Table of Contents
The Company’s Main Operation Model
Over the years, LIDL has continuously been a huge market player in the consumer products retail industry. Since the inception of the company in Germany, the chain of stores main objective towards the consumer is proving goods at relatively lower prices than other retail stores. Mainly for this reason, the company has successfully ventured into the Europe retail market as the leader, and now its presence in the U.S is causing worry for its competitors. In the United Kingdom, LIDL has been a huge market force as it has mainly focused on discounted prices as it main selling point. In an argument by DolguI and Proth (2010) by LIDL selling goods at lower prices alone increases its popularity across the United Kingdom. The author further asserts that this is based on the fact that LIDL provides a cheaper option for basic human retail needs. These strategies have seen the company grow from its inception in Germany, and to over 600 stores in the U.K, and enjoying a market share of 3.5% as of 2015 (Hanbury, 2015).
Apart from its low pricing strategy, LIDL has exceptional perfected the ability to lower its operational costs. For the company to quote the lowest prices for similar products among its competitors, it has to come up with ways in which it can cut extra costs. For instance, the store chain has effectively reduced its supply chain costs by cutting put middlemen, and directly dealing with manufacturers. In addition, the company reduces its advertising costs by focusing more on localized marketing. Ruddick (2015) is of the assumption that a combination of efforts to cut costs on its daily operations, LIDL has managed to provide consumer retail goods at lower prices, and still retain a reasonable profit margin. The company has thrived over the years operating under this model, and still positively venturing into other foreign market using the same market approach. The competitive advantage gained by the company in the U.K is mainly based on its pricing strategy; a struggle most retail stores in the U.K have in harsh economic times.
Additionally, internally the company has also put in place strategies to minimize incurred operational costs. Firstly, most LIDL stores in the U.K has been equipped with technology weigh machine that allow consumer to weigh and package their own groceries. This minimizes the labor costs the stores have to incur (Mathis, 2015). Also, existing store attendants are trained across all sections which allows the company to minimize the number of attendants. This goes further to allow the stores to quote lower retail prices than its competitors (Bohlander, G. & Snell., 2012).
The LIDL stores in the U.K can also be attributed for the fact that they offer fast moving products sourced from local suppliers. This reduces the shelf waster probability within the store, and minimizes the chances that inventory will be held up in the store. This allows for quicker profitability and inventory turnover. To maximize on its fast selling attribute, LIDL has also put in place a sale based promotional strategy. In this approach, the stores offer further discounted prices for certain product with certain periods (Ruddick, 2015). For instance, during winter season you find discounted prices for warm clothing. This has increased the ability of the stores to sell its inventory within short periods.
In essence, the company has out in place strategies aimed at reducing the prices quoted for its products. Reducing the operational costs goes a long way towards ensuring consumers get the real value for their money. For LIDL, this has been the main reason for its success in the U.K, as it market share increases year after year.
Challenges the Company Might Face Implementing Hybrid Facilities
The ability of LIDL to remain competitive is solely based on its ability to reduce its operational costs, and hence be able to provide retail goods at lowered prices. For instance, the retail giant only allows implementation of strategies that may not increase the operational costs of its subsidiaries. Implementation of hybrid facilities may be an opportunity or a threat to the success the company may be enjoying under its current business model.
An opportunity to online trade would be a huge increase in the market share for the company. Yu-Jia (2012) is of the assumption that in the current retail market, the significance of the online consumers should not be ignored. The author further asserts that online trade increases the ease at which a company reaches out and suppliers its target market. For this reason, if LIDL could replicate its physical business model to the online platform it would be a great success. Currently, the company has a website but it is enabled to trade. Consumer can be able to view its shelf discounted price, but may not be able to view buy from the portal.
On the other hand, online trading involves a combination of operations that ensure consumer satisfaction. This includes an increase in the advertising costs; mainly towards online marketing. Costs may be also incurred on website development and maintenance which may be huge for LIDL considering the expected consumer traffic. Delivery services may also increase the operational cost, based on that the company’s failure to deliver may lessen its success chances considering major competitors offer the service.
By implementing the hybrid facilities by LIDL offer greater threats compared to opportunities. This is based on the fact that the costs that the company may incur in the process may mean an increase in the operational costs. Consequently, the company has to then increase its product price in order to have a reasonable profit margin. In addition, this may mean taking away the main selling point the retail chain provides to the market.
Currently, the company has a business structure that allows for cheaper manufacturing and delivery model. For this reason, the company ensures that the customer enjoys almost accurate value of their money considering they have reduced operational costs which is different in many stores. In an argument by Yu-Jia (2012) in the retail industry the ability of stores to offer goods that are valued exactly as what consumer pay for is a valued trait by the consumers. For this reason, being able to provide this increases the likelihood of consumers visiting a retail store. For LIDL, this has been achieved due to lower operational costs. Introducing hybrid facilities may go against this valued culture by the company.
