Porter's Five Force Model - Aldi Assignment

Introduction to business

Table of Contents
INTRODUCTION...........................................................................................................................1
PESTLE Analysis........................................................................................................................1
Porter's Five Force Model...........................................................................................................4
Stakeholder matrix:.....................................................................................................................7
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Business refers to the economic system where good and services are exchange from one
place to another for getting monetary benefit in return. It includes various factors like demand
and supply for products, management, customers, employees and business regulations. Aldi is an
discount super market retail chain store that is present in more than 20 countries having 10,000
stores world wide. It deals in different product sectors like food & beverages, household items,
sanitary articles etc. Business environment is dynamic in nature that means it changes frequently.
So, it is very difficult for us to predict the changes that may occur in economical and social
environment in future (Andersson, Forsgren and Holm, 2015). To determine future changes in
these factors we can use PESTLE model which help in analysing external environment and
provide great understanding of business. It also identify various threats that may hinder the
growth of an ALDI and provide us with methods to exploit opportunities. Another method which
can be used to analysis business environment is porter's five force model, which allows us to
understand the five forces that can affect the industry. This model consider five key areas such
as threats to substitute, threats to entry, power of buyer, power of supplier, competitive rivalry
which help in identifying industrial structure in strategic process. In addition to this stakeholder
matrix is used as a tool to systematically analyse stakeholders along with their power and
interest.
PESTLE Analysis
Pestle analysis is a analytical tool that access the macro environmental factors which
affect the strategical planning of a company. Various macro environmental factors like New
laws, trade barriers, demographic change, tax changes etc., can affect the functioning of business
to a large extent (PESTLE Analysis. 2018). It stands for Political, Economical, Social,
Technological, Legal and Environmental and we can used it for research report, business and
product development, Strategical planning, marketing planning etc. ALDI is an retail chain store
that operates its store through out the world. It faces several difficulties in performing its
business activities in different countries as it operates in dynamic environment so analysis of
factors that can affect the functioning of an organisation is very essential. Therefore, PSTLE
analysis is tool that help in analysis different issues that may arises in front of ALDI during
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performing its business activities. It also help us in identifying and maximizing the opportunities
and minimize the threats present in external environment. Political factor:- Political factor refers to the changes that are bought by government and
other political institutions in laws and regulation that have an impact over the company's
operations (Bolnick and et. al., 2018). It includes factors like political stability and
instability, government policies, foreign trade policy, trade restriction etc. I believe that
these factors have great influence over the functioning of organisation such as ALDI, if
the government imposes new tax or duty then a company have to change their entire
revenue generating structure and strategies. I feel that it help company in formulating
strategies that can help in performing its operations in other countries without any
political conflicts. It also help businesses in determi8ning various regu7latory restrictions
that can affect functioning of ALDI and assist in making decisions regarding a selection
of a country which holds potential for profitable business. Economical factors:- It include various factors like economical policies, inflation or
deflation, economic structure, income level etc. I assume that economical factors affect
the growth of business and can restrict a company to perform several operations. For
instance if there is a rise in inflation rate of a country than it can affect the way ALDI
set price of their product and services. I assume that FDI (Foreign Direct Investment)
inflow has an positive impact when it is for manufacturing sector and in case of primary
sector it has an negative impact over the growth of an economy. I also examined that
ALDI being an international retail chain has to face several difficulties like there is
different level of tariffs and custom duties in various countries that's why the price of
same products are different in other countries. So, I suggest that a company must
evaluate the economical conditions, policies and current rates of a country before
entering into new market. This will help in formulating strategies that can reduce the risk
of reduction in profitability of an firm. Social factors:- This include factors like attitude, attributes, values, norms and cultural
aspects that affect the society in which business operates and demand for company's
product and services (Burns and Dewhurst, eds., 2016). I believe that company must take
into consideration various traits, preferences and cultural values followed by the people
of the area in which company operates its business. By determining this we can
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formulate better strategies toward the product & services they offer and for their
potential buyers to whom company want to serve. I examined that ALDI provide quality
product at relatively low price as compare to other competitors, this can be helpful for
the elder people who want to save their money and having pension as their only source.
