The supermarkets in the UK is expanding with retail food products being sensitive to cross-price elasticity in that supermarkets are encouraged to be inventive, which will accomplish an advantage, matched to its discounter competitors (Emerald Group Publishing Limited , 2014). This report will explain the types of sales strategies that Aldi may develop in order to compete with other supermarkets within the same market. Aldi have to be considered as a competitor as society is searching for value and that customer behaviour is a major influence in sales strategies and that Aldi will be successful in future years with their overall strategy.
Aldi opened its first store in the United Kingdom (UK) in the 90’s, currently supporting more than 500 stores in the UK, originally established in Germany. The challenges that face Aldi are primary in attracting customers. As well as attracting customers, Aldi will have to consider its competitors within the market. There are a number of considerations that would influence customer’s behaviour which impacts on the retail market. Society has a wide range of needs and wants which can be varied and impacts customer’s decisions on a daily basis. The decision that is made is key to the decision making behaviour which results in individuals adapting from situation to situation which would have an impact on all supermarkets (Dibb, 2012). The leading retailer’s share of grocers’ for 2011 and 2012 explains that Aldi versus Morrison’s posted surging returns with Morrison’s showing as losers.
Diagram one: Share Market Mintel Report
An article (sky news, 2012) reports the company Aldi, has seen profits exceeded over 200% in 2011 to £57.8m, suggesting customer confidence is low and that customer spending brought on by higher inflation and weaker growth has influenced Aldi success with 40 new stores planned to be developed and open by the end of 2013 generating up to 4,500 jobs. Aldi has now introduced 500 new stores in the United Kingdom (UK) and plans to open new stores in higher more upmarket locations and offer a wide range of products attracting higher-earning customer (Aldi, 2013). This strategy is supported by (Harvey,2000, p. 17) who suggests that in a society, a range of low and high income customers can be brought together by retailers creating an internal niche market, with their own discounted products or with higher branded products, integrating separate ‘segments of customer demand’.
As Aldi continue to improve on already continued growth, Morrison’s have to act to attempt to maintain and improve within the retail market competition. This is demonstrated by an article (mail online, 2013) Morrison’s attempt to struggle back, which Morrison’s bosses trust only a reduction of prices on products will sustain Morrison’s future.
chief executive Dalton Philips of Morrison’s confirmed “The economic backdrop remains difficult for the customer”, as stated (BBC, 2013) Morrison’s report Pre-tax profit fell to £344m for the first half of the year, compared to the same period last year (2012) with profits reaching £440m.
Diagram Two: Share Market Sky News
Comparing Diagram one and Diagram two of the market Share, Aldi demonstrate they have a major influence in the market. Aldi in 2011 had a market share of 2.2% increasing to 4.7% ending May 2014. On the back of Aldi success, Morrison’s market share commenced at 10.4% in 2011 with the figures staying static the following year, followed by a slight increase reaching 10.9% by May 2014.
The slight increase in performance may be due to Morrison’s raising a price war with Aldi by reducing its prices on 135 products with expectation that more reductions will follow, estimating £1bn over a three year period which will be permanent reductions rather than promotions, quoted by chief executive Dalton Philips in an article (The Guardian, 2014). It remains to be seen if this will revive the growth of Morrison’s in the future.
Outline the background information of customer goods and Supermarkets. Outline the background of Marketing Segmentation.
Apply the theory of Market Segmentation used by supermarkets. Detail the tool used for Sales strategy and by key brands to provide competitor advantage.
In order for the company to identify sales strategies in the market, will carry out what is called “Market Research”. This process is to furnish the retail company to meet the customers’ needs. (Lescher, 1995) defines market research as “gathering and evaluation of data regarding customer’s preference for products and services.” On attempting to interview Robert McDonald the Assistant Store Manager of the Aldi Paisley, but was unavailable for comment on a visit to the store on 29/06/2014. On the back of the store visit, made contact with Aldi Head Office in Bathgate and through social business network LinkedIn but unfortunately Aldi were unable to comment on their sales strategy.
SUPERMARKETS IN THE MARKET
Institute of Grocery Distribution (IGD UK) reported that the United Kingdom market is estimated at £174.5 billion in April this year (2014), demonstrated 2.8% increase from 2013. IGD forecasts that in the UK, the grocery market value will reach the figures of £203.0 billion by 2019 potentially an increase of 16.3% from 2014.
Today’s market the UK grocery market is made up 6 sections, making the retail market competitive. Based on the pie chart, Hypermarkets and superstores have the market monopoly demonstrating £73.7bn Sales with Convenience Stores next £37.4bn and Small Supermarkets the next contender with £35.5bn.
