staff. ALDI do not require in-store sales representatives, marketing or merchandising support something that they ought to consider seriously if they want to improve their services. ALDI should employ salespersons to guide and direct customers within the store, as well as, to answer customer’s questions pertaining to particular products. 4.6 Processes ALDI deals directly with manufactures that supply their store’s products. ALDI have policies and procedures to ensure that all personal information is handled by their representatives in accordance with the National Privacy Principles. This area still requires some improvements. ALDI should put some procedures in place that will try to create a steady quality of experience. This may include such systems as quality checks and controls and complain procedures. This way, their customers will feel more satisfied. 4.7 Physical evidence Physical evidence is a way of formalizing aspects of place and product that are specific to service purchases. It pertains to all the physical things that a buyer of a good or service might come across. ALDI has private labels sold under a number of controlled brands that is not enough to sell them. ALDI ought to put some information leaflets that their customers can identify them with, and make their brand name known. 5. Recommendations 5.1 ALDI should diversify and broaden its range of products, and use focus groups, market research and sophisticated advertising to attract and maintain customers. By doing some market research, ALDI will know what their competitors are doing out there, and might help them employ some new marketing strategies to evade competition. In addition, market research and focus groups will enable them gather the views of their customers concerning their products thus finding new ways in which to satisfy them. By broadening its range of products, ALDI will ensure that it prevents its customers from going to other stores to find products that ALDI does not stock. All their customers’ needs will be satisfied under one roof. Advertising will enable them reach more customers thus expanding its market. 5.2 ALDI should improve its levels of operation from manual to electronic systems. Currently, ALDI depends on well-trained cashiers, who have memorized the prices and codes of items in the store, to sell their products. Moreover, they are not even in the phonebook, which could have otherwise helped in answering customers’ questions. ALDI should therefore, employ the use of technology in most of its operations like using scanners instead of letting their cashiers memorize the codes and prices of all items. They should enhance their services with their clients by setting up online communications, which will facilitate easy buying and even delivery. This will make shopping at ALDI a pleasant experience as its customers will no longer have to wait for a long time for an employee to answer their questions. They could just log on the store’s website and find the answers they need, or even call the store. 5.3 ALDI should increase the number of staff so that their customers are served effectively and efficiently. Currently, ALDI has a small number of staff and mostly the customers serve themselves. There is no employee to answer customers’ questions and there are no stock persons since they have no shelves to stock and this brings about congestion within the store. Even the trolleys are paid for by the customers, after which, they are refunded when they return the trolley. ALDI could effectively serve their customers if they could employ more employees to; answer customers’ questions, take the trolleys back in place, direct and guide customers, and so forth. Appendices Appendix 1: Household Income Distribution (Australia by Quintile) Appendix 2: Types of Discount Formats Format # of Items Key Points Examples Limited Assortment 600-1000 Tightly controlled selection Focus on packaged groceries Emphasis on low costs 10-20% cheaper ALDI, Netto, Lidl, Norma, Save-A-Lot Discount Supermarket 1000-3000 More flexible product selection More fresh, chilled and frozen 5-10% cheaper Kwik-Save, Plus, Penny Extended Range Discount 3000+ Full product selection Discount perception Franklins No Frills, Food Giant, Colruyt, Le Clerc, Intermarche Appendix 3: Key Points of Difference: Discount versus Superstore Variable Limited Assortment Superstore Average number of items 650 23,000 Stock turns (times per annum) 40/50 23/26 Net Margin 2% 7% Asset Turnover ( times per annum) 7 3 ROCE (Net Margin x Asset Turnover) 14% 21% References Alan, M. (1991). Aldi and Gateway seal site deal in move that puzzles supermarkets. Marketing . Kotler, P., Keller, K., Brady, M., Goodman, M., & Hansen, T. (2009). Marketing Management: First European Edition. New York: Pearson. Leamy, E. (2011). Save Big: Limited-Assortment Grocery Stores Offer Fewer Choices, Bigger Savings. abc News , 1. Mark, K. (1994). Aldi quietly spreads its no-frills, low-price grocery message. (Aldi Inc. food stores). The Business Journal-Milwaukee . Pervaiz, A., & Rafiq, M. (1993). Using the 7Ps as a generic marketing mix: an exploratory survey of UK and European marketing academics. Marketing Intelligence & Planning , 4-15. Zimmerman, S. (1987). New Aldi depot heralds one-third more stores? (building distribution center near Cleveland). Supermarket News . Read More