Introducing hybrid models would also increase the service gap model between the store and the consumers. The main advantage physical stores have over online stores is the ability of consumers to get what they pay for in real time. For online stores, the customer is meant to wait for good purchased for certain periods of time, even without an assurance of the quality of product being delivered. Considering that consumer may doubt the quality of LIDL product due to the cheap prices, it is more appealing to the consumer to physically choose products and get them in real time. Hybrid facilities may decrease the popularity of LIDL in the U.K.
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Different Operational Models applied within the Industry
By operating in the U.K, LIDL was said against the big four within the industry that is Tesla, Morrisons, Asda, and Sainsbury. The leading retail stores in the U.K shared almost the same business model in regards to price and production costs. For this reason, the introduction of LIDL with a low pricing model and ways to reduce operational cost, the retail store has been a huge success. LIDL has overtaken even Walmart in the U.K retail industry market share due to its exceptional business model.
For Tesla, the retail stores mainly benefit mainly from an expansive physical presence across the U.K. In comparison to LIDL, the number of Tesla stores in the U.K are almost triple than that of the German retail giant. For this reason, Tesla has a huge physical presence that has seen kits success over the years. Schlegelmilch (2016) cites that the availability of physical stores for companies in the retail industry is a huge success factor considering that the industry involves the trade product required on a daily basis. The decision by LIDL to increased its number of stores in the U.K could be an exceptional strategy from which it could increase its market share. However, the decision to increase the number of physical stores is largely influenced by the ability of a company to access the required economic resources. It is costly to expand and still retain desired profit margin (Dana, 2008). For Tesla, it has the required resources to expand much further considering its value.
The price war operational model has been existent in the U.K but existing players prior to LIDL did not invest much in cost cutting to further lower prices. The entry of LIDL has increased the model by which retail store consider lowering prices as a marketing tool. This, however, requires an exceptional business structure that would be allow for cost reduction even in significant areas of production. Kotler, Armstrong and Saunders (2008) point out that the process of cost cutting within the production process is difficult to implement, and requires an implementation of compact business structures that would not affect the general productivity of a company.
Within the retail industry relating to the consumers is a major asset. For most U.K retail stores, promoting local products can also be considered as a differentiating factor in competition. U.K has a variety of retail products which need a market, and local retail stores have realized the need to access these cheaper commodities and still appeal to the local market. Stobard (2016) is of the assumption that localizing the manufacturing process is required within the retail industry considering how cheaper it is to sell local commodities compared to imports, in regards to common human supplies. This operational model is applied across most retail market players in the U.K, even LIDL has focused on localizing the manufacturing process mainly to be able to further reduce its operational costs.
Regardless of the various operational models being implemented by retail stores in the U.K, there are common models such as localizing the manufacturing process, increasing physical presence, as well as ensuring prices offered are low. Reducing prices below the market price requires a huge investment in cutting general operational costs as well as implementing a compact business structure. Also, increasing the number of physical stores may be an expensive venture but provides a significant presence of stores which is a required asset for retail stores. However, in a huge competitive U.K market retail stores have to apply these models effectively in order to gain on their market shares.
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Possible Solution for LIDL in the U.K Market
In a research conducted by Alexander (2016) for retail chains with huge resources in regards to finance and infrastructure they should invest heavily in funding and supplying for chains in foreign countries. For instance, LIDL has a huge market presence across Europe, as well as a huge value. The funds collected across all markets in Europe may be used to fund expansion ventures in potential markets. The retail industry in the U.K is huge considering the existence many stores sharing favorable the market share. For LIDL, funding the U.K venture would be a huge asset in increasing the presence of the stores across Europe. This suggestion is based on the fact that LIDL main shortcoming to competing equally with leading retailer such Tesla is physical presence. If the retail stores can match the number of stores owned by leading market players, LIDL would be a huge market force in the U.K retail industry.
In regards to the supply chain process, the U.K subsidiaries could benefit immensely if LIDL could use its presence across Europe to increase the variety of products available for the U.K consumers. Considering that the company does not use national products, it is easier for them to increase the variety of product offered on its shelf. This may also include offering cheaper substitutes products in the U.K market (Butler, 2017). This may significantly enable the company to further lower its retail prices and further gaining in the overall market share.
Generally, LIDL should use its value and presence across Europe to further gain in the U.K market. For instance, more funding in the U.K would mean an increase in the number of stores which is a huge competitive asset. Increasing the variety of products offered in stores in regards to price and brands, the stores may further increase its market share in the U.K market.
How LIDL UK may Deal with Packaging Problem
With increasing online trade preference, LIDL UK may find it necessary to start delivery services at a larger scale. This decision may be accompanied by the need to put consumer need for urgency into consideration. To address this, the company may implement a technological approach in which consumers may be able to track their delivery process. In this way, consumers may be able to get their goods within the stipulated period of time and at the accurate location (Bomford, 2012). In addition to the consumer need, the company may also need to put into consideration the type of packaging materials used. For environmental purposes the use of plastics could be avoided and instead biodegradable materials such as boxes used for delivery purposes. They could approach this by liaising with their manufacturing partners to package delivery goods in such materials prior to their supply.
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