- What are the core elements of Aldi’s business strategy?
Aldi’s core elements of their business strategy are quality, frugality, and confidentially. This is a successful business strategy because it caters to the consumer base (Cateora, 2009). The consumer is often looking for quality products at low prices. There is always a market for this type of business.
The business also used a strategic plan to allocate resources (Cateora, 2009). Resources were used to the best of the company’s ability at a timely manner. There were not often products sitting in a back room waiting to be sold.
The company took an opportunity where they felt that the markets needs were not being satisfied by other retailers, and outlined a plan to satisfy these needs (Belch, 2009). This happened with their low cost strategy. In this market they were able to compete effectively. Though their products were quality products at a low cost, they still limited the number of available products. The products were of necessity, rather than want. They were able to successfully compete, but not overwhelm the market.
Competition included other retailers, such as Wal-Mart and Lidl. Wal-Mart was a major competitor in the US based on its size and product offering. However Aldi maintained lower priced private label products compared with Wal-Mart. In Germany, where Aldi started, Wal-Mart stumbled when entering market. Wal-Mart was nearly fined for selling below cost as well as zoning regulations hindered the size of their stores. This helped Aldi maintain their market share (Mitchel, 2005).
Lidl basically imitated Aldi in any aspect that it could. This included small stores, lower prices, and staff. Aldi and Lidl practiced extreme confidentiality, which helped Aldi stay successful. This confidentiality kept Lidl from obtaining all of their secrets to success.
Fortunately for Aldi, the store was considered a cultural institution in Germany. It was advertised as the true character of German lifestyle. This made the stare popular in the market. The success of Aldi was also helped by the ageing population and stagnate economy (Mitchel, 2005). Low prices are ideal in this type of market.
Aldi’s operates on a large scale, but offers that small business feeling (Mitchel, 2005). Many consumers prefer this to the corporate giants, which is also a plus for this business strategy.
- Why has the company been so successful?
There is a vast array of reasons why Aldi’s is successful international. The business strategy is one of the greatest aspects of their success. Maintaining low prices on quality products is a great way to become successful, but can be difficult to maintain. There are many ways in which the company worked hard to maintain this strategy.
The first way is their list of secrets to success (Mitchel, 2005). They decided to keep it simple. It was not important to stock thousands of products in order to make a larger profit. They stuck with necessities. Only the products there were necessary to the consumer.
They also strived to earn their customers trust (Mitchel, 2005). They managed this through low prices, quality products, and a small business feel. All these effects led to the customer feeling comfortable and wanting to shop somewhere that was welcoming.
They set clear goals and followed them (Mitchel, 2005). They did not set unreasonable goals for staff or the company as a whole. They set concise, obtainable goals and worked hard to achieve them.
They worked on constant improvement (Mitchel, 2005). Products were tested six to eight times before sold within the market. Each employee pitched in on daily duties to help the business improve and grow. They set up an atmosphere that promotes teamwork and mutual success.
Know where you stand, but don’t waste time on budgets and figures (Mitchel, 2005). Numbers are always there to bring a business down. If the numbers are not considered overly important, a business can focus on the business. They can maximize customer growth through attention to details and needs.
Test now, perfect later (Mitchel, 2005). This leads for the products to become better over time. If they are tested and meet the quality criteria, they can be sold within the stores. After this happens, the products can continue to improve, giving the consumer more quality then they thought possible from a small retail chain with low prices.
Be fair to your suppliers and help them improve their business (Mitchel, 2005). Sometimes it can be difficult to remember that suppliers are also trying to run a business. If you help the suppliers to understand the importance of offering fair prices and retaining business, the suppliers will be more willing to help you maintain prices to keep your business going (Belch, 2009). Suppliers can work with companies on pricing. Prices are not always set in stone.
Practice management by trust and control (Mitchel, 2005). It is important to set clear goals for management and ensure that they obtain these goals. It is also important to trust the people who run the business. If trust is lacking, that employee should not be there. Trust that your management is doing everything possible to maintain success, but monitor them to know that this is true.
Talk in terms that people can understand (Mitchel, 2005). Any statement should be clear to the people who are receiving it. Ensure understanding so that no breakdown in communication occurs.
No matter how successful you are, stay thrifty and frugal (Mitchel, 2005). Though Aldi’s now has the buying power to increase their product line, build larger stores, and increase staff, they continue to operate small stores. When businesses get carried away with spending money, it hurts their profits. If it is not necessary do not do it.
Aldi’s uses all these secrets to success in the manner mentioned above. The implementation of this list has helped the company to attain success and maintain it. All businesses should take some cues from this business.
The doing without check list in exhibit 2 of the case study has also helped Aldi to be successful. This check list helps leaders to maintain their priorities. If it is on this checklist, it is not important. Focus on what is important, such as consumer needs.
