How to structure New Competitor Response and Impact case?

Question

Hi,

There are one or several new competitors entering the client's market, how will this impact our clients business?

How to best structure this?

Option 1) A pure profitability tree where I go deep in my rationale about how the size of potential decline in volume sold for example will depend on how different/good the new competitors are)

Option 2) Another structure could be a broader one with four key factors:

Profitability,
Client (value prop, product- customer segment mix, company positioning, key success factors such as access to suppliers, cost advantages, branding etc)
New Competitor(-s) (same subfactors as client, basically to understand how much does our business overlap, can we co-exist, do they have a better value prop than us etc)
Market (growing? customer brand drivers/what do customers value? trends?)

This case was given to my friend in a McKinsey interview a month ago. There was a hospital specialized in cardiovasculeaur treatment and they just found out that another hopsital was going to be established near by. They were wondering how it was going to impact their business and what options they had in terms of competitor responses and what competitor response option that was recommended.

Answer 1

Hi there,

This really depends on the industry and situation at hand.

That said, your first approach makes the most sense. In essence, the only reason we care about a competitor is because it will affect our profits.

Now, the skill/art to this answer is you have to actually make that profitability breakdown tailored! Based on what you know about the industry/situation, how can you break down profitability into the components that will be affected.

Answer 2

Hello!

Clarly Option 2 is much better than Option 1.

To complement it, have a look at Porter´s framework. Never use it in a real interview, since it´s too "seen", but it helps you cover in a MECE way the key ideas for industry attractiveness and competition

Hope it helps!

Cheers,

Clara