This research study aims at investigating the pricing strategy from customer’s perspective by using ALDI as the main focus and assessing the company’s pricing with respect to United Kingdom as its main operation environment; the strategy that the company adopts to maintain a higher level of pricing strategy performance in the United Kingdom operation environment, the relationship between cost reduction and pricing strategy in ALDI and the barriers that ALDI faces when adopting the pricing strategy in the United Kingdom operation environment.
Qualitative research is conducted through interview to understand the pricing strategy that ALDI adopts form customers’ perspectives. An integrated model is generated from interview data which understanding customers’ perception from the internal operation environment and the external marketing environment. It is suggested that ALDI’s pricing strategy is not only attracting new customers, but also adopted as a way to create its business image, branding.
The pricing strategy is also essential in achieving a high level of customer satisfaction, which contributes to the customer loyalty development. The interview questions are used to elicit a broad understanding relating to different areas in pricing strategy. From the research and by assessing the achievements made by previous research studies, the present study recommends future research to have a more convergent and specifically focus on and test the capacity and possibility of integrating models relating to customer-based pricing strategies and business-centered pricing approaches.
Table of Contents
Index of Figures………………………………………………………………………………………………. v
Chapter 1. Introduction……………………………………………………………………………………. 1
1.1 Research overview…………………………………………………………………………………. 1
1.2 Research objectives……………………………………………………………………………….. 2
1.3 Research outline……………………………………………………………………………………. 4
Chapter 2. Literature Review…………………………………………………………………………… 7
2.1 Introduction…………………………………………………………………………………………….. 7
2.2 What is Price and Pricing Strategy?……………………………………………………….. 7
2.3 Price Sensitivity and Consumer Psychology…………………………………………. 8
2.4 Models of Pricing………………………………………………………………………………….. 10
2.4.1 Psychological Pricing…………………………………………………………………….. 10
2.4.2 Odd Pricing…………………………………………………………………………………….. 11
2.4.3 Competitive Based Pricing…………………………………………………………….. 13
2.4.4 Value Based Pricing………………………………………………………………………. 15
2.5 The measurement of Sales Performance…………………………………………….. 17
2.5.1 Customer Satisfaction……………………………………………………………………….. 17
Chapter 3. Methodology…………………………………………………………………………………. 21
3.1The philosophic consideration and the research methods……………………. 21
3.2 Research design………………………………………………………………………………….. 22
3.2.1 Data collection……………………………………………………………………………….. 23
3.2.2 Data analysis…………………………………………………………………………………. 26
3.3 The ethical issues that have been raised by this research…………………… 27
Chapter 4. Resources and Finding………………………………………………………………. 29
4.1 ALDI’s pricing strategy from employees’ perspective……………………………. 29
4.1.1 Operation experience…………………………………………………………………….. 29
4.1.2 Business strategy…………………………………………………………………………… 30
4.1.3 Competitive advantage…………………………………………………………………… 31
4.1.4 Customer satisfaction…………………………………………………………………….. 33
4.1.5 Pricing strategy ALDI from employees’ daily operation experiences 34
4.2 ALDI’s pricing strategy from customers’ perspective…………………………….. 35
4.2.1 Customer experience…………………………………………………………………….. 35
4.2.2 Customer loyalty…………………………………………………………………………….. 36
4.2.3 Perception in price strategy……………………………………………………………. 37
4.2.4 Pricing strategy in customer perception…………………………………………. 39
4.3 ALDI’s pricing strategy and its impact on customers…………………………….. 40
4.3.1 ALDI’s pricing strategy model from employees’ perspectives…………. 40
4.3.2 ALDI’s pricing strategy model from customers’ perspectives………….. 42
4.3.3 Integrated ALDI’s pricing strategy model………………………………………… 43
Chapter 5. Conclusion and recommendation………………………………………………… 45
5.1 The importance of pricing strategy to ALDI in United Kingdom……………. 45
5.2 ALDI’s strategies in maintaining a higher level of pricing strategy performance 46
5.3 Cost reduction in ALDI in its operation in United Kingdom………………….. 46
5.4 The barriers that ALDI faces when adopting the pricing strategy in United Kingdom 47
5.5 Research limitation………………………………………………………………………………. 48
5.6 Future research direction……………………………………………………………………… 49
Index of Figures
Figure 1 Pricing strategy in ALDI from employees’ perspective……………………………. 33
Figure 2 Pricing strategy in ALDI from customers’ perspective……………………………… 35
Figure 3 Integrated pricing strategy model in ALDI……………………………………………….. 36
Chapter 1: Introduction
1.1 Research overview
Established in 1913, ALDI has seen a long history of operation that has enabled it to transcend the boundaries of local market from operating as a German company to becoming a player in the global market with operational presence in Australia, France, Ireland, Spain, USA and other areas across the world. The name is basically a fusion of two names: Albrecht and Discount. They adopted the pricing strategy by offering the lowest price as a way to compete in the market. In the pricing policy the company developed, if customers could get a lower price elsewhere, ALDI would pay the price difference and reward the customers. Apart from the “lowest price” strategy, ALDI also improved its operation strategy from product quality control and minimized operation costs. Thus, one of the essential factors that helped the company to develop its brand image was the low pricing strategy. With the business image created as a low-price alternative in the chain stores market sector, ALDI slowly transitioned to offering lowest price for some popular products to attract customers; as opposed to offering lowest price on every product. The quality control helps ALDI to retain its customers to ensure a higher success potential in sustainable operation and management.
With the information provided in ALDI’s website, ALDI’s pricing strategy is supported by a strong product quality control process. This tends to suggest that a pricing strategy will only have a higher success potential when the product quality is satisfied the target customers. Since ALDI is competing in the supermarket industry and the products what offers in supermarket are mainly everyday products, it makes the quality of the product more important than the price. Miniard et al (2012) suggested that customers may only accept a lower quality product when they are faced with budget constraints. In other words, offering poor quality with lower product price may attract new customers, but does not go a long way in retaining customers. With respect to the success of ALDI, they are not only attracting new customers, but also retaining customers. This is achieved through an accompanying stringent quality control measures.
Pricing strategy is not related to offering the lowest price, but the best price for a product form the target customer’s perspectives. This tends to suggest that customer’s personal preference will have a strong impact on the performance of ALDI’s pricing strategy. This research is based on the views of customers sampled from the ALDI’s customer base to understand how they evaluate ALDI’s pricing strategy. It is expected that an integrated model can be generated to understand how the pricing strategy impacts the level of customer satisfaction and boost customer loyalty. It is expected that the integrated model can be adopted by other businesses when considering pricing strategy as a way to improve sales performance, customer loyalty and return purchases.
1.2 Research objectives
Pricing strategy is widely adopted by businesses regardless of the type of business or the nature of businesses they engage in (Nagle, Hogan & Zale, 2010). Pricing strategy is adopted to attract customers in various ways. The common mistake when it comes to the pricing strategy is that businesses commonly turn to offering lower price to attract customers. Previous studies have suggested that pricing strategy is not necessarily to offer customers with a lower price, but a good price which reflects the value of the product (Miniard et al, 2012). ALDI has a business image developed, which is closely related to a lower price offering in its development and market presence. It is a pricing strategy, but it can also be a business strategy to differentiate ALDI from other competitors.
1.2.1 Broad Objective
This research study is motivated by the pricing strategy that ALDI adopts in the United Kingdom market environment where it has a presence. For this reason and motivation, the broad objective of this undertaking is to investigate how ALDI customers in the UK market perceive ALDI’s pricing strategy.
1.2.2 Specific Objectives
To boost the goal of the broad objective highlighted above, the following three specific objectives are going to be addressed by the end of the current study:
- To investigate the role played by ALDI’s price strategy in attracting new and current customers
- To assess the level of importance customers place on ALDI’s pricing strategy
- To evaluate the correlation between price and perceived value from customer point of view
With the research objectives above already set, research questions are formulated to aid in gathering of data that is not only specific enough to the subject matter but broad enough to cover all important and relevant areas in the topic under study. Therefore, to aid in achieving the highlighted objectives, the following research questions are formulated to help in the present research study.
- How do ALDI customers perceive the organization’s pricing strategy?
- Why is pricing strategy important to ALDI in the United Kingdom operation environment?
- How can ALDI’s strategies in maintaining a higher level of pricing strategy performance in the United Kingdom operation environment?
- How can ALDI reduce its cost to achieve its pricing strategy in the United Kingdom operation environment?
- What are the barriers that ALDI faces when adopting the pricing strategy in the United Kingdom operation environment?
1.3 Research outline
Chapter 1: Introduction. This chapter introduces the research study. A background of this study is provided under the introductory chapter where the background of ALDI is also provided. The motivation of the current research is also introduced with the research objectives, questions and research rationale well laid out to give a firm philosophical support for the study. While the research objectives and research questions that guide this research study are introduced, the potential research problem to be addressed is basically identified from previous studies by assessing the limitations and gaps of previous studies.