It also help in identifying needs and preferences of customer so that they can get product
as per their requirement without any delay, as it help ALDI to manage stock as per the
prevailing demand. Technological factor:- It is one the major factor that can affect the growth and
profitability of an organisation. Technological factor refers to the innovations, barriers,
technological aspects and degree to which it have an impact over the business. I
identified that today technologies are continually being developed and new technologies
or method of performing operations are innovating day by day (Burns, 2016). The
development of electronic management and communication of data enable the
transferring of information to different geographical area. I feel that it have an impact
over the way we market our product and services. As competitors with their upgraded
technologies and innovative procedures can create a barrier to entry, reduce our market
share and affect outsourcing decisions. Analysis of this factor provide benefit to a
company in several ways as it create awareness about potential threats that can affect the
operations due to change in technology. It also help in assisting company to produce new
and innovate product to remain competitive in the marketplace. By this analysis we can
also identify various opportunities to exploit them which can strengthen ALDI's
business. Legal factor:- Legal elements includes several laws such as consumer law, labour law,
health and safety law, discrimination law etc. which affect how a company operates, its
product demand and cost. I examined that there are certain laws and legal procedures
that may affect the functioning of ALDI which is operating its Business activities in
different countries, as companies have to take licence before starting its operations in
host country (Charles Jr, Schmidheiny and Watts, 2017). I believe that it is very
essential for a company to know what is or is not a legal action to operate its business
successfully. An organisation like ALDI which have global reach must ensure that its
operations should follow all the laws and regulation that are imposed by the government
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of that country which help them to avoid legal issues and conflict that may affect the
brand image (Cohen and Kietzmann, 2014). This analysis also help a company to
overlook over safety and consumer law while they are working over the prototype of the
product. It also benefits the company in keeping positive brand image using different
strategies to avoid various conflicts by identifies several legal issue that can affect the
success of our product launched in another country. Examining of legal issues also
protect us from various legal conflicts that can have an negative impact over the Brand
image of ALDI.
 Environmental factors:- It takes into consideration ecological and environmental
aspects which generally includes weather, climate change etc. that have an impact over
industry such as farming, tourism and agricultural. I examined that environmental factor
have an significant impact over the ALDI's productivity and success. When a company
deals in agricultural products then it have an great impact over its profitability if there is
any change in climate of that region.
I assumed that it is very essential to analysis environmental factors to determine
which element and up to what level can affect the operations of business. This analysis
help company to formulate strategies for future course of actions and to project the
growth of their company effectively by eliminating certain threats related to
environmental factors. It ensures a look over elements like revenue, corporate success,
profitability and provide framework to take right decision toward the success of
business.
Porter's Five Force Model
Porter's five force model is a framework used as an analytical tool for understanding
various forces that shapes competition within the industry and identify weaknesses and strength
that a company posses. This model includes five forces such as competitive rivalry, suppliers
power, customers power, threats of substitute, threats to new entry which help in determining
industry's attractiveness and likely profitability (Cohn, Fehr and Maréchal, 2014). I believe that
company must look over the competitor's action and tries to capture the factors that can affect the
company's environment which can erode its profitability. As Aldi operates in changing
environment its forces which shape up company, keeps on changing that have an great impact
over its sale and profitability. So, it is very essential for a company to analyse these factor before
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formulating strategies to remain competitive in the marketplace. Porter's five force model
provide ALDI with a framework to identify different forces and their impact over the company.
Competitive rivalry:- This force is very essential for a company as it help in identifying the
number of competitors and their ability to affect the company's operations. If the number of
competition is high and offers same product and services, company's power is relatively low and
in case the ratio of competitive rivalry is low then an organisation have power to do what it want
to (DaSilva, and Trkman, 2014). This factor affect the sales and profitability of ALDI as
competition is relatively high. From this I assumed that other supermarkets like TESCO, ASDA
also offer similar products with same quality and at low price this leads to a price war, and
massive discounting which sometimes erodes ALDI's profit. I feel that this price war have an
negative impact over the growth of company as it provide different options to customers to
choose from at best possible price. It increases the chances for the company losing market share
as customer switching different brand to avail the benefit of purchasing the product at low price
from this competition which reduces the profit of ALDI. So, analysis of competitors may help
organisation in determining various threats that can affect business progress. It also assist in
formulating strategies to reduce competition in the market.
Bargaining power of buyer:- This force generally specify the ability that the customers have in
order to drive prices down of the product and services. Power of a buyer is affected by number of
customer a company has, how important a customer is for a company, how may options he has
and how much it cost for a buyer to switch from one supplier to another. I identified that ALDI is
operating in competitive environment hence it influence the bargaining power of buyers to a
large extent (Galaskiewicz, 2016). As, in retail store industry companies are dealing in similar
kind of products and to increase their market share they keep on providing products over higher
discount. These tactics are grabbing attention of consumers towards different offers provided by
other competitors of ALDI, this lead to increase the trend of brand switching among customers.
So, this model analysis that how much power a customer enjoys in context of reducing the price
of a product. It support company in formulating strategies that help in eliminating threats of
bargaining of product and services and also assist in reducing the risk of loosing customers due
to attractive offers present in market.
Bargaining power of supplier:- It includes factor like how easy it for suppliers to drive up their
price, how unique and expensive product they supply, number of potential suppliers we have and
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how much it cost to switch to new supplier. I assume that as per ALDI the bargaining power of
suppliers is relatively low as retail industry having larger number of suppliers who are ready to
supply at same or relatively lower than the current market price. Therefore, suppliers are not in a
position to influence the market price of product or force retailer to increase the prices. This
analysis assist company in identifying number of suppliers that can make products available to
them in less time and at relatively low price (Hammer, 2015). It also help in formulating
strategies that can provide an opportunity to minimize the cost and maximizing the profit of the
company.
