Identify, understand and apply key strategic management concepts and tools to the analysis of an industry.
The report is prepared to focus on the development of business strategies and management of those to ensure successful business functioning and generation of better revenue in business as well. The business organization chosen here, as the case study is Aldi in Australia, which is a supermarket chain offering good quality products and services to the customers for fulfilling their needs and preferences. The strategic management allows for formulating various strategies and implementing those to accomplish the business goals and objectives. The top management is allowed to make decisions and undertake initiatives for managing the resources properly and at the same time, assessing the international and external environments within which the company operates. (Aldi.com.au 2018)
The concept of strategic management is useful for making the business organizations develop a proper vision and at the same time assess the internal and external environments. This would help in creating value for the customers and provide various benefits to the stakeholders as well. The corporate strategies are set for understanding the functionalities of the organisation and determine where the company wants to be in the future. The strategic management would allow the company to gain a better market share by promoting the products and services in the market properly as well as adopt strategies that would the costs incurred while managing the business operations and processes (Hair et al. 2012). The strategic management at Aldi has helped in lowering the costs and managed proper design and architecture for delivering the new products and services to the customers on time. The company’s best strategy is the cost leadership strategy, which focuses on providing value for money products to the customers and creates convenience for the customers to make purchases as well.
To analyse the strategic management aspect of the company, the Porter’s five forces model is used to identify the competitive rivalries in business, threats of new entrants, threats of substitute products, bargaining power of the suppliers and buying power of the consumers in the market of Australia (Wheelen et al. 2017).
Figure: Porter’s five forces (Wheelen et al. 2017)
Being a popular company within the retail industry, there is requirement for huge amount of capital investments and this creates barriers as well for entering the new market segments. Aldi could face issues while establishing a new brand and even find it difficult to reach higher economy of scale, which could need high amounts of investments, time as well as effort (Lee, Kim and Park 2012). The small companies often become victims of the mergers and acquisitions by large companies. To cope up with the needs and requirements of the customers and establish itself within the market place would be possible by selling homegrown fresh vegetables, fruits, meat, eggs. It would be beneficial only during entering the small or medium market segments, which could even reduce the sales and profit level of the company. Thus, the threat of new entrants in the market is medium (Barney and Hesterly 2015). With the new entries in the market, the company might even be unable to survive the competition in the industry and furthermore could result in sales decline and lesser profit generation too.
With the introduction of new companies within the retail industry, other companies make a large number of similar kinds of products of Aldi available in the market. These are considered as substitutes and often are available at a much lesser price, which in turn, influences the customers to make purchases from those companies rather than from Aldi, Australia. There is lack of uniqueness of products and services offered by Aldi, and many other large retail companies sell similar kinds of products and services (Keupp, Palmié and Gassmann 2012). Most of the products are available everywhere and the other companies have focused on extensive advertising, promotional activities and cost reduction strategies, which can make the substitute products become successful in the markets too. Therefore, the threat for substitute products in the market is high for Aldi.
The supermarket chain has greater control and bargaining power than the suppliers, which often results in giving discounts and other terms and conditions because of the power of purchasing. When the suppliers would get much larger orders placed by other companies, then there could be lesser chances to provide discounts and offers for the supermarket chain of Aldi. With more than 500 stores operating in various parts of the world, Aldi could possess a buying power in its own rights and so the supplier power is considerably low (Peteraf, Gamble and Thompson Jr 2014). The entire retail industry has a large number of suppliers who can supply similar kinds of products at lesser prices to the big retail companies like Aldi. Due to lack of costs of switching, suppliers tend to choose the companies that place the largest orders. Thus, the suppliers also do not have much control on the products’ prices or even influence the retailers to sell those products at higher prices. Therefore, it could be understood that the suppliers had lesser bargaining power over the retail company when compared with the other five forces of the model proposed by Michael Porter (Priem, Li and Carr 2012).