As Aldi come under the “Discounters” with £10.8bn, with a continued strong presence within the retail market, this figure can only increase and could be a potential big player in years to come, if the organisation continues to grow as previous years and challenge others.
Aldi can use a number of channels and methods to increase promotional activity by using the AIDA module. The module can be used for the following; Awareness: Creating brand awareness to its existing and new customers. Interest: Sufficient customer interest to encourage the buyer to start researching further. Desire: Simply the desire from liking it, to wanting it. Action: Attracting the customer to visit store, signing up for newsletter.
Once the organisation has captured the buyer, it must consider the retention of the buyer using “Retention” methods. The methods can be Social Media, TV adverts, Newsletters. If buyers are satisfied with your product, a vote of confidence can attract new buyers (customers) to the company brand, rather than its competitors (business case studies, 2014)
MODEL OF MARKET SEGMENTATION
The process for Market Segmentation is to identify the whole of the market and divide the market into each segment, which allows companies to maximise their own opportunity to generate success. (Dibb et al, 2012) defines Market segmentation “the process of grouping customers in markets with some heterogeneity into smaller, more similar or homogenous markets.” Without market segmentation, the market would assume that customers would share similar needs and that companies can provide one product to the market (Dibb et al, 2012). Therefore this assumption is not correct and as supported by (Dibb et al, 2012) having a Heterogeneous market describes that customers have different needs and wants.
PROCESS OF MARKET SEGMENTATION
Dividing the market into segments is called STP. STP consists of three key areas which are Segmentation, Targeting and positioning.
Segmentation can identify potential opportunities within a market. When designing a market strategy, the organisation can take advantage of the marketing mix approach. The marketing mix includes the four P’s which consists of product, promotion, price and place (Hooley, 2012). Aldi can use this method to take advantage of existing customers as well as attracting new customers. Aldi use the four P’s which can create a process were the right product is sold at the right price, at the right place demonstrating the best possible methods of promotion.
Companies can use targeting as a business tool, making a decision on what key areas of the business within the organisation requires attention. This process is intended to be implemented in key areas such as sales as described (Dibb et al, 2012).
Diagram Three: Company positioning by Customer perception
Diagram three is a perceptual mapping of the UK supermarkets based on customer perception. The map illustrates that Aldi have built up a customer following, which shows a change in customer demand and behaviour. Aldi have progressed and competing with Asda and Morrison’s, illustrating that all companies have to be competitive to ensure the individual company has an advantage over its competitors. As customers are more economically aware and seeking value for money, this can be used to target a certain area in the market .i.e. low quality, high quality, low cost, high cost depending on the current times. Customers may wish to purchase lower quality brands over high quality brands as it may be better value with the end result getting more for your money.
An example of customers getting more for their money, took a challenge to purchase one item from each store and taste it to see if the difference could be spotted with Aldi and Morrison’s products. Purchasing Aldi own brand of Jaffa Cakes which demonstrated similar packaging to the McVitie’s brand with 24 segments at a cost of £0.95 a packet, roughly working out 4 Pence a biscuit. Morrison’s selling the main brand of McVitie’s Jaffa cakes also offering 24 segments at a cost of £2.19 a packet working out 9 Pence a biscuit. Tasting the two brands without knowing which one was from Aldi and Morrison’s, concluded that it was hard to identify which product was from each store. Thus changing to purchase the Aldi brand rather than the main brand (McVitie’s) saving a whopping £1.24. This experiment can be supported in means of description and cost by visiting
Aldi: £0.95 Morrison: £2.19
Aldi have acknowledged that competitive pricing is a major influence to bring attention and awareness amongst customers with Aldi being able to support quality products at a cheaper cost than its competitors by purchasing products in bulk from its suppliers. Aldi also agree the best possible price from suppliers allowing them to pass the savings on to the customer. To support that Aldi can offer main brands at a cheaper alternative without affecting quality, the cost of a Warburton’s Bread from Morrison’s is costing £1.45 with Aldi offering the same product at a cheaper cost of £0.99 pence (mysupermarket, 2014). Aldi: £0.99 Morrison’s: £1.45
POTENTIAL SALES STRATEGIES
When looking at Aldi products and comparing them to other competitors within the retail market, it was evident that Aldi are demonstrating three broad sales strategies to maximise profit from new and existing customers by using targeting strategy, pricing strategy and customer retention strategy. Using the current economic times, targeting the customer’s that are looking to save pounds, Aldi are using a sales strategy by offering cheaper alternatives which result in retaining the customer overall leading to company profit (Business case studies, 2014)
Aldi introduced a marketing campaign in 2011 using the slogan “Like Brands, Only Cheaper” using straight forward, no nonsense, simple adverts to advertise their own products. The advert using an old fisherman saying “Well, there you go then: a fine pair of “Pollock’s” demonstrating Aldi own product against the main product that it’s the same but cheaper. An advert that won most popular TV advert of 2011 featuring a wife talking about her husband’s penchant for a cup of char before declaring: “I don’t like tea. I like gin”.
