AAFES facilities have the advantage of being
centrally located on military instillation and having a captive customer
base.  AAFES aims to utilize its
competitive advantage of providing items at a pre-tax price to ensure the
lowest possible price to the customer base. 
The utilization of this pricing strategy allows AAFES to advertise a 20%
savings over any of their competitors for the same or similar products. 

A key aspect in achieving this strategy is a process
which has been dictated by the Department of Defense (DoD).  DoD requires AAFES to conduct annual market
based surveys.  The overarching goal of
these market base survey’s is to conduct a price comparison of AAFES items against
similar items on the open market at their pre-tax price.  DoD and AAFES has set the objective to
achieve a 20 percent savings over those items available at other retailers (Salas, 2009).    This
market based survey process tracks the price market and allows AAFES to measure
customer satisfaction with current pricing.  
To ensure a fair assessment and accuracy, the surveys are conducted by
an independent research firm contracted by AAFES.  The parameters of the survey include regular
priced or identical items sold at multiple military exchanges.  The survey ensures that items inclusive of
sale or discount prices are not included (Salas, 2009).

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Marketing
Strategy

            AAFES marketing strategy is based on
their ability to provide a reduced price and on providing advantages to
uniformed military service members, their families and other authorized
patrons.  AAFES strategy is to be the
first choice of their customer through its exercise of price matching, price
cutting, clearance and sales.  According
to (Hannah, 2011), AAFES markets with signs throughout
their facilities which advertise:

(a) “We Price Match” – This sign
indicates that AAFES will match any local competitor’s price on identical
merchandise – some restrictions may apply.

(b)
“Price Cut” – This sign indicates that AAFES has cut the price on these items
in order to provide you the best local deals.

 

(c) “Clearance” – This sign
indicates that AAFES has permanently marked down the price on these items.

(d) “Sale” – This sign indicates
that AAFES has temporarily lowered prices on regular stock or new merchandise
for a promotion.

As
AAFES markets to a captive audience, who frequent their stores for convenience
or perceived price savings, the requirement for a robust marketing strategy of print
and media ads, which are traditional for retail outlets, are not required.   Instead,
AAFES marketing strategy is simplified to flyers and magazines ads, distributed
around their local facilities.  These
advertisements highlight new or sales items to lure customers to their stores.  

Additionally, in 2015 AAFES organization
strategy added the introduction of new brands and improvement of their online
shopping capability at shopmyexchange.com. 
This strategy was aimed to provide a more modern experience which
customer have become accustomed to. The online catalog of AAFES added more
sizes, colors and styles of name-brand products, including Ralph Lauren, The
North Face, Calvin Klein, Pioneer Woman, Ethan Allan, Vizio and Allen Edmonds,
were added online.  The introduction of
AAFES new online shopping experience in 2015 led to a 21 percent rise in sales
from the previous year (Earnest & Young LLP, 2015). 

 AAFES
was also able to introduced over 450 new name brands to their brick and motar
stores in 2015 and opened 71 new named brand restaurants to enhance customer
experience (Earnest & Young LLP, 2015).   AAFES
expansion strategy was capped with a $179 million capital real-estate project
which saw the completion of a new 143,000-square-foot mall to Wiesbaden,
Germany, a 270,000-square-foot shopping center to Fort Hood, Texas, and the
upgrade of 225 retail facilities and renovation of numerous express conveyance
stores in both the continental and overseas markets (Earnest & Young LLP, 2015).

Due to the size and multiple locations of
AAFES, studies have shown that AAEFES has higher than average operating
expenses, but a low gross profit.  
However, the interest expense of the organization is significantly lower
than the industry average.  The lease and
tax expense proportions are one of the main advantages that the company has
over their competition.  AAFES interest
expense is well below the industry average, and the lease and tax expense
ratios are shown to illustrate the advantage military exchanges have over
industry competitors (Salas, 2009).
    

Competitive Advantage

AAFES competitive advantage in the retail
market is their location on every major U.S. military installation both
national and international.  Customers
enjoy the convenience of a local store in their community which can meet their
needs through at tax free prices.  When
properly available and priced, the services AAFES can offer allows customers access
to attain essential items on post which are commonly found in other retail stores
and a reduce price point as they are sold at pre-tax prices.

As previously stated, the use of market
surveys allows AAFES to identify how successful the organization is at allowing
AAFES to adjust as required. Historically these market surveys have shown that
AAFES has lead in both market effectiveness and customer satisfaction.  These studies show the effectiveness of the
above marketing strategies to attract the military community to continue
shopping at AAFES.

