LIDL's implementation of discount supermarkets in Sweden

Table of contents

1. Introduction

2. Situation

3. Analysis of the PEST environment (see also Table 1)
3.1. Political influences
3.2. Economic influences
3.3. Social influences
3.4. Technological influences
3.5. Summary

4. Risk assessment
4.1. BERI
4.2. The market options matrix (Ansoff matrix)
4.3. The Litvak Banting model
4.4. The Sheth Lutz model

5. International market research requirements

6. Market entry plan
6.1. Corporate and marketing objectives
6.2. Target group
6.3. The variety of market entry strategies
6.4 Choice of market entry strategy

7. Operational plan
7.1. Implications for the marketing mix
7.1.1. Product policy
7.1.2. Pricing strategy
7.1.3. Promotion policy
7.1.4. Distribution and logistics
7.2. Management implications
7.3. Control and Budget

Bibliography

Appendices

1. Introduction

The following work provides an exemplified analysis of a company’s internationalisation. The analysis encompasses an investigation of the external environment (PEST), a risk assessment and a consideration of market entry strategies. Furthermore it adds an identification of implications for the marketing mix and implications for organisational resources and management.

2. Situation

This work examines the possible market entry of the German discount food retailer LIDL in Sweden. Sweden is an advanced economy. LIDL is an expanding food retailer which is at present operating in many European countries, but not in Sweden so far (www.lidl.de). It offers mostly fast moving consumer goods, food and non-food products.

LIDL is the second biggest discount food retailer in Germany (after ALDI). In Europe LIDL has got the highest density referring to the branch web of all discounters (www.lidl.de). Their strategy is to renounce a large-scale store design. Stores are rather equipped in a simple way. Purchase of goods is done centrally and therefore LIDL is able to purchase greater amounts of goods. This reduces costs and furthermore LIDL’s branches are managed with few employees. LIDL also offers merely no-frills products. These circumstances allow LIDL to offer lower prices than most other food retailers.

3. Analysis of the PEST environment (see also Table 1)

3.1. Political influences

Supranational law is set above national law (Hünerberg 1994 p. 57). As Sweden is a country within the European Union EU legislation thus has got implications on market participants. Furthermore Sweden is a constitutional monarchy which is market by a high degree of political stability and legal security. Social welfare systems are highly developed.

3.2. Economic influences

The Swedish gross domestic product per capita was about US$ 33,000 in 2003 (www.scb.se). Thus in comparison to the world average purchasing power is high. Prices are stable (about 2 % inflation). Interest rates for 3-months-notes are about 2 % (www.scb.se). Regarding this data the Swedish economy can be characterised as strong.

3.3. Social influences

As in LIDL’s home country Germany Swedish culture in Sweden can be described as a low-context culture (see Table 2). For marketing issues the implication is that messages should be rather explicit than implicit and culture is heterogeneous rather than homogenous (Czinkota et al. 2002 p. 33). Population is not significantly growing.

3.4. Technological influences

The infrastructure in Sweden offers good conditions. Networks of telephone (internet) and electricity are well-developed. The implications on marketing in the food retail sector is that continuous replenishment is possible, for instance by utilising cash registers with scanners.

3.5. Summary

Summing up the external market environment in Sweden is similar to LIDL’s home country Germany. For marketing considerations the environment offers a reliable basis for strategic planning due to a merely stable and well-developed PEST-environment.

4. Risk assessment

4.1. BERI

The Business Environment Risk Index (BERI) is an indicator that analyses the business risk of a country. It aggregates 3 sub-indices: the operation risk index (ORI), the political risk index (PRI) and the r-factor (payback-factor) (Backhaus et al. 2000 p. 112). It is based on a scoring on different criteria. The BERI institute, that regularly accomplishes a rating and ranking of countries, distinguishes between four classes of risk:

- Prohibitive risk (BERI < 40)
- High risk (BERI 40 – 55)
- Medium risk (BERI 55 – 70)
- Low risk (BERI > 70)

The BERI –ranking published by Credit Suisse First Boston shows Sweden on rank 18 with 77.1 points (www.finanzag.csfb.com). Regarding the four classes of risk the business environment in Sweden can be evaluated as a low risk environment.

In order to assess the operational risk of business in Sweden the following table provides an evaluation of weighted operational risk factors according to the ORI-framework (Meffert and Bolz 1998 p. 77).

illustration not visible in this excerpt

Framework: Meffert and Bolz 1998 p. 77

Limitations

Scoring the different factors is often subjective and different key sources of risk might evaluated differently depending on the industry a company is operation in. Nevertheless the business environment of Sweden can regarded as favourable for investors.

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