Retail and Service

Aldi is a German-based and one of the world’s leading discount grocery retailer with over 8000 stores. What distinguishes Aldi from other grocery retailer is the simplicity and maximum efficiency at every stage of the firm. In turn, it enables the retailer to provide quality products at the lowest price. For example, some of Aldi’s products are 30% cheaper than those sold by its competitors. Therefore, for the purpose of investigating consumer behaviour, this paper is going to evaluate effects of store image adopted as well as service offered by Aldi in the UK. It will, in addition, suggest some improvement for Aldi to implement to attract more customers and enhance their experience. The reason why UK is selected is due to the high competition in the grocery industry, but Aldi still manages to success. As, in the UK, it has over 500 stores in the UK and continues to expand more. Aldi has also overtaken Waitroses to be UK’s sixth largest supermarket chain (Butler, 2015).

Yet, before the main part, the paper also would like to state problem that Aldi has to improve for further development. One of the issues that it is facing is product quality control to maintain customer relationship.  Quality is always an important factor in purchase decision. For instance, the scandal of horsemeat in 2013 significantly affected customer trust in Aldi, resulting in sales decrease.  Moreover, while, other competitors implement programs to develop customer relationship management in order to understand their customer better, such as Club card of Tesco. Aldi seems lacking in this issue because of low cost operation. However, price discount strategy encourages customers to be price-conscious, it also mean being easy to turn way for better deal (Sirohi, Mclaughlin and Wittink, 1998). For example, last year big supermarkets like Tesco and Morrison have conducted copycat discount strategy to attract customers and remain competitive against Aldi. In order to maintain the leading low price, Aldi was forced to drop its price to match its objective, which, in turn, resulting in gross margin reduction (Butler, 2014). Hence, if Aldi is unable to balance the loss from supermarket price war with other stages of operation, it may suffer profitability decrease in long term. Therefore, only control the quality in all food and products can build up the relationship with customers. Since perceived quality can increase customer value perception in term of price exchange, thus customer retention (Zeithaml, 1988). For that reason, with high quality offered, even small price discount from competitors may not lure away Aldi’s customers, thus affecting its performance.

Martineua (1958) states store image is important as it is a picture of store in shopper’s mind, partly by functional attributes and partly by atmosphere of psychological attributes. Aldi has developed its store image as value for money merchandise, since price and quality are key criteria for consumers to compare stores and make purchase decision. Especially for discount retailers, low price is a significant attribute to value perceived by customers, thus impacting on purchase intention (Kim and Jin, 2001). The relevance of price to value for money perception customer in retailer context is likely to be delivered from price comparison of similar products with Aldi’s competitors. Thus, customers only perceive value for money when price is relatively low compared to quality obtained. Moreover, consumers often relate low price to low quality, thus affecting their value perception (Semeijn et al., 2004). According to Zeithalm (1988), customer value perception is considered as a trade-off between utilities and sacrifices from product and store attributes. This implies that value for money image may not be formed if quality received is too bad even with low price. For example, cheap ready meal does not necessary create value for money, but consumers may perceive spirit purchase as good value for money, even not cheap. Understanding that, Aldi’s value for money store image also focuses on quality to attract customers and compete with other discount retailers. Aldi’s private label brands (PLBs) account for 95% of its products, which is priced below manufacturers’ brands. The control of own manufacture and supply enables Aldi to maintain low price but good quality products. In fact, market research revealed that many PLBs were actually rated as good compared to national brands whose price is higher due to the cost from marketing investment (Steenkamp and Kumar, 2009). For example, Aldi’s laundry detergent has been appraised higher than national manufacturers like P&G or Uniliver. Therefore, low price good quality products contribute to value for money Aldi’s store image which forms the vantage point of consumers, accordingly, purchase intention. The hierarchical value indicates that value for money is strongly important for retailers because, for customers, low price, but satisfied quality means less expenditure and saving money, thus, leading to positive feeling or quality of life, so resulting to enjoyment and happiness (Thompson and Chen, 1998). As a result, value for money store image, in terms of low price good quality, which is perceived by customers will not only enhance retailer image, but also satisfy customers’ need in grocery shopping, consequentially, stimulating their purchase and patronage.