As of June 2017, retail data analysis of
AAFES  provided that customers enjoy a
price point which is 21.6% lower than the competition (Army Airforce Exhange Service, 2017).  Every analysis of AAFES pricing indicates
that AAFES has consistently lower prices than its market competitors (Salas, 2009).  These consistently lower prices throughout
AAFES history has ensured their continued competitive advantage in the market
place. 

Organizational Size
and Structure

            AAFES
is considered a retail, customer service organization.  Within the U.S> retail market AAFES is the 56th
largest retail organization (AAFES, 2017).  Compared to the U.S. retrial industry, the
structure of AAFES is in reality very different.  AAFES is a Joint nonappropriated
fund instrumentality (NAFI) of the Army and the Air Force and falls under the
jurisdiction of the Chiefs of Staff of the Army and Air Force.  AAFES consists of all activities, personnel,
property, and NAF activities that provide exchange services to the Army and the
Air Force and other governmental agencies. 
As a Joint NAFI, AAFES is
structured with a governing council known as a Board of Directors (BOD) (United States Army, 2012).  The Composition of the AAFESS BOD is
determined and detailed in Army Regulation 15-110.  Under the current structure, the AAFES BOD is
structured with eighteen positions.  According
to (Salas, 2009)the BOD positions are defined as:

1. 
Deputy Chief of Staff/Installations & Logistics (DCS/IL), U.S. Air
Force (USAF).

2. 
Deputy Chief of Staff, G–4, U.S. Army.

3. 
Deputy Assistant Secretary of the Army (Human Resources).

4. 
Deputy Assistant Secretary of the Air Force (Force Management and
Personnel).

5. 
Deputy Assistant Secretary of the Army for Budget.

6. 
Deputy Assistant Secretary of the Air Force for Budget.

7. 
Chairman, Army and Air Force Exchange Service, Europe-Region Council.

8. 
Commander, AAFES.

9. 
Pacific Rim (PACRIM) member (Deputy Commander, U.S. Army Pacific or Vice
Commander, Pacific Air Forces).

10. 
Assistant Deputy Chief of Staff, G–1, U.S. Army.

11. 
Director of Services, USAF.

12.  A
general officer representing the Reserve Component.

13. 
Commander, U.S. Army Community and Family Support Center (USACFSC).

14. 
Director of Budget Operations and Personnel, Deputy Assistant Secretary
of the Air Force (Budget).

15. 
Sergeant Major of the Army.

16. 
Chief Master Sergeant of the Air Force.

17. 
Army member-at-large for a 1-year appointment renewable up to 3 years.

18. 
Air Force member-at-large for a 1-year appointment renewable up to 3
years.

The
AAFES BOD directs AAFES and is responsible to the Secretary of the Army and the
Secretary of the Air Force through their respective Chiefs of Staff. The
departmental staffs of the Services develop general policy governing AAFES.
This policy is published in Joint Army regulations and Air Force instructions.
The Army is responsible for developing, staffing, and administering publication
of AAFES policy (United States Army, 2012).  As part of the BOD, there are multiple standing committees.  These committees are executive, finance,
payment and compensation, and audit committees.  These committees are required by regulation to
have equal presence of the Army and Airforce.

The AAFES core organizational structure consists
of the Chief Executive Officer who is primarily in charge of keeping charge
with military traditions.  The Commander
and Deputy Commander jobs are designated to a Major General and Brigadier General
respectively.  Under the military structure,
these positions are not permanent are rotated approximately every two years
between the two branches of the military ensuring the Army and Air Force maintain
equal presence within the organization.  The
Chief Operating Officer (COO) is a permanent civilian job and is designated a Senior
Executive Service position.  The COO, oversees
worldwide operations through the supervision of regional managers and staff.  This position as a Senior Executive Service provides
a permanent civilian for consistency and under the military structure is provided
the same authority as a General Officer (United States Army, 2012).  AAFES management system is structured in such a
way that the COO works alongside the Deputy Commander who is a Brigade General (1
Star).  They work to ensure the proper execution
of the AAFES support group which supervises the information systems, Human Resource
Office and company loss prevention (Salas, 2009).

Worldwide,
AAFES operates more than 2700 facilities in 35 countries, 50 states and five
U.S. territories.  Throughout AAFES
facilities, there are 122 main stores, 166 Military Clothing stores and 500
convenience stores.  Additionally, there
are 117 specialty stores and 76 movies theaters.  The AAFES also operates 1750 quick serve restaurants
under licenses such as Subway, Boston Market, Popeye’s and Starbucks.   The Exchange manages more than 3,600 concession operations and 47
contingency locations in Afghanistan, Kuwait, Iraq, Saudi Arabia, Jordan,
Qatar, United Arab Emirates, Romania, Poland, Bulgaria, Bosnia and Kosovo (AAFES, 2017).

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