Chapter 2: literature review. This chapter reviews previous studies which are related to pricing strategy. The definition of price is generated from previous studies with support from ALDI’s operation strategy. The pricing strategy is explored from relevant literature to generate a broad understanding of the concept and its application in ALDI. The relationship between price strategy and customer is examined from price sensitivity and consumer psychology. Potential models of pricing which are suitable for ALDI to improve its operation performance are presented from psychological pricing, odd pricing, competitive-based pricing and value-based pricing. The measurement of sales performance is generated with respect to customer satisfaction.
Chapter 3: Research methodology. This chapter provides the methodology used in the research study by explaining data collection procedures used, the sampling techniques employed, how validity and credibility are achieved and how bias is dealt with. The philosophical consideration in respect to the objectives of the current undertaking alongside data analysis approach is also highlighted under this chapter. The chapter extensively discusses the research design adopted in addition to addressing the ethical issues that relate to such undertaking.
Chapter 4: Results and findings. This section analyses the interview data collected from employees and customers to understand ALDI’s pricing strategy. ALDI’s pricing strategy from employees’ perspective is examined from operation experience, business strategy, competitive advantage, customer satisfaction and pricing strategy in ALDI. Customers’ perception in ALDI’s pricing strategy is examined from customer experience, customer loyalty, perception in the price strategy and pricing strategy in customer’s perspective. ALDI’s pricing strategy is cross analyzed from the two dimensions and formed into an integrated model. The integrated model is generated for future testing.
Chapter 5: Conclusion and recommendation. In this section, the conclusion is presented based on the results of the analysis carried out on the collected data and in line with the set objectives in the introductory chapter. Based on the conclusions derived from the results, appropriate recommendations are then made with respect ALDI’s pricing strategy and future research.
Chapter 2: Literature Review
This chapter provides a review of literature relating price and pricing strategy. By undertaking the task of literature review, it helps in placing the current study in an appropriate setting with respect to other related studies and bolster understanding of the role the current study achieves by filling the gaps identified from the previous studies. Any other relevant literature is also reviewed under this chapter.
2.2 What is Price and Pricing Strategy?
The Economic Times (2013) indicates that price is the value that is attached to a product or service under a series of complex calculations, research and understanding of the risk-taking possibility.
Retailers sometimes use competitive price comparisons to convey a price advantage relative to the competition. For example, Wal-Mart is currently running commercials that convey its lower prices on selected items relative to either Toys “R” Us or Publix (a grocery chain operating in the south eastern United States). Competitive price comparisons also appear in the retail environment; for example, Publix used shelf signs to convey to shoppers its lower price for certain brands in selected product categories relative to Winn-Dixie. Unlike advertisements in which retailers exclusively present product prices that are compared to the competition, retail environments containing price comparisons typically, if not always, limit these comparisons to a subset of the retailer’s offerings. This mixture of comparatively (those receiving a price comparison) and non-comparatively (those lacking a comparison) priced products is called partially comparative pricing.
Price comparison is mostly considered by consumers when implementing purchase; and has attracted marketing theorists as a subject to focus on (Blair & Landon 1981; Mazumdar et al., 2005). Yet little is known about the type of competitive price comparisons used by such retail giants as Publix and Wal-Mart. Researchers have often examined price comparisons of a temporal nature, in which a retailer’s current selling price for a product is compared against its former, higher selling price (Bearden & Weilbaker 1988). Although some research has addressed competitive price comparisons, these efforts (Lichtenstein et, al., 1991) have focused almost exclusively on comparisons that are silent about the specific competitor against which the comparison is being made (e.g., “Seen Elsewhere for $59.99,””Compare at $14.95”).
Barone et al. (2004) were the first to provide evidence regarding competitive price comparisons using a specific competitor. These comparisons had the desired effect of creating more favourable price beliefs about the retailer’s comparatively priced products relative to the competitor named in the comparison. However, such comparisons also identify an undesired effect: relative price beliefs about the non-comparatively priced products were less favourable in the presence of comparatively priced products. In addition to revealing the potential double-edged nature of competitive price comparisons in a partially comparative pricing context, their findings highlight the importance of considering how these comparisons affect consumers’ perceptions of retailers’ entire product offerings, not just those receiving the comparisons.
The Economic Times (2013) demonstrate that pricing strategy is then implemented at defined customers and compete with other rivals by account into the market statues quo, business profit margin, costs invest, customers’ capability to pay, and value perceived by customers.
2.3 Price Sensitivity and Consumer Psychology
Since the perceptions of consumers intending to make purchase decision impact of consumers’ purchase decision, Nagle, et al. (2010) demonstrate nine prominent factors, which likely influence the perceptions of consumers to a given price and the price-sensitivity and point out what consumers experience with while making purchase decisions (Mind of Marketing, 2008), as follows:
Reference Price Effect – When customers are unable to link certain products with perceived alternatives which are different among customers according the experience, attitude, occupation, etc., they become greatly price sensitive. (Putler, 1992)
Difficult Comparison Effect – Customers are less price-sensitive to praised or reputable products, especially when they are unable to compare them with potential alternatives.
Switching Costs Effect – When the switching cost is extremely high between alternatives, the customers become less price-sensitive.
Price-Quality Effect – customers have perceptions that high quality comes with high price, hence they are less price-sensitive when purchasing high-price products, including exclusive products and highly valued products.
Expenditure Effect – customers become greatly price-sensitive when the expenditure takes a larger percentage of their income or available funds.
End-Benefit Effect – the effect is caused by the difference (perceived or actual) between purchases made and perceived benefits received, including two independent variables, which are derived demand and price proportion cost. Customers become more sensitive to prices when they perceive that the end benefits of their purchases needed need to be higher. They therefore tend to associate contribution of the prices to the end benefits more highly when the desired end benefits are also highly rated. Price proportion cost is another closely related factor that customers refer to while they are purchasing several components to mutually contribute to end benefits; such as assembling PC. When the component cost of total cost is low, the customers’ price sensitivity also decreases.
Shared-cost Effect – While purchasing products mutually, the customer who owns smallest proportion is relatively less price-sensitive than other buyers.
Fairness Effect – customers become more price-sensitive when the prices are out of the acceptable price ranges they think ‘fair’ or ‘reasonable’ according to their perceived value of products.
The Framing Effect – Customers become more price-sensitive and treat purchase as a sort of loss than value exchange.
2.4 Models of Pricing
According the different objectives of pricing approaches, managers propose to employees the most suitable strategy into products price marking. Three main pricing approaches are identified and lay down the theoretical foundations of this upon which pricing strategies are generally based: including psychological pricing, competition-based pricing and value-based pricing. The odd pricing strategy is mentioned, as most common psychological pricing approach to specify the effectiveness of psychological pricing.
2.4.1 Psychological Pricing
This is a pricing strategy designed to have a positive psychological impact; for example; selling a product at $3.95 or $3.99, rather than $4.00. There are certain price points where people are willing to buy a product. If the price of a product is $100 and the company pins its price as $99, then it is called psychological pricing. In most of the consumers mind, $99 is psychologically ‘less’ than $100. A minor distinction in pricing can make a big difference is sales. The company that succeeds in finding psychological price points can improve sales and maximize revenue
Psychological pricing creates positive implication to customers. For instance, the retailers prefer to set price of product as £ 4.95 or £ 4.99 rather than £5.00, which means there is certain price point expected by customers and influences their purchase decision making process. While a product is marked as £ 50, and managers set £ 49.9 as its price, customers will think the difference on price is more than 1 cent psychological. This psychological difference impacts the sales, and for most companies, they understand that through setting proper psychological price, the sales and revenues are maximised.
Brenner & Brenner (1982); Herrmann & Moeser (2005) interpret the four hypotheses the psychological pricing approach bases on:
- Customers prefer to ignore the least significant number since limits of subconscious memory even though they might have seen the cents. Moreover, Coulter (2010) reveals that when the cents are printed smaller, such ignorance gets enhanced, such as £ 4.99.
- The fractional prices involve customers and do impact on them to perceive the price as the lowest retailers could offer.
- Since research mechanisms are abundant, the products are searched in price bands. In this case, the fractional prices could be listed into price lower band to attract more potential customers.
- Thomas and Morwitz (2005) describe a phenomenon, called left-digit anchoring effect, that is, customers perceive the difference between £ 3.99 and £ 5.00 is closer to 2.00 rather than the real 1.01 since the judgement is anchored on the comparison of left most digit of both prices.
Some arguments have been proposed against the theory of psychological pricing. For instance, Bornemann & Homburg (2011) and Coulter & Coulter (2010) insist that though a decision is made through processing series of real cost and complicated value, buyers could perform rationally, even a child. However, the researchers in favour of psychological pricing theory suggest a belief that economic decision making process often ignores rationality in subconscious of thought process, which points that the opposite result achieved or followed is because the purchaser does not factor in non-rational nature of the phenomenon.
2.4.2 Odd Pricing
Odd pricing is the most common approach of philosophy pricing, which shows sellers’ preference to set a price with odd numbers as last digits (Boyd & Massy, 1972). There are various studies on measurement of effectiveness of odd pricing, and explanation of the reason of its popularity. One most recognised description of odd pricing is to make customers feel the price is much cheaper though the price tagged through odd pricing is mostly close to the round figure. For instance, the first sight on the price £4.99, likely leads customers to think its closure to £ 4 rather than its nearest five pounds. In Boyd and Massy’s (1972) opinion, this illusion of tagging prices with odd numbers, to make them seem cheaper than real price, enhances the willingness and response of buyers.
