The applying the cost leadership strategy with no-frills

The United Kingdom grocery retail
market constitutes the largest part of the retail industry and the fastest
growing sector in the economy. Discount supermarkets such as Aldi and Lidl are provoking
the traditional retail business model both in Europe and United States. They
have transformed the parameters that ruled in the British grocery market and captured
a significant size of the market share becoming prominent players not just in
the discount sector but the general grocery retail sector as well. (Mintel,
2017)

The
primary aim of this paper is to analyse and compare the ways in which Aldi and
Lidl operate in the United Kingdom, in order to identify the key elements of
their strategic profiles

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Operating inside out or outside in, is
one of the crucial decisions managers  have to take. According to Doyle, many of the
managers still do not understand the difference between the market and
marketing led organizations. (Doyle, 2008)

However, Aldi and Lidl have developed a
deeper understanding of the UK marketplace. The two discounters are completely
engaged in the minds of the consumers looking for ways to expand demand. They
have deviated from their entirely own-label product ranges to including more
national brands to adapt in the British marketplace. Their value propositions
derive from getting close to the customers in order to solve their problems,
and satisfy their needs for high-quality products and receive value for their
money.

The two discounters have shown a clear
understanding of the market they operate in and their customers, which is the
recipe that led them to outperform the rest of the discounters in the UK.

It can be summarized that Aldi and Lidl
are both market oriented companies who have revolutionized the industry with
their customer-led marketing strategy.Aldi’s cost
leadership strategy is aggressively constructed by reducing costs in all
elements and achieving operational excellence, that represents a significant
building block of their business model. Frugality and efficiency are the key building
blocks of their cost-leadership strategy.Comparatively,
Lidl is as well applying the cost leadership strategy with no-frills approach,
cost minimization and efficient operations.

The two
discounters have gained a significant market share by constant improvement of
their lean business model.

Choosing a
strategic objective is the first step to maintaining a healthy generic strategy.
It represents the foundation of the current and future operating guidelines.
Based on the market attractiveness and differential position, we assess Aldi
and Lidl’s preferred strategic objective.

According to
the results of the Strategic Characterization Matrix presented below, the two
discounters should show continuance in their growth strategy. Both Aldi and
Lidl are well placed to achieve further gains in the marketplace.
A Mintel research on the discount sector has shown that it will continue to
show a strong growth through to 2022, backed by store expansion (Aldi is set to
open 300 new stores by 2022) and positive trading environment. (Mintel, 2017).
When operating in a growth market, “all the competitors can grow, which acts to
reduce destructive price competition and margin erosion.” (Doyle, 2008, p.158)Employing the growth strategy means
that company’s strategic focus should be to increase sales volume. This includes
“marketing tasks such as: convert non-users, enter new market segments,
increase rate and win competitors customers”. (Lukas, 2017, Marketing
Management class presentation 1)With a
view to continuing their growth strategies Aldi and Lidl should increase usage
rate of their existing target group or attract broader consumer segments from
all social classes and income levels. (Zielke,2014)
Introducing the premium brand product lines has broadened the market
segmentation and consumers from the highest socioeconomic groups can now be
seen doing their weekly shopping at Aldi or Lidl. This has also been part of
their strategy to win over competitor customers from Waitrose, Marks & Spencer,
Sainsbury’s, Morrisons etc.

Increasing the customer loyalty and
trust, stands at the center of attention for the both discounters. A recent
study “has shown that 80% of Aldi’s customers has also shopped at other
supermarkets. Therefore, Aldi’s marketing strategies should focus on generating
customer loyalty” (The Times 100 Business Case Studies, 2017, p.3). Lidl has
launched their loyalty-based website ‘My Lidl’ in May 2016. It represents an
online community where users can rate products, discuss topics about Lidl’s
products or service etc. Furthermore, Lidl launched the ‘smart shopper’ loyalty
cards in August 2015, as a step further to increasing customer loyalty.

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