Aldi Marketing Campaign 2011.
Aldi marketing stragety is to encourage customers to purchase their own brands over the more costly options that are on offer. This campaign suggests its working by the profits the Organisation has seen in recent years as discussed within this report. To this date, the same marketing campaign is still being used (The guardian, 2014)
Strong Selling Strategy
The retail market is competitive environment with companies expanding and growing availability in the United Kingdom (UK) providing customers more choice. As customers have disposable income to spend, supermarkets are always looking to act on customers emotions. One key observation is displaying the discount price along with the original retail price to influence the customer’s decision on making them realize what a fantastic bargain they are receiving.
Supermarkets are always looking to take advantage of an area in the market and Aldi are no different. As reported (Guardian, 2014) Aldi are introducing school uniforms taking advantage of other competitors by offering cheaper alternitvate to other supermarkets and offering parents the opportunity to get their childrens clothing for the coming term in September costing less than the cost of a McDonald’s Chicken McNuggets sharebox.
The package by Aldi offers four school essentials at a cost of £4 when other competitors, Sainsbury’s package is costing £7.33, Tesco £6.75 and Asda £7.50. Managing director, Tony Baines was quoted “The run-up to the new term can be a stressful time for families. As a result, we were keen to offer parents the opportunity to stock up on superior school uniforms and accessories ahead of the new term with breaking the bank” (Guardian, 2014). As a result of Aldi decision to introduce clothing into the mix, this may see a new price war with other supermarkets trying to compete against Aldi, it still to be seen how this will impact on the other supermarkets and how they will react to the new offering by Aldi.
Aldi consider the “Just in Time” (JIT) approach to store management by holding the required stock that the store only requires. As stock is costly with Aldi purchasing stock when required, when stocks are reduced, the companies’ capital improves, allowing Aldi to purchase more stock when required (Jobber, et al, 2006) Aldi.co.uk
As Aldi core purpose is to “provide value and quality to customers” working efficiently and reducing costs allows reinvesting profits back into the organisation. Lean thinking and continuous improvement is fundamental to meet its business goals for growth allowing new properties, suppliers and more savings for customers and offering benefits to employees.
An example of Aldi success, a planning application for 46,200 sq. m regional distribution in Wales has been submitted, according to (IGD, 2014) As Aldi demonstrate continued growth in the UK as the organisation attracts more shoppers that wish to save money on their shop. Aldi have revealed further plans to increase their stores to a minimum of 1,000 stores by the end of 2021 (IGD, 2014). The established German company will support further investment in the UK with 60 new stores to open by 2015, while existing shops will benefit from major refurbishment.
On the other side of the bridge, Tesco’s CEO, Philip Clarke became replaceable after 40 years at the supermarket by the head of Unilever’s personal care business Dave Lewis. The news came after Philip Clarke failed to produce the results, the company was looking for after a decline in sales and profit alongside a renewed profit warning (Guardian, 2014).
Aldi have taken a percentage of the market, which has impacted on others within, with Tesco and Morrison’s having to invest Millions into the price war to try and stay competitive (Mail online, 2014). As Morrison’s and Tesco have recently issued profit warnings, it suggests that Aldi are winning the price war and making others take notice.
Aldi determined the market using the STP (Segmentation, Targeting and Positioning) process. Using this method identifies what type of market Aldi are targeting. Aldi demonstrated using the four P’s, product, promotion, price and place to take advantage of competition and gain more customers.
The change in economy has seen a change in customer spending with behaviour changing by searching for alternative and main brands at a cheaper value. It’s worth noting that other supermarkets are feeling the pressure from Aldi and to sustain such a market position and complete with Aldi, it’s worth consideration the reduction of products to match Aldi which was highlighted by Morrison’s chief executive Dalton Philip.
Aldi are fulfilling its potential by taking advantage of the market by working efficiently which allows to keep cost at a minimum and enable the company to expand within the UK. The companies campaigns “Like Brands, Only Cheaper” have increased the presence of the company’s profile, with continued relationship building with its customers through a number a channels, creating loyal customers.
Morrison’s have found it difficult to maintain their position within the market, feeling pressure from Aldi and resulted in a “profit warning” being issued. It’s therefore clear that Morrison’s have taken the eye of the customer and market, which has shown customer decline and profits dropping due to lack of promotions and low costing products. Unless Morrison’s change their way of thinking, a change in the competition may come in the near future for them. Whether they are able to survive remains to be seen while Aldi continue to be competitive.
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