Do competitors ever affect your costs? Or are they mainly a threat to your revenues and market share?
(edited)
Get Active in Our Amazing Community of Over 451,000 Peers!
Schedule mock interviews on the Meeting Board, join the latest community discussions in our Consulting Q&A and find like-minded Case Partners to connect and practice with!
Competition impact on cost
Overview of answers
Upvotes
Best answer
Hi there,
It's very rare for competitors to directly affect your costs. Now, of course a competitor cost-cutting would lead to you needing to cut your costs. Equally, a competitor making large capex expenditures (more R&D, buying more assets like a new fleet of planes, etc.) will force you to do the same to stay competitve. However, this is not directly impacting your current costs.
Now, that said, there is such a thing as an "Amazon effect" (when Amazon sets up in a certain area, wages outside of Amazon itself go up). Additionally, a big competitor buying up raw materials etc. may drive your costs up as well.
However, this is all economic theory and really shouldn't show up in a case (it's possible, but highly unlikely)
Was this answer helpful?
Hi there,
As mentioned by Ian, competitors usually affect revenues but may affect costs as well. Some possible ways are:
- Steal a key supplier forcing you to go for a more expensive one
- Increase the minimum quality expected in the market (eg free delivery) thus obliging you to improve your quality as well
- Lobby with a regulator to increase the requirements for operating the service thus obliging you to adapt
Best,
Francesco
Was this answer helpful?
The impact on costs will be due to your response or reaction to competitors actions. Ian and Francesco have outlined what the competitors can do which could leave you no choice but to respond. This could mean additional costs of various types.
Was this answer helpful?
Hi,
in situations of low-capacity row material or of few large suppliers competitors can actually impact your costs. However, it is more a macro-economical technicality, I've never seen it applied in a case interview
Best,
Antonello
Was this answer helpful?
Fully agree with what Francesco said: Another one for that list is talent: If competitors pay high sign-on bonuses for MBA graduates or target your key employees with head hunters, that drives up your personnel and recruiting costs.
Was this answer helpful?
Related Cases
Expert case by Francesco
Our client is SmartBridge, a nonprofit educational institution offering face-to-face tutoring services. The client operates in the US.The mission of SmartBridge is to help as many students as possible to complete studies and prevent that they drop from the school system, in particular in disadv
...
Our client is SmartBridge, a nonprofit educational institution offering face-to-face tutoring services. The client operates in the US.The mission of SmartBridge is to help as many stude
...
(Open whole case)
31.6k
Times solved
Advanced
Difficulty
Expert case by Hagen
Style:
Sprinker is a mid-sized, US-based publishing agency that develops, produces, and sells educational materials. It has come to their attention that some private schools are considering changing their first-grade textbooks, for which they would need a publishing agency.Sprinker is interested in partici
...
Sprinker is a mid-sized, US-based publishing agency that develops, produces, and sells educational materials. It has come to their attention that some private schools are considering changin
...
(Open whole case)
17.9k
Times solved
Beginner
Difficulty
Expert case by Francesco
Style:
Our client is a BlissOttica, an Eyewear Manufacturer that is looking to reach a 10% increase in profits. How would you help our client?
Our client is a BlissOttica, an Eyewear Manufacturer that is looking to reach a 10% increase in profits. How would you help our client?
(Open whole case)
13.6k
Times solved
Intermediate
Difficulty
Expert case by Ian
Style:
Sky China, a government-backed Chinese airline, has recently seen profits plummet due to COVID-19. Profits are down 80% in the months of February and March, but are showing early signs of a rebound in April. They've brought you in to first investigate what can be done immediatedly to prevent he
...
Sky China, a government-backed Chinese airline, has recently seen profits plummet due to COVID-19. Profits are down 80% in the months of February and March, but are showing early signs of a
...
(Open whole case)
7.5k
Times solved
Intermediate
Difficulty
Expert case by Casper
Style:
Our clients are two beer manufacturers from a well-developed country who just decided to merge. We can call them Company A and Company B. The decision about the merger has already been taken and our clients are certain it will soon be approved by regulators.What is expected from you is to help
...
Our clients are two beer manufacturers from a well-developed country who just decided to merge. We can call them Company A and Company B. The decision about the merger has already been taken
...
(Open whole case)
7.4k
Times solved
Advanced
Difficulty
Content Creator
#1 BCG coach | MBB | Tier 2 | Digital, Tech, Platinion | 100% personal success rate (8/8) | 95% candidate success rate
1,096
Meetings
77,434
Q&A Upvotes
232
Awards
151 Reviews
