Why Some European Discounters Enter Emerging Markets – and Others Do Not
Photo by Kolle
Discounters are companies, whose strategic target dimensions are price leadership and cost advantages. This can be realized through simplicity and a high level of standardisation in the stores, a limited product line and private brands goods that focus on basic needs and high purchasing volumes. Incontestably, the food industry and the home furnishing industry can be identified as selling goods with a focus on basic needs. Therefore, it is not surprising that the strategic approaches of some of the most successful retailers in these two industries can be identified with a discounter philosophy to a certain extend. The global marketing strategy however, can be different.
Where ALDI as an international discount supermarket chain remains in developed countries IKEA, selling home furnishing, expands its business to the emerging markets, covering both – the developed and the developing world.
ALDI is focused on developed markets only, which are western and central Europe, the United States and Australia. As the ALDI companies, both ALDI Nord and ALDI Sued, are privately owned they publish few mandatory reports. Therefore the companies´ strategy has never officially been revealed. However, various national homepages state a clear message concerning ALDI´s brand positioning: “High quality for low prices”. Even though the slogans may differ slightly from country to country there are three major statements communicated implicitly in the slogans explicitly on most homepages, and on wallpapers in ALDI´s stores: purchasing power through great volumes, no-nonsense approach, and high quality standards. The company´s marketing mix has been set up in accordance to this philosophy. ALDI is now acknowledged as operating the leanest low-cost model in the world. Price leadership is the key tool and ALDI´s everyday prices are supposed to be lower than supermarket “sale” prices.
Even though IKEA´s sales are dominated by the European market (79%), the emerging markets such as China or Russia have become more and more important. IKEA´s global marketing strategy is based on its business idea which states a brand positioning that consists of price leadership and innovation: “The IKEA vision is to create a better everyday life for the many people. We make this possible by offering a wide range of well-designed, functional home furnishing products at prices so low that as many people as possible will be able to afford them.” The marketing mix reflects IKEA´s business model, which demonstrates a high level of standardisation in IKEA´s marketing activities in order to serve “the many people” through affordable prices, utilising economies of scale. IKEA´s market entrance into China in 1998 changed the traditional way of exporting the IKEA concept since price leadership, one of the cornerstones of the IKEA philosophy, was not attainable. The Chinese perception of IKEA was one of an interior design specialist; so they decided to position themselves, supported by their own perception of being innovative and functionally oriented, as an expert interior design company, rather than selling individual products at discounted prices. Apart from that, much of IKEA´s marketing strategy had to be adapted to Chinese circumstances, e.g. the distribution of IKEA catalogues was just impossible for a market like China, cost and reach wise.
Comparing the scenarios, both companies show good performances within their framework. Taking into consideration that the developed world shares many cultural similarities such as eating and buying habits, the concept of selling a very limited and fairly standardised range of food products seems to be a lot more efficient for ALDI in terms of economies of scale and scope. The current economic situation and outlook in the western world opens the additional chance of a growing price sensitive clientele. Nevertheless, it can be stated without any doubt, that IKEA outperformed ALDI growth wise, especially over the last decade. The global or international marketing strategy, however, has to reflect the company´s purpose and approach of doing business. Where the IKEA foundation – focusing on the rights of children and youth in the developing world – has a global perspective, ALDI´s main values remain risk avoidance, which is maintained through a maximisation of standardisation, and ultimately independence. ALDI´s way of growing through its own retained profits would probably not allow them to allocate sufficient resources to enter an alien market like China or India unless they think of a franchise system, but ALDI does not have the management resources to control the risk of brand damage; neither would it be coherent with their approach of doing business as an independent company. The IKEA scenario shows the capability of a discount retailer to operate in developed and developing markets on the basis of a standardised concept. In order to fulfill the core of your business concept a certain extent of adaptation in the marketing strategy may become evident and should be accepted.