To explain this illusion of odd pricing, most of theorists agree that the competence to store information is limited in human beings. When customers receive the first price information, they are expected to store perceived most valuable information, such as first digits (Brenner & Brenner, 1982). Therefore, while customers receive the price information, of which first digits may mostly comprise one number (such as 4 in £ 4.99), they are likely to accept the feeling that the price is 4 pounds, or maybe 4 pounds 90 cents, but not likely exact £ 4.99. Besides, Brenner & Brenner (1982) also explain that the reason why customers do not have the feeling of £ 5.00 is because the processing time of memory. Addition, while customers observe the price, various pieces of information are to be processed at the same time, such as looking the instruction of products, making purchase decision, comparing with other remembered alternatives, etc., and the first number of price becomes rational to remember on the capacity of memory and attention terms.
Harper (1966) suggest that based on the explanation of the rationality of employing odd pricing approach, consumers believe the products are marked with the lowest possible price. Schwartz (1977) adds that, in practical, most retailers observed and agreed that most customers are inclined to believe the feeling of odd pricing attempt to be effective. In short, while using odd strategy, a retailer could give the customer a feeling or impression that through reducing penny on price, the retailer is committed to provision of lowest priced products to consumers.
Another explanation for odd pricing is that through the use of odd numbers to plug into the price, customers’ attention is drawn by the cycles, in specific, number 9 and customers are willing to receive such incentives when they are making their purchase decision. This explanation is mentioned in several literatures (Dodds & Monroe, 1985), but is titled as a brief based on speculation rather than objective evidence.
Odd pricing is widely used in Wal-Mart (Holdershaw et al., 1997). According to Rudolph (1954), 64% of prices investigated during the study ended with odd numbers in 3025 retail stores around 37 cities in the United States of America in 1948. Twedt (1965) conducted another observation held in 1954 and established that 9 is the most popular ending digit in food retailing market, which is more than 60% (Holdershaw, et al., 1997), the 5 is being second in popularity, which occupies 30% and only 7% of prices are ended in the digit 0. While these studies show how the subject of odd pricing has had a relatively long period of time in terms of how it has captured the attention of scholars and behavioural scientists, the results of these studies continue to persist to the present and are corroborated by a relatively recent study conducted by Anderson (2003) that showed the importance of using 9 in odd pricing strategy. In another equally and relatively recent scholarly Herrmann and Moeser (2005), established that the digits 9 and 5 account for more than 80% of the last or ending digits in retail prices.
Supermarkets constitute the place where odd pricing is widely used to attract employees. In the past, a variety of research studies on the popularity and effectiveness of odd pricing have been implemented in supermarkets (Schindler & Wiman, 1989; Wisniewski & Blattberg, 1983), and the results have proved that more than 80 percent of marked prices of products ended with digit 9.
2.4.3 Competitive Based Pricing
Competition based pricing is another popular pricing strategy in market places (Raju & Zhang, 2010). It is recognised that when employing this pricing strategy, the involved company usually finds out the prices of similar products in other competitive companies, and set the close prices for own products by adding ore subtracting some percentages. Generally, in Raju and Zhang (2010)’s opinion, this pricing approach makes pricing decision easier to make without having to carry out comprehensive market research that is time consuming. In other words, competition approach is relatively risk free, since the price is set and modified along with its competitive products. This therefore means that the company has lower or no risk associated with occupying market share with uncertain competition. One major advantage of competition based pricing is obvious; it is a quick and straight forward way to determine the proper prices with low risk and it is considered accurate in some situation.
There are two main potential issues recognised by theorists and practical organisations while businesses set own prices on the basis of intensity of competition unilaterally.
First, the limitation of observation methods to competition of market place is universally existing, such as knowledge of pricing decision makers, bias on situation explanation and understanding, the subjective notion or attitude of people involved in the decision making. The aggressive emphasis put on observing and analysing of external environmental, especially competitiveness of competitors, may cause profits loss and increase in productions costs, especially in R&D department.
Second, competition-based pricing drives price setters into passivity, which means, the price makers ignore their own responsibility to set price while employing this approach. To managers, the pricing is all about competing with other competitors by setting the competitive prices and adjusting the prices several times according to changes made on competitors’ products. In this perspective, the prices are modified because of ‘invisible factor’ – the intensity of competition among market place. To some extent, it is explained as risk free advantage. Yet, the worst situation that exists is that each company sets prices based on other companies’ perspectives the same way, which is called double-mirroring. In this situation, the prices for entire industry probably do not sync with demands of real customers.
In short, competition-based pricing has potential risk, which may lead a company to miss the opportunities since the price makers ignore the real value of the brand, product, or even company as a whole.
To summarise though, certain businesses need to use competition-based pricing extensively, because consumers compare prices with switching costs from buying a product at store X or store Y remaining exceptionally low. Yet, for most businesses, especially in supermarket industry, competitor data should not be the central tenet of your pricing strategy, because there are too many other variables to consider when you’re not comparing congruent products.
In this methodology, competing products are used as a benchmark for how to set your prices, rather than using your internal costs, customer demand or brand development as key factors for price determination. This can be a simple and effective approach with the following options based on the proposition of Fahy and Jobber (2012):
Fahy and Jobber (2012) suggest that there is possibility of charging some premium price in comparison to the competition because certain products have attributes the purchaser values over the competition. These attributes may be real, as in the case of a concentrated soap that may deliver x% more volume of clean clothes, or perceived, as in the case of a luxurious stationery. Presumably, you have a sense of how much the attribute(s) are valued to enable price setter to set the premium.
Competitive or Parity Pricing
In markets where there is little differentiation or commodity orientation, competitors often have same prices on similar products.
It is possible to adopt a price leadership strategy either because a certain product lacks certain attributes, or because it is believed that the market is price sensitive. Simple analysis would allow the price setter to determine payback for this strategy.
2.4.4 Value Based Pricing
A value based pricing model is used by determining the price at which customers are willing to pay for particular products or services on the basis of utilising customer data. It is the opposite of the most common pricing strategy. The most common pricing strategy focuses on justifying pricings through analysis of the metrics of internal operation and competition without considering preference of consumers. However, in most cases, customers do not care about how much manufacturers or its competitors cost in production and marketing, but emphasise on the value they could receive at the particular price offered by marketers. It is rational to apply value-based pricing strategy, which focuses on the customers, and through provision of more real data, can boost development of higher quality products and services, and increase the customer satisfaction and loyalty.
Shapiro and Varian (1998) and Businesslink (2007) indicate that value-based pricing (also known as value optimised pricing) is a pricing strategy to set prices based on the value perceived by the customer as estimated by marketers, with more emphasis put on customers’ expectation rather than costs of product or service itself. Hunt (2013) illustrates that value-based pricing is used to increase the profits through raising prices with stable quantity of production, or realise an opportunity to occupy more market shares by reducing prices and mitigate or prevent competitive responses, which escape the competition detection from rivals.
Understanding the customers’ perceived value or value expectation becomes the premise of implementing value-based pricing. Hunt (2013) takes two examples to explain the practice of thinking about customer values. The first is B2C markets where the business sellers must have understanding of the impacts their product or services bring to end users. The other comprises B2B markets where the sellers are responsible for understanding what their product or service contributes to their consumers to make their business profitable. According to Hunt (2013) to achieve such understanding, it is necessary through implementation of primary research, including interviews with sales representatives and evaluation of end user behaviours. Besides, survey research is workable to collect primary data from customers to determine their perception of product and service attributes. In addition, purchase intent, described as ‘willingness to pay’ in the questionnaire, is a measure in research that helps to unearth the customer insight during pricing process.
The principal difficulty of employing value-based pricing is that the willingness of customers to pay for certain products is different based on their differentiated perception, attitude, economic status, among other aspects such as the geographic or demographic factors among countries; even for one customer, that are often changed or influenced by external factors. In addition, in some literature (Bernstein & Macias, 2002; Nagle, et al, 2010), aggressive approach in value-based pricing strategy likely brings customers the feeling of being exploited, which certainly is negative to long term development of the business.
Several frameworks is identified by Nagle, et al (2010) to determine the value-based strategy, which include Relative Attribute Positioning, Conjoint Analysis, Van Westendorp Price Sensitively Meter, and Economic Value Estimation.
However, Bernstein & Macias (2002) suggest that though value-based pricing is much complex and difficult to implement well and manage easily, it still has value to be considered in production or market positioning, especially when a new product comes to the market and in introduction stage of product life cycle. In reality, value-based pricing strategy is employed by most of innovative companies, such as iPhone’s launch.
