The classical business concept of Aldi that had proved to be successful in Germany and many other countries had to be altered in UK and Switzerland due to a set of reasons. As we know the main business model Aldi practiced consisted of offering low priced limited range of products that was achieved by compromising the quality of customer service and shop premises. However, this strategy did not prove to be successful in UK and Switzerland and Aldi management had to change its strategy in these countries by increasing the prices of their products and invest extra financial resources that were created in this way in increasing the number of product range, improving the quality of the customer services, and increasing the spending on marketing communication mix.
Taylor and Lee (2007) stress the importance of cultural differences in international buyer behaviour. Culture itself, can be defined as shared values and mindsets and methods of doing things within a specific group (Holden, 2002). Therefore, local cultural differences in UK and Switzerland were the main reasons behind the change of strategy practiced by Aldi.
To be more specific, in Germany and many other countries value of the product is usually associated with cheap price of the product. In other words, if the product is cheap it is perceived as value by customers in Germany and a range of other countries. And this fact has ensured the success of traditional strategy of low pricing practiced by Aldi in Germany and many other countries.
However, culture in UK and Switzerland is different in a way that if the price of the product is very cheap, consumers tend to form low opinions about the quality of these products. Value in UK and Switzerland is mainly associated with the quality of the product, not necessarily with price, and excellent level of customer services as one of the main attributes of quality is associated with value as well. Therefore, Aldi management in UK and Switzerland had to improve the level of their customer services, increase the number of their product range, and invest more heavily in advertising by increasing the prices of their products in order to attract local customers.
This cultural difference in UK and Switzerland compared to many other European countries is caused by higher standards of life in UK and Switzerland compared to the remaining members of EU, at least at the point of time when Aldi had to change its strategy.
Aldi management was able to attract local customers in UK and Switzerland by changing the main components of its marketing mix dramatically. Although, this approach proved to be successful for Aldi there are range of risks associated with this approach that threaten the profitability of the company in the long-term perspective.
The main risk associated with the approach Aldi had implemented in UK relates to the idea that frequent changes of strategy in a company may lead to the loss of power of strategy as a guiding principle. Companies without a clear strategy usually have difficulties in identifying their target customers, because they fail to offer specific benefits to a particular customer segments (Lancaster et al, 2002).
In other words, if companies tend to change their strategies too often due to the internal and external circumstances, this may result in a loss of sense of direction in all levels of the company. Consequently, the company may fail to offer benefits to their customers, because without a clear strategy there would not be ‘source of benefits’ as well, and this may cause a loss of a market share and the eventual bankruptcy of the business.
Another disadvantage of this approach relates to the possibility that having different strategies in different countries may cost a company the loyalty of its long-term customers. Because of the forces of globalisation people tend to travel to many other countries with various purposes. There might be a situation where a long-term Aldi customer may travel to UK or Switzerland for some reason and find the prices of their favorite shop increasingly high compared to their home country. And this experience may negatively affect the loyalty of that specific customer.
Two main competitors Lidl and Aldi had chosen different geographical locations in terms of their market expansion. While Lidl management have been more cautious and restricted the scope of their market expansions only within Europe, Aldi management have acted more boldly in terms of international expansions and had opened stores in Australia and USA as well along with most of the European countries.
It is not easy to state which strategy is more efficient because a wide range of factors need to be taken into account like internal capabilities, financial resources, the level of competition in potential host countries and other related internal and external factors. However, generally if many related conditions are favourable, international market expansion is considered to be an efficient strategy to be implemented by a company in order to maximize the profitability.
Daft and Marcic (2007) identify international expansion as one of the main requirements for success in today’s globalised marketplace. The rationale behind this idea is that if a company with an efficient business strategy fails to expand internationally, it would have limited its growth potential significantly.
Moreover, Aldi’s strategy of intensive international expansion has provided the company the first mover advantage in the market of heavily discounted products. Any other companies joining the competition later in those markets would have seriously limited opportunities because most of the key store locations would have been taken by Aldi.
There are certain disadvantages as well that are associated with Aldi’s intensive international market expansion strategy. The main disadvantage in this perspective relates to the high level of risk that comes with intensive international market expansion that can be divided into three categories:
Firstly, the strategy of intensive international market expansion adopted by Aldi requires significant amount of investments to be committed. This can result in liquidity problems if sales in home countries and other countries decline due to various reasons. Consequently company management would need to make a choice between attracting additional funds for investments from banks in higher costs, or to halt market expansion activities even before initial investments are done. And neither of these alternatives does make a positive contribution to the long-term growth of the company.
Secondly, intensive market expansion strategy adopted by Aldi does make the company vulnerable to the state of the economies of host countries the company is expanding to. And if any economic crisis takes place in those countries all the investments committed into that country would be put under risk.
Thirdly, there are risks associated with cultural differences in new markets that may negatively affect the profitability of Aldi in those markets. Specifically, if integrated marketing communication messages devised by Aldi management for host markets do not take into account the cultural differences of host markets this may result in misunderstandings on the ground of cultural differences and all of the financial resources committed to marketing will be wasted, or even can cause a negative reaction among potential customers.
- Daft, RL & Marcic, D, 2007, Understanding Management, Cengage Learning
- Holden, N, 2002, Cross-Cultural Management: A Knowledge Management Perspective
- Lancaster, G, Massingham, L & Ashford, R, 2002, “Essentials of Marketing”, fourth edition, McGraw-Hill
- Taylor, CR & Lee, DH, 2007, Cross-cultural Buyer Behavior, Elsevier