Threats of Substitute:- substitute refers to the product that can be used as an replacement of
company's product and services which act as a threat for the growth of an organisation. I
identified that threats of substitute for ALDI is relatively high as product sold by it is not unique.
Other competitors like Tesco, ASDA also offers same product as ALDI. I generally believe that
substitution of product of this company is very easy as commodities it sell are of different brand
who perform promotional activities like advertisements, marketing to convey features and
benefits which a product provides to its customer. It help in analysing various substitutes that can
enter in the market which can decrease the sale of this company. It also assist in various
strategical decision that help an organisation to bought such to their stores that can't be easily
substitute.
Threats of New Entry:- It determines how easy or difficult for a company to enter into a
particular industry. I examined that if in an industry more organisation are competing for same
market share then profit starts falling so it is essential for an organisation to create barrier for
other companies from entering in the market. For instance in case of ALDI the risk of new
entrant is medium as most of the local farmers started selling their home grown fresh products
like egg, vegetables etc. which are trying to capture ALDI's market share (Hubbard, 2014). I
suggest that company must create barrier to entrant by increasing the cost that is required to be
invested by the companies who may wish to operate their business within this industry. This
force help ALDI in determining new competitors that can enter in their market and affect the
market share of the company. It also assist in developing barriers to new entrant by proper
planning that can be done using information related to different and new competitors.
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Stakeholder matrix:
It is the process of identifying and assessing the interest and need of stakeholders with an
objective of maximising them so as to win their support in achieving desired goals and objectives
of ALDI. Such stakeholders includes employees, customers, suppliers, government etc. It is
essential for an organisation to consider the ideas and suggestions provided by their stakeholders
so as to achieve competitive advantage in market (Neubauer and Lank, 2016). Stakeholder
matrix involves identifying, analysing and prioritizing the people which can contribute more
time and money towards execution of specific project activities. It assist company in determining
the project needs and requirements and on the basis of which communicate has been made with
the stakeholders. Following are the steps of stakeholders analysis:
Identify: The first step is identification of stakeholders which have any interest in
company's project activities so that maximum support can be taken by them in execution of
project. For example, Implementation of IT systems requires knowledgeable and skilled
employees thus required to identify and attract them. H H H H H H H H H H H H
Prioritize: Once the stakeholders are identified then the next step is to prioritize their
needs with an objective of fulfilling them as quickly as possible (Pfeffer, 2014). It can be done
on the basis of their power and interest in specific project which are briefly described as below:
 High power-Highly interested people (Keep informed): It shows that the management
of Aldi should more focuses on satisfying the needs of stakeholders if they have more
interest in project. High power-less interested people (Keep satisfied): Put efforts to satisfied their needs
but not so much as that decreases their interest.
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 Low power-less interested people (Monitor): In this, monitoring of stakeholders are
required but not required to give much efforts (Ward, 2016).
 Low power-highly interested people (Keep informed): In this, stakeholders are more
supportive due to which it is important to information about the project in detail.
Stakeholder analysis provides four major benefits to ALDI which are given as below:
Getting projects into shape: Through taking support from stakeholders in form of getting
ideas and suggestions related with execution of project activities, the management of ALDI are
able to come into market with new or existing products which are more in trend.
Winning resources: Getting adequate support from powerful stakeholders help company
in getting maximum amount of resources which includes time or money. This will be helpful to
execute specific project in an effective and efficient manner.
Building understanding: Identifying the stakeholder along with their needs and
requirements help company in building healthy relation with them due to which the maximum
support in terms of getting financial resources are easily get (Wheelen and et. al., 2017).
Getting ahead than their rivals: Understanding the needs and what their stakeholders
exactly wants help in anticipating and predict their reactions towards the support provided by
them in execution of project activities.
CONCLUSION
From the above report it has been concluded that there are various tools and techniques
that are used by an business in order to determine factors that may affect the growth and
profitability of an organisation. PESTEL is an analytical tool that help company such as ALDI in
determining various external factors that may hinder its functioning as it operate stores World
wide. Porter's five force model is an another tool that help company in determining forces that
shape up its competitiveness within a market in which it functions. In addition to this
Stakeholder analysis matrix help ALDI in determining and fulfilling needs of their stakeholders
so that they can get full support from these.
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REFERENCES
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Pfeffer, J., 2014. Business and the spirit: Management practices that sustain values. In Handbook
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Ward, J., 2016. Perpetuating the family business: 50 lessons learned from long lasting,
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Wheelen, T.L., and et. al., 2017. Strategic management and business policy. Pearson.
Online
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