2.5 The measurement of Sales Performance
2.5.1 Customer Satisfaction
Kleindle and Burrow (2005) indicate that customers are the lifeblood and strategic resources of firms since they have power to decide whether to purchase products or services provided by firms or their competitors. Generally speaking, the customer is likely persuaded to purchase since their curiosity or incentive is raised by firms. If the purchase experience and the products satisfactorily play the function they are purchased to play, the customers will be more willing to share their experience and encourage relatives and friends to purchase the products as well. Therefore, with customers’ preference well catered for, the businesses are more likely to survive in volatile market environment.
Customer satisfaction is a term applied in marketing to measure the extent to which the products or services provided by one firm fulfil or even surpass the expectation of customers. More elaborately, customer satisfaction is described as the quantity or percentage of customers, who have experience with the products or services and who have had product experience that meets or exceeds the proposed customer goals (Farris, et al., 2010). In addition, Farris, et al (2010) illustrates a survey, which found that among 200 respondents (senior marketing managers), more than 71 per cent of them asserted that to make customer satisfied through implementing some related metrics is reasonable and useful to improve management their businesses.
Customer satisfaction is often seen as one of most prominent indicators used to measure or evaluate the performance of business operation and the extent of recognition of products or services provided. According to Gitman and McDaniel (2008), with the ever-increasing competition, organisations are committed to compete with each other on attract and maintain customers, customer satisfaction is recognised as a differentiator among competitors and becomes significant in designing, implementing or monitoring business strategy.
Within organisation, customer satisfaction has powerful effects. It helps in highlighting the importance of the rate of satisfied customers in business operation and force employees to focus on creating value to meet customers’ expectation. Besides, a brand, a product, or an organisation with fewer satisfied customers, has slimmer chances of expanding sales and making profits (Farris, et al., 2010).
A number of research studies have established that there are immense benefits customer satisfaction brings to organisation (e.g. Farris et al 2010). With the advantage the customer satisfaction, it is important and inevitable to manage customer satisfaction effectively for businesses. Therefore, it is rational to measure satisfaction reliably and responsibly. For instance, while organisations attempt to measure satisfaction, the customers are asked to respond to various questions, such as whether the products or services meet or exceed their expectation (Farris, et al., 2010). In this case, the expectation is key element while measuring the satisfaction, that is, when customers have higher expectation than they could perceive while purchasing or using the products or services, they will rate their experience as less satisfying. Take luxury resort as an example; the customers visiting may present less satisfaction than received from budget hotels though a luxury resort has better hardware, the facilities, decoration, shuttle bus services, or software and more well educated and trained waiters.
It is observed that when the bargaining power increases, the importance of customer satisfaction weakens. For instance, Sinopec was ranked as the 26th largest public company in sales of Global 2000 Company (Forbes, 2013) and was an oligopoly enterprise in China providing petrol in a market where there was no other competitor of certain product. The motor-car owners have no power to influence its unilateral decision. If there was that power, the consumers would easily find out other options of another alternative provider if they do not feel satisfied with Sinopec to purchase a better offer.
Customer satisfaction increases customer brand loyalty that extends to the product or even entire organisation. Customer loyalty is a term used to describe the behaviour of customer repeat purchase of a product or a company’s other products and making positive reviews, giving positive ranking and suggestion. Some loyal customers are willing to convey their experience with products or services to their friends and families, which is recognised as effective and idiopathic out-of-mouth marketing. Therefore, the quantity of loyal customers has more effective potentials to expand and increase the customer pool of the organisation. To maintain high satisfactory rate, there is often a process, programme, or a series of programmes to make customers happy and continue to involve into businesses (Fahy & Jobber, 2012).
Various approaches contribute to increase of the extent to which customers become loyal. These include improved product quality, sales promotion, discount voucher, extended product warranty, commission, or other incentive plans. The final objective of maintaining customer loyalty is to increase the chances of the customer making repeat purchase and through their word-of-mouth to encourage people surrounding satisfied customers to join the existing pool of loyal customers. In other words, well managed customer loyalty contributes to profitability and increase stakeholder satisfaction.
Pricing strategy is straight forward approach to accumulate the loyalty of customers through proper marking of prices for each of products or services. According to Ellickson and Misra (2008) this approach increases customer satisfaction at first sight while allowing them to compare with their expectation, or other alternatives, and the bolster the possibility of purchasing the concerned product.
Outstanding customer service is another key to boosting customer loyalty. While error or misunderstanding may occur and negatively impact customer relation with the firm or organisation, the company has to do the best to fix the relationship with customers, and if the product or services encounters issues, customers should be given options for replacement of the products or be reasonably refunded. This is known as standard routine in firms where firms are willing to keep and reinforce customer loyalty. Yet, some firms, which have greater desire and attempts on maintaining customers, are willing to go beyond the standard routine. This means that they are prepared to provide more products or services, or free gifts or discounts to satisfy the customers (Raju & Zhang, 2010).
Chapter 3: Methodology
3.1The philosophic consideration and the research methods
As already mentioned in the introductory chapter, the main object behind this research study is to investigate the pricing strategy of ALDI in the UK using consumer perspective. This strategy goes along way to include the evaluation of how the strategy adopted by ALDI with respect to pricing helps the chain store maintain the strategy over a long period of time during its commercial development in the UK, and how such low price strategy works for attracting consumers to purchase. Meanwhile, such research objective is designed to pay close attention on the discipline of marketing, rather than on other areas, such as strategic management. This is because the low price strategy that ALDI implements over time, along with the high quality of its products that ALDI supplies to its consumers and stakeholders are identified as the most attractive and distinctive advantages that ALDI has, which allows ALDI to compete with other of its competitors in the market place during the past 10 decades. According to Bryman and Bell (2007), such ‘why’ and ‘how’ based research questions are suitable of utilising qualitative based methods to approach. However, before this section regarding methodology can go any further, it would be essential to state the basic philosophic stand that this paper will hold, simply because such philosophic consideration may vary and guide the research direction in practice (Bryman and Bell, 2007).
According to Bryman and Bell (2007), by also keeping one eye on the overall research objectives and aims, it seems that, rather than implementing a ‘scientific liked’ experiment in order to gain or general formula oriented ‘results’ to quantify the potential research outcomes, more details and ‘hidden’ elements that exist behind Alid’s low price strategy and the successful of adopting such strategy over time should be explored. Therefore, epistemologically speaking, the view of interpretivism is taken. This view highlights the importance that researchers should pay sufficient attention on revealing the internal linkages between different social phenomenon and to try to find out the casual relationships between each other for sake of exploring the inter relationships of individual social affairs (Bryman and Bell, 2007). Meanwhile, such epistemological view also implies that the task that researchers should achieve is to explore limited number of social elements deeply and profoundly, rather than try to quantify such research result (Bryman and Bell, 2007). Therefore, as Bryman and Bell (2007) indicate, qualitative based research methods are more appropriate than quantitative one does.
Ontologically speaking, under the guiding of interpretivism, the lens of objectivism is selected. As Bryman and Bell (2007) rightly argue, all social phenomenons are linked without the possibility that any of them exists alone. Therefore, in this present research, the lens of social constructivism is selected as appropriate. By being guided by the thoughts of social constructivism, as Bryman and Bell (2007) indicate, social phenomena are constructed by human beings as social actors. Therefore, the power of social actors is vital and influential, and thus should not be neglected at all. In other words, such social constructivism requires researchers to pay close attention to explore the importance of human beings on shaping the development and the change of social phenomena. As Bryman and Bell (2007) imply, the ontology of objectivism, as well as the lens of social constructivism, is normally and frequently calling qualitative based research methods as well. Therefore, both epistemology and ontology lenses that have been taken by this research are indicating that qualitative oriented research methods should be taken. By taking the research aims and objectives into account, such qualitative based research methods are capable of offering the researcher sufficient data to carry out potential research results (Silverman, 2010).
3.2 Research design
This research, as the above mentioned, is qualitative oriented. Thus, the overall research design is followed with such qualitative orientation. In this sub section, the concerns regarding data collection and data analysis will be exhibited, while the general and guideline based interview questions also will be shown in later of this part.
3.2.1 Data collection
As a loyalist of ALDI and its products, the researcher of this paper is quite familiar with majority of ALDI’s products, in both terms of their functions and prices (roughly in bother case). At the same time, there is a physical store of ALDI in Hatfield, near around the city centre. As a regular customer of that store, the researcher of this paper has very good relationships and is familiar with majority of staff, including the store manager, of that store. More importantly, as this research is designed to glean the primary based data, thus, information or data that is directly collected from the customers inside the store should be implemented. Under such the above circumstances, qualitative based data was gleaned directly from selected questionnaires. After the proposal writing procedure, the author of this research went to the ALDI store and inquired the staff inside. Fortunately, the questionnairing permission was given by the store manager. As the result, the aim of gathering primary data was accomplished successfully in this research.
In general, 30 individuals were getting involved into the interview and data collection procedures in the past of 5 weeks. Among them, 20 participants are female customers of ALDI, and the rest of 10 were contributed by male customers. All of questionnaire based data was fully gleaned by the researcher with approaching with participants in person inside the local ALDI store. Due to this present research’s focus lies on exploring consumer based issues, therefore, a consumer centric view is needed to be established. As the result, all of participants who were interviewed were customers rather than internal employees. Such set of interview questions are displayed as following:
Interviewing questions which are designed for the suppliers of ALDI:
- You are or you are not a regular supplier of ALDI? If you are, could you please share with me that how long (i.e. how many years or months) you have supplying ALDI’s products?