The customers are considered as major stakeholders who act as major forces influencing the sales revenue and profit generation. The profit level achieved is dependent on the purchasing decisions made by the customers. Within the competitive business environment, every retail companies are trying to keep the prices of products and services reduced and thus the bargaining power of the consumers is quite high as well. Due to the presence of many stores nearby, customers are provided with convenience and they can even switch on to some other seller if they find that similar kinds of products are offered at lower prices with value for money benefits offered (Stead and Stead 2013). Many other companies offer discounts on the products and even loyalty schemes for retaining the existing customers as well as attract new customers. Aldi’s position currently is not much favorable to increase o decrease the prices of products for influencing the consumers’ buying behaviors. This is why, the bargaining power of the consumers is high (Porter and Heppelmann 2014).
There are several competitors in the market, because of which, new products similar to the offerings of Aldi and substitutes are made available in the different market segments. Even the companies have assessed the abilities of Aldi to make sure that similar kinds of products and services are offered at lower prices, because of which, customers have many options. Due to this, they have even switched on to the other companies by looking at the prices set by each of the companies and discounts offered for those. If customers are getting better offers, it is quite natural that they will look for the value for money products. Aldi has faced immense competition due to which there also had been lack of sales and so immediate changes should be done through innovation of products and enhancing the quality of those to influence the buying behaviors of the consumers (Molina-Azorin 2012).
Few of the major competitors of the company are Coles, Woolworths, Walmart, etc. that have undertaken initiatives and marketing campaigns for obtaining a good market share. Though the cost of promotions is high, still the competitors to gain competitive advantage over Aldi keep the prices of products and services low. There are numerous substitute products and new products available at lower prices, which have influenced the buying behaviors of the consumers too (E. Dobbs 2014).
Conclusion
The report was prepared to understand the various aspects of strategic management considering the business organisation named Aldi, Australia. The strategic management could allow the company to derive positive business management through generation of better revenue and gaining of competitive advantage in business. The Porter’s five forces framework was applied to understand the threats created due to new entrants in the market and because of the substitute products. There were certain issues faced due to the competitive rivalries and because of the bargaining power of the suppliers and consumers. Few recommendations were provided as well including focus on improving the infrastructure and implementation of competitive pricing strategies for influencing the consumer buying behavior with ease and effectiveness.
References
Aldi.com.au. (2018). Discount supermarket offering smarter shopping – ALDI Australia. [online] Available at: https://www.aldi.com.au/ [Accessed 7 Feb. 2018].
Barney, J.B. and Hesterly, W., 2015. Strategic management and competitive advantage concepts and cases. Pearson.
Hair, J.F., Sarstedt, M., Pieper, T.M. and Ringle, C.M., 2012. The use of partial least squares structural equation modeling in strategic management research: a review of past practices and recommendations for future applications. Long range planning, 45(5-6), pp.320-340.
Keupp, M.M., Palmié, M. and Gassmann, O., 2012. The strategic management of innovation: A systematic review and paths for future research. International Journal of Management Reviews, 14(4), pp.367-390.
Lee, H., Kim, M.S. and Park, Y., 2012. An analytic network process approach to operationalization of five forces model. Applied Mathematical Modelling, 36(4), pp.1783-1795.
Molina-Azorin, J.F., 2012. Mixed methods research in strategic management: Impact and applications. Organizational Research Methods, 15(1), pp.33-56.
Peteraf, M., Gamble, J. and Thompson Jr, A., 2014. Essentials of strategic management: The quest for competitive advantage. McGraw-Hill Education.
Porter, M.E. and Heppelmann, J.E., 2014. How smart, connected products are transforming competition. Harvard Business Review, 92(11), pp.64-88.
Priem, R.L., Li, S. and Carr, J.C., 2012. Insights and new directions from demand-side approaches to technology innovation, entrepreneurship, and strategic management research. Journal of management, 38(1), pp.346-374.
Stead, J.G. and Stead, W.E., 2013. Sustainable strategic management. ME Sharpe.
Wheelen, T.L., Hunger, J.D., Hoffman, A.N. and Bamford, C.E., 2017. Strategic management and business policy. pearso
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