The frugality of the company should also be mentioned again. They limit their product offering, operate small stores with minimal staff, and offer the lowest prices possible (Mitchel, 2005). This is a successful practice. The limited product offering allows customer to purchase needed items. Offering a little more than base items, however, does increase profit to some extent (Cateora, 2009). Operating small stores with minimal staff keeps overhead down. This allows for more profit, when there are fewer expenses. The lowest prices possible bring in more consumers.
There are usually two ways to operate. Offer products at high prices and sell fewer or offer products at low prices and sell in quantity (Belch, 2009). Both ways can be successful, but Aldi’s success is based on selling in quantity and not having items sitting a backroom. When inventory is excessive, that is money that sits on the shelves, when inventory is sold, that money goes into the bank account.
Overall Aldi’s is a very successful retailer. Another way in which they excel is by making customers excited about products that are coming in. The anticipation causes lines to form outside the doors. This happened in Germany with a low priced laptop. The laptop was priced so competitively, that the customers could not wait for it to be available for purchase; causing Aldi’s to become one of the largest sellers of computers in Germany in 2005. (Mitchel, 2005)
This company always delivers which is why it is so successful. Customers are excited to shop there. They are excited about the products. Their business strategy is very successful.
- The business press criticizes Aldi for its slowing and almost stagnant growth, especially compared to its main competitor Lidl. What is your opinion?
Aldi should not be criticized for the slow growth that has witnessed. This slow growth can be tied to their strategy of success deemed by only the necessities. If they are growing slowly, yet successful, why should this be criticized? According to exhibit 10 within the case study, Aldi was ranked as the 12th top retailer, whereas Schwarz Group or Lidl is ranked 24th. This shows that though Aldi’s growth is slow, they are still more successful in the long run.
Another example of expanding to quickly can be seen with a hardware store called Builders square. This chain decided that they should expand quickly, however it was very costly to do so. The sales did not match the cost of expansion, causing the company to go out of business. Quick expansion can be dangerous. (Belch, 2009)
Just as Aldi’s does not add extra products to their shelves because one of their strategies is necessity only, they also do not want to add extra stores that do not fit into their strategy at this time.
The idea of being frugal is important here. Just because expansion can be viewed as more profitable, does not mean that this extra profit is needed at this time. It is important that Aldi’s stay focused to their business concepts.
A quick expansion could cause the company to lose sight of their original business concepts of quality, frugality, and confidentiality. Quality could be compromised if expansion takes precedence. Frugality could hurt expansion if the retailer lacks the necessary resources and manpower to expand. And confidentiality could suffer as the press tries to gain insight into the quick expansion.
- What are the key challenges for Aldi’s expansion into other countries?
The key challenges for entering another country can vary for the retailer. They include cultural understanding, an understanding of international business, and an understanding of how their business will enter the market in a new country (Cateora, 2009). The international markets will vary greatly depending on the individual country.
The goal of international business is the same as if operations were solely based at home. The end goal is a profit (Cateora, 2009). An international marketing plan must be implemented to take into account all the variations of business within another market, such as competition, legal restraints, government controls, government controls, and even the weather (Belch, 2009). As the market changes, the business must change also.
Cultural understanding is important. It will be important for Aldi’s to consider what products are necessary in any given country. It is important to understand the economy of the country as well as the values of the people. With this understanding, the business will be better able to determine how to price, promote, and distribute their products. Packaging is another issue that will be involved here. Even product packaging must be appealing to the new customer base.
Aldi’s must have a grasp on international business. How do rules and regulations vary in each country? They can take a cue from Wal-Mart’s original entrance into Germany and how they almost failed (Mitchel, 2005). Competition can be an issue also, major competitors will vary and competitors that expanded sooner may have a larger market share. It is important for the retailer to know as much as possible to avoid failure.
It is also important to have an extensive entry plan (Cateora, 2009). This plan should consider all aspects of the new culture and how the retailer will face any risks or challenges. Advertising should start as soon as entry into the market is established in order to gain a foothold and start to gain some of the market share.
International marketing seems a novel concept at this point in time, however it is still difficult. Without the proper information and tools for entering a new market any business could easily flop.
Aldi’s plan for slow growth and movement should make any move more successful. The company plans carefully, strategically, and frugally. These acts should allow the company clear, concise, successful entry into many new markets.
There is always risk involved when running a business. As long as Aldi’s considers any risks and practices risk avoidance to the best of their ability, the company should continue to be successful. This could determine success in Germany or any other market they wish to conquer.
Belch, .. &. (2009). Advertising and Promotion. New York: McGraw-Hill Irwin.
Cateora, P. G. (2009). International Marketing . New York: McGraw-Hill Irwin.
Mitchel, J. (2005). Aldi: A German Retailing Icon. Barcelona: IESE.