- Could you please share with me some experience of supplying ALDI’s products? In bother terms of the pros and cons in the experience of supplying it?
- Could you please share with me about the most distinctive advantage(s) that leads you to give your preference to become the suppliers of ALDI rather than to other of its similar brands or alternatives?
- Did you notice the prices differences that ALDI charges its customers in comparing with other of its competitors or other of alternative and similar companies or brands? If you are aware of this, to what extent you think that the low price leads customers to give your prior preference to purchase ALDI’s products?
- Could you please share with me about your own opinion regarding the question that how, do you think, ALDI achieves its low cost strategy in practices?
- Could you please share with me about your own thoughts about how do you think that ALDI handles and balances the equilibrium between low price strategy and high product quality?
- Could you please share with me about your own opinion that what do you think the role of supply chain plays in this case that allows ALDI to, on the one hand, provide high quality products to customers, while on the other hand, to attempt to charge customers lower than other of its competitors?
The above interview questions, on the one hand, allow the researcher of this paper to maintain the proper research focus for the sake of the fulfillment of the research objectives, while on the other hand, allowing interviewees to have sufficient ‘space’ to share relevant information with the researcher. Therefore, such semi-structure based interviewing question enables the researcher to glean enough data within having proper ‘depth’.
It should be aware of that, as Silverman (2010) argues, in both terms of quantitative and qualitative researches, researchers should, ideally, approach pilot study before the implementation of the formal data collection. This because the designed research questions and research hypothesis may need to be modified to some extent. Such pilot study, in this sense, is designed to improve the research’s accuracy in both terms of its collected data accuracy and the accuracy of the final potential research outcomes. Therefore, the above mentioned questionnaire questions were pilot studied and thus, such above version of questions have been modified according to the results of the pilot study, along with some useful and valuable suggestions that have been given by lecturers and other of my classmates.
The data collection procedure was accomplished by mainly using face to face and in person based style in terms of questionnaire in store with customers of ALDI. At the same time, due to the limitation of research budget, the researcher of this paper did not have the chance to encounter other ALDI stores’ customer in other place in the UK. Therefore, this may lead this research to have relatively limited capability of quantifying the potential research outcomes, which can be utilised and quantified in large scope (i.e. in the whole UK market, for example). As mentioned above, all of interviews were accomplished by participants under the in person supervision and interviewing procedures by the researcher of this paper. All of the above data was collected by the researcher of this paper alone without any extra assistance from any other third party or individual. Before this section can be ended, it would be vital to indicate that due to the limited time that the author has been given on accomplishing the present research, on the one hand, the interview question cannot be seen as having such ability of covering the whole range of necessary questions. While on the other hand, due to the limited time of doing this research, as well as the limited time that each interviewees was willingly to share with the researcher, only, in the end, 30 individuals were covered. This can be considered as the limitation of this present research, and, hopefully, in the near future, there will be a chance to fill such limitation up.
3.2.2 Data analysis
As being mentioned above, all data will rely on qualitative based resources which comes from the data analysis procedure by using one to one in person interview. Therefore, as Bryman and Bell (2007) argues, the qualitative based data is required to implement qualitative based data analysis. However, just like Silverman (2010) indicates, there are a large number of different data analysis methods that can be adapted and utilized on analyzing qualitative data. Therefore, it would be vital to choose one of the most essential and most appropriate one to implement in this present research. As Silverman (2010), as well as Bryman and Bell (2007) indicate, for qualitative research based study, in particular with those ones that are relatively new and unexplored, Grounded Theory Method would be one of the most ideal option to be approached as data analysis methods. However, as Silverman (201) further indicates, if the research is not a large scale based, or if the research is not heavily focusing on creating or generating theoretical frameworks or producing sound theoretical contribution, it would be a little bit complicated to use such Grounded Theory Method to analyse. Instead, researchers in such circumstances are encouraged to utilize basic coding procedures to analysis qualitative data. Namely, by using the inductive based method to summarise the most important parts or elements from interview or qualitative based data resources. This research, as being mentioned the above, only contains 30 participants as interviewees, therefore, such interviewee scale is not be able to be categorized as ‘large scale’ at all. Therefore, under such the above consideration, this present research implemented qualitative based coding procedures by using inductive methods to code and summarise qualitative data. In other words, such method of analyzing data require the author of this paper to firstly make transcripts by making the audio based interview data to literacy based versions. Therefore, 30 participants’ interview data has been fully transferred into electronic version. Later, the author of this research systemically coded the data with summarizing the most common answers from interviewees, as well as the most significant ‘outlier’ based answers from them. As Bryman and Bell (2007) argued, qualitative data and qualitative based research is not designed to have such kind of ability to quantify its research outcomes to large scale, therefore, the findings and results that will be displayed later in this present paper will only represent the results and findings that were generated and summarized on the basis of this present research’s background, rather than having any attempt of using such set of findings and results to predict all other similar situations.
3.3 The ethical issues that have been raised by this research
As Bryman and Bell (2007) mentioned, to do research, whatever the outcome will be and how carefully the research aims were given and planned, ethic issues should always be paid sufficient attention by researchers. In the whole procedures of running this research, in particular with the data collection procedures, two ethic issues have been caused.
The first is about ALDI’s in store staff’s concern about their ‘business information safety’. They showed the worry that ALDI’s competitors may be able to get such data and information that the researcher of this paper has gleaned, so that the business safety of ALDI, in particular with the interviewed local store, was seen as being threatened. Although this research did not intend to gather information and data from internal staff of ALDI, interviews have to be conducted inside the store and all of interview questions are all about something that was directly relevant to ALDI. As the result, internal based ALDI’s concern is not unnecessary. In order to ease such concern, the researcher of this paper, during the data collection procedures, promised that all of collected data would not be handed over to any other third party. All of the information that the researcher has had will be utilised for academic research purpose only.
The second is about customers’ concern of telling the researcher the real ideas that they have had. For example, not all of interviewed customers were happy with the the shopping experience that ALDI gave them. They therefore worried that once, if ALDI knows that they stated something negative about the image of ALDI, they would be added on the ‘black list’ by ALDI and so on. In order to get relevant data as reliable as possible, the researcher also clarified that all of data from customers as participants would not be passed over to any other third party, including the in store staff of ALDI. Therefore, the data that has been gleaned by the author of this research can be seen as farily accurate, real, and reliable.
Chapter 4. Resources and Finding
This section analyses the interview data collected from employees and customers to understand ALDI’s pricing strategy. ALDI’s pricing strategy from employees’ perspective will be examined from operation experience, business strategy, competitive advantage, customer satisfaction and pricing strategy in ALDI. Customers’ perception in ALDI’s pricing strategy will be examined from customer experience, customer loyalty, perception in the price strategy and pricing strategy in customer’s perspective. ALDI’s pricing strategy will be cross analysed from the two dimensions and formed into an integrated model.
4.1 ALDI’s pricing strategy from employees’ perspective
The interview data are collected from 10 employees who have been working with ALDI between 3 and 5 years. This study adopted structural interview to ensure that interview participants provide the right information to help this study understanding ALDI’s pricing strategy. The interview contains 7 questions. The 7 questions are classified to five associated themes to help identifying patterns and creating models to explore ALDI pricing strategy. The five themes are operation experience, business strategy, competitive advantage, customer satisfaction and pricing strategy ALDI.
4.1.1 Operation experience
In order to acquire information related to operation experience, the interview question is asked “how long you have been working in this story? And do you recognise that the prices that ALDI changes its customers are lower, or at least equivalent to its core competitors?” Interview participants have some working experience with ALDI. The average working period is 4 years. There are two employees who suggested that ALDI is not offering a lower product price, but a large percentage of discounts offered.
“In my working experiences, ALDI provides customers with an average customer product. The lower price offering is because of the promotion activities. We have promotion activities arranged for different type of product in different time periods. Rather than offering a lower product price, I think that ALDI allow customers to save money from the overall purchase.” — Quoted from interview.
“Some of the products that ALDI offer do have a lower price setting. The overall shopping saving image is created by the total shopping saving, rather than individual product saving. I did notice that some products, such as shampoo, has the same price as competitors” — Quoted from interview.
Most of employees, however, suggest that ALDI does offer a lower product price for its customers, rather than an equivalent to its core competitors. One of the employee suggested that ALDI offer customers with a lower price on the everyday products, such as food and drinks. Three employees believe that they can pay fewer prices for their weekly shopping with ALDI than other supermarkets. On the other hand, employees suggests that ALDI offers a lower price when comparing with supermarket level competitors, but the price is still higher than fruit and dairy shops. Since this study is focused on ALDI’s pricing strategy in the supermarket industry, interview information contain broad information will not be included in this analysis.
