AAFES facilities have the advantage of beingcentrally located on military instillation and having a captive customerbase.  AAFES aims to utilize itscompetitive advantage of providing items at a pre-tax price to ensure thelowest 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 processwhich has been dictated by the Department of Defense (DoD).  DoD requires AAFES to conduct annual marketbased surveys.  The overarching goal ofthese market base survey’s is to conduct a price comparison of AAFES items againstsimilar items on the open market at their pre-tax price.  DoD and AAFES has set the objective toachieve a 20 percent savings over those items available at other retailers (Salas, 2009).    Thismarket based survey process tracks the price market and allows AAFES to measurecustomer satisfaction with current pricing.  To ensure a fair assessment and accuracy, the surveys are conducted byan independent research firm contracted by AAFES.

 The parameters of the survey include regularpriced or identical items sold at multiple military exchanges.  The survey ensures that items inclusive ofsale or discount prices are not included (Salas, 2009).MarketingStrategy            AAFES marketing strategy is based ontheir ability to provide a reduced price and on providing advantages touniformed military service members, their families and other authorizedpatrons.  AAFES strategy is to be thefirst choice of their customer through its exercise of price matching, pricecutting, clearance and sales.  Accordingto (Hannah, 2011), AAFES markets with signs throughouttheir facilities which advertise:(a) “We Price Match” – This signindicates that AAFES will match any local competitor’s price on identicalmerchandise – some restrictions may apply. (b)”Price Cut” – This sign indicates that AAFES has cut the price on these itemsin order to provide you the best local deals.

 (c) “Clearance” – This signindicates that AAFES has permanently marked down the price on these items. (d) “Sale” – This sign indicatesthat AAFES has temporarily lowered prices on regular stock or new merchandisefor a promotion. AsAAFES markets to a captive audience, who frequent their stores for convenienceor perceived price savings, the requirement for a robust marketing strategy of printand media ads, which are traditional for retail outlets, are not required.   Instead,AAFES marketing strategy is simplified to flyers and magazines ads, distributedaround their local facilities.  Theseadvertisements highlight new or sales items to lure customers to their stores.

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

   AAFESwas also able to introduced over 450 new name brands to their brick and motarstores in 2015 and opened 71 new named brand restaurants to enhance customerexperience (Earnest & Young LLP, 2015).   AAFESexpansion strategy was capped with a $179 million capital real-estate projectwhich 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 theupgrade of 225 retail facilities and renovation of numerous express conveyancestores in both the continental and overseas markets (Earnest & Young LLP, 2015).Due to the size and multiple locations ofAAFES, studies have shown that AAEFES has higher than average operatingexpenses, but a low gross profit.  However, the interest expense of the organization is significantly lowerthan the industry average.  The lease andtax expense proportions are one of the main advantages that the company hasover their competition.  AAFES interestexpense is well below the industry average, and the lease and tax expenseratios are shown to illustrate the advantage military exchanges have overindustry competitors (Salas, 2009).    Competitive AdvantageAAFES competitive advantage in the retailmarket is their location on every major U.S.

military installation bothnational and international.  Customersenjoy the convenience of a local store in their community which can meet theirneeds through at tax free prices.  Whenproperly available and priced, the services AAFES can offer allows customers accessto attain essential items on post which are commonly found in other retail storesand a reduce price point as they are sold at pre-tax prices.As previously stated, the use of marketsurveys allows AAFES to identify how successful the organization is at allowingAAFES to adjust as required. Historically these market surveys have shown thatAAFES has lead in both market effectiveness and customer satisfaction.  These studies show the effectiveness of theabove marketing strategies to attract the military community to continueshopping at AAFES. As of June 2017, retail data analysis ofAAFES  provided that customers enjoy aprice point which is 21.

6% lower than the competition (Army Airforce Exhange Service, 2017).  Every analysis of AAFES pricing indicatesthat AAFES has consistently lower prices than its market competitors (Salas, 2009).  These consistently lower prices throughoutAAFES history has ensured their continued competitive advantage in the marketplace.  Organizational Sizeand Structure            AAFESis considered a retail, customer service organization.  Within the U.S> retail market AAFES is the 56thlargest retail organization (AAFES, 2017).  Compared to the U.S.

retrial industry, thestructure of AAFES is in reality very different.  AAFES is a Joint nonappropriatedfund instrumentality (NAFI) of the Army and the Air Force and falls under thejurisdiction 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 theAir Force and other governmental agencies. As a Joint NAFI, AAFES isstructured with a governing council known as a Board of Directors (BOD) (United States Army, 2012).  The Composition of the AAFESS BOD isdetermined and detailed in Army Regulation 15-110.  Under the current structure, the AAFES BOD isstructured with eighteen positions.  Accordingto (Salas, 2009)the BOD positions are defined as: 1.

 Deputy Chief of Staff/Installations & Logistics (DCS/IL), U.S. AirForce (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 andPersonnel). 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 ViceCommander, Pacific Air Forces). 10. Assistant Deputy Chief of Staff, G–1, U.S. Army. 11. Director of Services, USAF.

12.  Ageneral 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 Secretaryof 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 3years. TheAAFES BOD directs AAFES and is responsible to the Secretary of the Army and theSecretary of the Air Force through their respective Chiefs of Staff. Thedepartmental 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 publicationof 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 tohave equal presence of the Army and Airforce.The AAFES core organizational structure consistsof the Chief Executive Officer who is primarily in charge of keeping chargewith military traditions.

 The Commanderand Deputy Commander jobs are designated to a Major General and Brigadier Generalrespectively.  Under the military structure,these positions are not permanent are rotated approximately every two yearsbetween the two branches of the military ensuring the Army and Air Force maintainequal presence within the organization.  TheChief Operating Officer (COO) is a permanent civilian job and is designated a SeniorExecutive Service position.  The COO, overseesworldwide operations through the supervision of regional managers and staff.  This position as a Senior Executive Service providesa permanent civilian for consistency and under the military structure is providedthe same authority as a General Officer (United States Army, 2012).  AAFES management system is structured in such away that the COO works alongside the Deputy Commander who is a Brigade General (1Star).  They work to ensure the proper executionof the AAFES support group which supervises the information systems, Human ResourceOffice and company loss prevention (Salas, 2009).Worldwide,AAFES operates more than 2700 facilities in 35 countries, 50 states and fiveU.

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


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