4.1.2 Business strategy
The business strategy of ALDI and the impact is exploring from — As an employee of ALDI, do you think the product price of ALDI is different from others? And to what extend you think it is a good thing or not? Could you please explain the reason why do you think so? With 7 employees agree that the price of ALDI is different from others, but 3 employees believe that there has only minor price different in some product categories. The three employees suggested that the price for kitchen products, such as sugar and salt, the can products and candies have similar price setting when comparing with other competitors. It is believe that those products have a fixed price in supermarket industry because of the usage and the product life of those product categories. The 7 employees who agree that the price of ALDI is different from others focus on the everyday promotion that the ALDI offer on each product categories which achieve an overall shopping saving for customers.
The 10 employees believe that the lower price offering and the special promotion is good for ALDI to attract customers.
“ALDI offers customer with different product promotion on a weekly based. In that case, customers will be attracted by those promotions and want to shop with us because the promotion is available in every product category.” — quoted from interviews.
“Most of my friends do their daily shopping with ALDI because they can purchase that promotion product which fulfils their needs. Since there are promotions available weekly, it kind of motivating customers to conduct their weekly shopping with ALDI to get a better product deals.” — quoted from interviews.
One of the employees is in the training manager level and he believes that offering a lower price is good for ALDI to differentiate itself from other competitors. The lower pricing offering is a business strategy that supported and understood by every employee within ALDI.
4.1.3 Competitive advantage
Competitive advantage is understood from three questions: As an employee of ALDI, what is the core competitive advantage that ALDI has in our opinion? And do you think such advantage can be seen from other similar organisations or not? Why? — is adopted to understand ALDI’s competitive advantage; could you please give me some examples about how ALDI, in general, cut it price?; and could you please give me a rough idea about how ALDI balances the contradictions between charging its customers lower and maintaining high product quality? ALDI’s competitive advantage, from the interview, is the price, the product range and the promotion activities. Employees suggested that the competitive advantage is different as “offering the lowest price” is the business image that ALDI developed over time. With a lower price offering, the product quality and customer service is maintained in the reasonable level. Thus, ALDI can be easily differentiated from its competitors.
The employees that employees provide that ALDI adopt to cut its price are:
- Offering promotion for products in the right season.
- Charging minimised profit from products.
- Earning a higher profit from certain product categories which often have a fixed market price and using the extra profit earning from the product categories to offset the loss in promotion.
- Sign a long term contract with suppliers to negotiate for a better price.
Employees also suggested that ALDI is bound with the lower pricing business image. Rather than cur its price to develop the business image, ALDI aims to earn the minimum profits to attract customers.
The examples that employees provide to explain ALDI’s strategies in balance the contradiction between charging its customers lower and maintaining higher level of product quality are related to the contract signed with suppliers.
“ALDI has the same supplier over time. With the long term contract, ALDI is able to order the appropriate amount of product and to ensure the flashiness of the product.” — quoted from interviews.
“ALDI is a chain supermarket. There are many suppliers want to team up with ALDI. ALDI will examine the product quality frequently to ensure customers are satisfied with those products. If the supplier offers poor quality products, ALDI will ask them to replace those products. I remember the apply supplier delivery poor quality apple and was complained by customers. ALDI stop selling apple for 3 days until the new shipment arrived. The supplier had to replace that poor quality product immediately.” — quoted from interviews.
This tends to suggest that ALDI has a good control over the product quality and the good product quality control is derived from a well-designed pricing strategy.
4.1.4 Customer satisfaction
Customer satisfaction is examined from the interview question “as far as you know to what extent that customers of ALDI are happy or satisfied with the lower cost strategy that ALDI implements”. Employees have different opinions in the level of customer satisfaction.
“I don’t think that customer have other choice. I mean, when they decided to shop with ALDI, they must have a clear idea of the price offering. Rather than customers are satisfied with the lower cost strategy, I think that customers did not evaluate the price when they shop with ALDI. They just want to go to a supermarket with the various product categories so they can do their shopping easily.” — quoted from interviews.
This tends to suggested that customers may be satisfied, but mainly motivated by their shopping habits.
“The price difference is only significant when the customers purchase lots of products. So, customers who want to purchase a lot of products at once will be more satisfied than customers purchase some products.” — quoted from interviews.
In other words, the level of satisfaction of the lower cost strategy that ALDI adopted will be different according to customer’s shopping lists and total shopping amount.
Since the lower price that ALDI offers to its customers is close related to its business image creation and reputation establishment, customer satisfaction level will not be affected by the pricing strategy significantly. Regarding with the financial crisis in euro area and people start to cut down their daily expanse budget, ALDI offer customers with a lower price to improve customer satisfaction and to increase customer loyalty development potential.
4.1.5 Pricing strategy ALDI from employees’ daily operation experiences
Because of the problem in observing the actual pricing strategy that ALDI adopts, the interview question that asked to understand ALDI’s pricing strategy is “could you please give me your idea about the role of pricing strategy plays in this case on minimising the price that ALSI charges customers while keeping offering customers higher level product quality? Could you please give me some examples?” With respect to the employees’ position in ALDI, the result of this concept can be less valuable. The interview data of this question, however, provide a general idea of pricing strategy with respect to operation experience, business strategy, competitive advantage and customer satisfaction.
Employees suggested that pricing strategy that ALDI adopt help them to ensure the product have the appropriate quantities available for sale. The product shortage can be minimised because of the real-time communication between ALDI and the suppliers. As one of the employees advices that,
“We have to manually check the stock level daily to ensure the actual stock level is match up with the system. We will also be given sales forecast analysis to order the right amount of product according precious sales performance. Because of the quantity of product can be changes, we can only ask the supplier to have the product delivery in a shorter period to ensure there has no product shortage, especially for promotion products.” — quoted from interviews.
With employees’ suggestions, the operation strategies and the business strategies that ALDI adopted is supported by the pricing strategy. The pricing strategy helps ALDI to achieve a better competitive advantage and maintain a higher level of customer satisfaction.
4.2 ALDI’s pricing strategy from customers’ perspective
The interview data are collected from 10 customers who have rich shopping experiences with ALDI. This study adopted structural interview to ensure that interview participants provide the appropriate information to help this study understanding ALDI’s pricing strategy. The interview contains 7 questions. The 7 questions are classified to four associated themes to help identifying patterns and creating models to explore ALDI pricing strategy. The four themes are customer experience, customer loyalty, perception in price strategy and pricing strategy in customer perspective.
4.2.1 Customer experience
Customers’ experiences are collected from two interview questions. “You are or you are not a regular consumer of ALDI? If you are, could you please share with me that how lone (i.e. how many years or months) you have purchasing ALDI’s products?” is the first question. The 10 customers who participate in this research are regular consumer of ALDI with rich shopping experiences. The longest shopping experience is 10 years, the lowest shopping experiences is 3 years with an average of 5 years. With the rich experiences with ALDI, it is expected that the customers can provide this research study with rich information related ALDI’s pricing strategy from their point of views. The only challenge is that customers which rich experiences will normally have a different expectation and satisfaction level from shopping with ALDI. Data collected from a set of rich experience customers can generate an analysis result with in a skew.
The second question is asked if the participant can shop his or her experience of been supplied by ALDI’s products with the pros and cons. The commonality of the experience sharing is that participants believe that the product quality, especially food and food related products are in a lower level than other suppliers. With respect to the lower level of quality, however, participants suggested that the quality is worth for the price. They are satisfied with the overall shopping experiences. The major problem with ALDI is that they will sometimes run out of stocks, especially those promotion products.
“It is really frustrated when the product that I was planning to purchase from ALDI got sold out. Although I can discuss with their manager and purchase them later when the new shipment is arrived, I need them immediately. I will then need to purchase those products from other supermarket. I mean, if I know those products are out of stock, I will just do my shopping in other supermarket.” — quoted from interviews.
It tends to suggest that customers are not satisfied and may not purchase from ALDI again theoretically, however, they did repeat purchase from ALDI.
“That (out of stock) happens a lot. It will not affect my shopping habit with ALDI.” — quoted from interviews.
As a result, customers have a good shopping experience with ALDI on average.
4.2.2 Customer loyalty
The question that been asked in the interview to understand customer loyalty is “Could you please share with me about the most distractive advantage(s) that leads you to give your preference to become the consumers of ALDI rather than to other of its similar brands or alternatives?”. The interview data can be categorised into 4 reasons — convenience, shopping habit, product categories and switching costs.
“ALDI is close to my house. It is convenient for me to shop with them.” — quoted from interviews.
“Convenience, I would say. ALDI is closed to my work place so it fits my schedule.” — quoted from interviews.
“I prefer to shop with ALDI because, um…… I don’t really know. I guess it is kind of my habit.” — quoted from interviews.
“My family shops with ALDI, so I will do the same thing since them all sell the same products.” — quoted from interviews.
“I can purchase everything I need from ALDI. I don’t have to purchase other products from other supermarket, so, yes, ALDI.” — quoted from interviews.
“I am familiar with ALDI. Those food displays, locations and other things. It will take me extra time to find the product I need in other supermarket.” — quoted from interviews.
It is interesting that participants did not mention the price as one of the reasons that they act loyal to ALDI. The potential reasons are participant’s did not realise the price differences or participants’ consider convenience, shopping habit, product categories and switching costs with more importance than price. This does not suggested that customers are loyal to ALDI because of its pricing strategy, but the lower price offer is not a strategy for customers, but a brand image that ALDI developed.
4.2.3 Perception in price strategy
The perception in price strategy contains information from three interview questions. “Did you notice that price differences that ALDI charges all of its customers in comparing with other of its competitors or other of alternative and similar companies or brands? If you are aware of this, to what extend you think that the lower price leads you as a consumer to give your prior preference to purchase ALDI’s products?” is the first question which aimed to understand the level of impact from the price strategy to customers. 6 participants are aware of the price difference between ALDI and other supermarket chain. They suggest that with the lower price that ALDI offer, they are willing to do their weekly shopping with ALDI. However, when is it casual shopping for small amount of products, participants suggested that they will prefer the most convenient stores, rather than ALDI. The 4 participants who are not aware of the price difference are because they tend to purchase less amount of product at once. This tends to suggest that the price different is only attractive with large amount of product purchasing.
The pricing strategy reviewed from customers’ perspectives is evaluated from the interview question — “Could you please share with me about your own opinion regarding the question that how, do you think, ALDI achieves its low cost strategy in practices?” with 8 participants suggested that they have a lower purchasing price, 2 participants shared different opinions. Overall, the pricing strategies have a positive review from customers.
“I think that the lower price is not true when you look at all the products they offer. I mean, some products are in a really low price. Those products are normally those everyday products so people need to purchase them. I do think that ALDI use those everyday products to attract customers. Those products with a longer product life tend to have a higher price. Because people will think they save lots of money on other products, they can purchase those higher pricing products. So, I think that ALDI averages out the profits from the lower pricing products”— quoted from interviews.
“From my job experience, I work for a clothing store, the price of products are negotiable when you purchase a large amount. Because ALDI can get a product is a very low price, they can offer customers with a lower price and still earning profits from it. Those promotion activities, from my perspective, are because they have a higher inventory level and need to be sold them in a quicker way.”— quoted from interviews.
Customers’ perspective of pricing strategy from the product quality dimension is understood with the interview question — “Could you please share with me about your own thoughts about how you think that ALDI handles and balance the equilibrium between low price strategy and high product quality?” most of customers did not agree that ALDI offer products with high quality. They suggested that the product quality is reasonable and satisfied with the product pricing. In other words, customers are experiencing problems with the product as the quality is not as good as other supermarkets. Participants also suggest that they can accept the product quality level because the product quality is better than other products with the same price.” This tends to suggest that ALDI’s product quality is acceptable, but not high level product quality.
4.2.4 Pricing strategy in customer perception
Pricing strategy may have a different meaning from customers’ perspective. Participants in the interviews was asking “Could you please share with me about your own opinion that what do you think the role of pricing strategy plays in the case that allows ALDI to, on the one hand, provide high quality products to customers, while on the other hand, to attempt to charge customers lower than other of its competitors?” Most of participants do not understand the concept of pricing strategy. They suggested that as long as ALDI have a good relationship developed with the product suppliers, they can have products in good quality, fresh made and minimise the “out of stock” time. From the customers with no knowledge in pricing strategy, ALDI did a good job in pricing strategy as they can purchase those products they need. There has only a few times that the products they need are out of stock and participants need to purchase from next time or from other supermarkets.
Participants who have experiences with pricing strategy suggested that ALDI has a poor performance with its pricing strategy. One participant suggests that
“ALDI has discount activities available. Some of those products will be expired within 3 months. This means that ALDI purchased too much products at once and cannot sell them. If they have a good pricing strategy, the product supply should match up with the product demand.” — quoted from interview.
“The pricing strategy that ALDI adopts is not achieving the best performance I would say. They need to deal with products that are out of stocks and they also need to sell those products with high inventory level. I mean, rather than a pricing strategy, the sales forecasting is not accurately. The pricing strategy is bound with the sales forecast; ALDI need to think about a better operation supporting system I would say.” — quoted from interview.
With lack of understanding of ALDI’s pricing strategy from the internal operation environment, it can be difficult to evaluate participant’s comments. It is, however, the product shipment that drawn participant’s attention.
4.3 ALDI’s pricing strategy and its impact on customers
Two models will be generated from the interview data collection: one from employees’ perspective and one from customers’ perspective to understand ALDI’s pricing strategy. How the two models are interacted with each other will be introduced in this section. The data analysis result from the employees and customers’ interview data suggested that pricing strategy from employees’ perspective have a direct impact on customers’ evaluation of pricing strategy in ALDI.
4.3.1 ALDI’s pricing strategy model from employees’ perspectives
Pricing strategy in ALDI from employees’ perspectives is depended on their operation experiences and business strategies. From the interview data, employees’ operation experiences have a direct impact on their evaluations of pricing strategy. Most of participants, in the question related to pricing strategy, suggested that because of they have a positive experience in their daily operation experience. Those employees who have a positive operation experience with ALDI tend to have a positive perception with pricing strategy. Business strategy has an impact on pricing strategy; the impact is strong and directs (Meskendahl, 2010). Since ALDI is aimed to offer customers with lower price products, it will influence the way to design and establish the pricing strategy. Figure 1 presents the relationship between operation experiences, business strategy and pricing strategy in ALDI.
Figure 1 Pricing strategy in ALDI from employees’ perspective
Pricing strategy that ALDI adopts has a direct impact on the overall competitive advantage and the level of customer satisfaction. Employees suggested that the competitive advantage that ALDI has is the ability to offer product with good quality at a lower price. This is not only a competitive advantage, but also a business image that ALDI aims to develop over time. To maintain the good quality, the strategies needs to be able to support ALDI’s daily operation in real time; the lower price suggests that ALDI has a long term relationship established with its suppliers (Christopher and Towill, 2000). The fast responding pricing strategy that ALDI have developed tend to improve its customer satisfaction level. In a given price, customers are more willing to purchase product with a better quality. It is the pricing strategy makes the good quality feasible. As presented in figure 1, pricing strategy in ALDI from employees’ perspective suggests that pricing strategy have strong impact on competitive advantage and customer satisfaction.
4.3.2 ALDI’s pricing strategy model from customers’ perspectives
Customers experiences when shopping with ALDI is positive with the lower pricing offering and a reasonable level of product quality. The main issue, however, is the out of stock situation. It is expected to raise customer complaints and motivate ALDI to improve its pricing strategy. As presented in figure 2, customer experiences have some level of influence in customer’s perspective in pricing strategy. The level of impact is unclear, but when customers evaluate the pricing strategy in ALDI, out of stock is the reason that customers believe the pricing strategy in ALDI is under performance (Reinartz, Krafft and Hoyer, 2004).
The perception in price strategy will influence the way ALDI develops its pricing strategy (figure 2). From the interview data analysis result, price difference is only significant when purchasing a large amount. Although the quality is reasonable, the overall product quality is lower when comparing with other supermarkets (Spenner and Freeman, 2012). Customers also suggested that the lower price offering is due to ALDI can get a better deal though large amount purchase and the discount promotion is to increase the inventory turnover rate. With those opinions from customers, they consider ALDI’s pricing strategy is under performance because it does not support ALDI’s demand requirement which lead to out of stock.
Figure 2 Pricing strategy in ALDI from customers’ perspective
Customer loyalty was categorised into convenience, shopping habit, product categories and switching costs (Dick and Basu, 1994). The price is not directly influence customer loyalty development, but the “lower price offer” is a strong business image that ALDI developed. Convenience, shopping habit and switching costs is not depend on the pricing strategy, but motivate ALDI to adjust its pricing strategy to maintain those uniqueness. The product categories are inherited from pricing strategy, but to maintain the various product categories, pricing strategy needs to consider different elements. As presents in figure, customer experience, perception in pricing strategy and customer loyalty will influence customer’s perception in pricing strategy in ALDI.
4.3.3 Integrated ALDI’s pricing strategy model
Pricing strategy that ALDI adopt is different from employees’ perspective and customers’ perspective, but they are correlated. As presented in figure 3, pricing strategy in ALDI from employees’ perspective will influence customer’s evaluation of pricing strategy in ALDI. The business strategy will have a direct impact on how customers evaluate and perceive pricing strategy in ALDI. Business strategy will influence customer’s shopping experience, perception in pricing strategy and customer loyalty (Meskendahl, 2010). Rather than individual effects, business strategy has impact on the overall evaluation of the three sections (Stikker, 1992).
Figure 3 Integrated pricing strategy model in ALDI
Competitive advantage from employees’ pricing strategy evaluation has impact on customers’ perspective in pricing strategy (Pfeffer, 1994). The level of customer satisfaction observation from employees’ perspective has impact on customer loyalty development. This tends to present an on-going cycle effect from employees’ pricing strategy evaluation to customer’s pricing strategy perception. The on-going cycle effect is motivated by the business strategy adjustment in different stage in ALDI’s operation strategy and management plan.
Chapter 5. Conclusion and recommendation
In this section, the conclusion will be drawn on the importance of pricing strategy to ALDI in the UK, how ALDI takes a good pricing strategy in UK, how ALDI reduces its costs in the UK and what the barriers are to the pricing strategy of ALDI in the UK. The discussion of those questions will be supported by interview data analysis and relevant studies. Recommendations will be provided for the future research direction with supported from research limitations.
5.1 The importance of pricing strategy to ALDI in United Kingdom
ALDI’s operation performance and business strategy is close related to pricing strategy. The main competitive advantage of ALDI derived from its lower pricing product setting. A large order amount and a long term contract are needed between ALDI and its suppliers to fulfil the fast inventory turnover. Day (2011) suggested with a large amount of product purchased and needed to distribute that product across a large border, pricing strategy ensure that ALDI is earning profit from the lower price setting. Taylor and Brunt (2001) believe that pricing strategy is vital for any type of business operation as it provides the organisation with a strong support from the product availability perspective. With previous studies focus on the overall operation support that pricing strategy offer to its adopters, pricing strategy is important for ALDI.
The pricing strategy that ALDI adopted is supported by the real-time shipping, appropriate product order and the lower pricing offering. Christopher and Towill (2000) suggested that pricing strategy is capable to provide the adopter with the appropriate marketing promotion; this functionality is important for ALDI as it minimises the competition between ALDI and other similar type of competitors in the UK market environment. Vorst, Beulens, Wit and Beek (1998) suggested that pricing strategy improve ALDI’s branding and its market position. The lower pricing offering is not directly supported by pricing strategy. since the pricing strategy that ALDI is to attract customers with a lower pricing in some products and passing the customer to other type of products, pricing strategy is vital to ensure the profit can be earned (Day, 2011).
5.2 ALDI’s strategies in maintaining a higher level of pricing strategy performance
ALDI is a chain supermarket which needs to have the right product delivery to the right store in the right time. The right time delivery is the most challenge part in pricing strategy as it requires a well-designed pricing strategy infrastructure and an experience team (Meixell and Gargeya, 2005, Bowersox, Closs and Cooper, 2002). The overall pricing strategy performance is acceptable as customers can purchase every product they need from ALDI with a price lower than market price. The challenge is when the product is in the promotion period, the changes in the inventory level leads to the problem of product shortage. Rather than a poor pricing strategy, the problem is the inability in forecasting the changes in the customer demand (Christopher and Towill, 2001).
When the product is under promotion, the customer demand cannot be appropriate estimated by system. This is when the product shortage may occur. Simchi-Levi and Kaminsky (1999) suggested that the best way to minimise product shortage is to order 10% more product quantities for each store; however, it will increase the inventory level. Pagh and Cooper (1998) suggested to ship products from near store to the one with product shortage is the best option as customers in different area have different product preference. As a result, ALDI will be better off to have its promotion activities designed differently in different area to achieve real-time product shipment between stores.
5.3 Cost reduction in ALDI in its operation in United Kingdom
Cost reduction is vital in ALDI’s daily operation. Because of the lower price business image creation, ALDI cannot earn maximised profit from the products. The best way to remain profitable is to undercut its costs. Costs related to operation and inventory is the two main costs categorise that are difficult to be minimised (Simchi-Levi and Kaminsky, 1999, Pagh and Cooper, 1998). ALDI purchases a large amount of product to be able to negotiate with the supplier with a lower price. It is inappropriate to have a large amount of product shipped at once as the product cannot be sold within a short period of time; a good supplier relationship management is needed to control the shipment.
A strong supplier relationship management can help its adopter to minimise the operation costs and the inventory costs (Simchi-Levi and Kaminsky, 1999, Vorst et al., 1998). A strong supplier relationship ensures the appropriate amount of product is delivery to the right store. Some of the product ordering is supported with sales performance forecast. Inventory costs are controlled with pricing strategy adoption and the operation costs can be minimised with the sales analysis and just-in-time delivery functionalities. As a result, ALDI is capable to minimise its costs to support the pricing strategy to attract and retain customers.
5.4 The barriers that ALDI faces when adopting the pricing strategy in United Kingdom
The barriers that ALDI face in adopting the pricing strategy are the inability to have products shipped in real time and to have the most appropriate inventory level. Christopher and Towill (2000) suggested that most organisations adopt pricing strategy to achieve no inventory. In other words, organisations believe that products can be delivered in real time to avoid inventory costs. With respect to the fact that real-time product shipment is only available when supplier has products available, ALDI is suffered from product shortage, especially for those products with special promotion.
Vorst et al. (1998) have observed a similar situation in their study and suggest that the cause of those barriers is the inappropriate pricing strategy design and inappropriate business process design. Simchi-Levi and Kaminsky (1999) suggested that real-time delivery is only achievable when the organisation has a strong supplier relationship developed. Bowersox et al. (2002) suggest that the problems may derive from the poor sales forecast system that ALDI adopt as they cannot estimate the appropriate of sales volume. As a result, ALDI need to re-engineer its business process and pricing strategy to ensure the adoption of pricing strategy positively improve its competitive advantage and the level of customer satisfaction.
5.5 Research limitation
One of the research limitations is the board information collection from interview data collection (Bell, 2010). This study adopts interviews to understand pricing strategy in ALDI from employees and customers’ perspectives. Rather than understand the actual operation and performance of pricing strategy, the interview is aimed to understand how pricing strategy influence ALDI’s overall operational performance. Interview tends to generate a board understanding from several areas; with the risk that some of those areas are less relevant to the research topic; interview may generate less valuable data when trying to understanding a particular prenominal (Bell, 2010).
Another limitation is the participant’s quality (Silverman, 2010). Silverman (2010) suggested that recruited inappropriate participants in a research will negatively influence the quality analysis result. The employees form ALDI are not in the management level. In other words, they have less experience in operation the pricing strategy. The may have some idea in the pricing strategy that ALDI adopts, but the actual operation is unclear. Customers may know the overall performance of ALDI, but with a lack of understanding in pricing strategy, the relationship between interview questions and the actual pricing strategy performance is loosely connected.
5.6 Future research direction
Adopting the interview data analysis result to generate a survey questionnaire with questions focus on the same area will help to improve the understanding of pricing strategy adoption in ALDI. Hennink, Hutter and Bailey (2010) suggested that with support from an open interview, the survey design can be more appropriate for data collection from large amount of people from the target population. As a result, future research will adopt quantitative research with survey adopted as the tool to collect data. Questions will be asked to understand the actual performance of pricing strategy and the potential impact on customer relationship management.
Participants requirement will need to be reconsidered in future research. Although customers’ experience is important, the questions asked to customers may not provide the best interest for this research study. Future research is suggested to have the managers in ALDI recruited to understand the actual pricing strategy performance. Since they have more resources in the management of its customers and the business strategy design, ALDI’s managers is capable to provide this research study with better customers’ evaluations. It is suggested that managers from the related departments will need to be recruited to understand the overall performance of pricing strategy in ALDI (Silverman, 2010).
Since the future research will adopt quantitative research, the three models that identified from interview data can be adopted as the conceptual model to understand ALDI’s pricing strategy adoption. It will not only identify the important factors or barriers that ALDI may face in pricing strategy, but also helps ALDI to have a better idea in how the business strategy may influence the pricing strategy infrastructure and further impact on the customers’ experiences. Again, the survey questionnaire needs to be designed to fit the model testing purpose to ensure the model can be adopted for ALDI’s future business strategy development (Bell, 2010).
At the beginning of doing my dissertation, I feel confused because I do not know how to write it. So, I made appointment with my supervisor, and she taught me how to write literature review part, because literature review part is the first part I need to write, and introduction will be the last part I need to write. Then I started to do interature review part, I found that it is hard for me to find any useful information on the website, and books. My supervisor sent e-mail to me at that time, and told me that I can find some useful books by the Studynet and google scolar. In addition, my supervisor also taught me how to arrange my literature review part, and she gave me many suggestions When I finished my literature review part.
Next part is methodology, I need to interview 20 customers of Dldi, it was really not easy to do. Firstly, I need to design my questions, and these questions should be relevant to my research objectives. At the beginning of arranging the customer interview, I found It was quite difficult to get the chance to talk with some customers because most of them didn’t want to spend time on this kind of student research, but at the end I still found some customers agreed with my requirement, and got all the information I wanted for my research, and my friends helped me a lot, they all wanted to be interviewed by me. So, that is why I can finish my research, and this is the most hard part in my research.
Then, I start to write finding part. It is really hard for me to write finding part, because this part is about analyzing my research, and too much information need to arrange. My friends gave me some suggestions, and helped me arrange useful data. So, that is why I can start writing this part. But I still met some problems on writing this part, for instance: I did know how to combine knowlege with my research. I spent too much time on solving this problem. The next part is conclusion, I summarized what I found in my research, and gave some recommendations in this part, my supervisor also taught me what is the main thing in this part, and gave me many useful suggestions. I thought the results are quite useful for customer.
In summary, I learnt a lot from doing my dissertation. Firstly, I learnt many of methods which about selling, and there are many pricing strategies can be taken if I have a shop. In addtion, I also knew the thinking of customers when they are shopping, this knowlege could help me get success if I undertake this kind of business. In the other hand, I also learnt the method of taking a research. So, this disseration makes me improve a lot.
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