MECE framework for Competition Strategy

Question

Hi, I normally use the below framework, but it is not very MECE. Woud like to seek your advice -

1. Quantify the impact of the competition/competitor's move:

This bucket is the most confusing,

shall I quantify the impact considering No Response or With Response (if with, what response???which we haven't decided)

If the case is “Competitor reduces price/is aggressive in price, and our client is worried about its profitability.”

I will quantify the impact on Profit

i) Revenue: Price x #

ii) Costs breakdown

- what is the competitor's price vs. our price?

- what do customers care the most? and how does our offering vs. competitor's offering?

- if we don't do anything, how many customers will we lose?

- if we decrease the price, how much revenue will be shrinken?

- in order to decrease the price, do we have the pressure to reduce the cost to maintain profitability?

2. Responses:

1) do nothing

2) do the same

3) do better/more

- fundamentally I want to compare our client vs. the competitor to see how can we better retain our strength and tackle the competitor's weakness

- in order to do so, I want to compare our client's capability vs. competitor:

i) Offerings/non-financial factors: product, relationship with customers

ii) cost structure

3. Implement and Risks

i) quantify the chosen response

ii) risks associated with it

- e.g. price war (any other structured ideas??? short term & long term? external & internal???)

Thanks a lot!

Answer 1

Hi there! Competitive pricing is an interesting (and I think rare, at least at Bain) business problem to face in case interview. I think your structure is probably alright at a high level but I would simplify it and try to avoid getting too lost in the weeds.

I would probably frame this case as more static (e.g., at this point in time, the competition prices at $X, we price at $Y, what should we price at to maximize profit?) and tackle this issue from two dimensions:

Impact on market share and/or volume: How many widgets to we sell when they're priced at $Y? How many would we sell at 50% * $Y and how many would we sell at 2 x $Y? From here you can draw the demand curve, determine price elasticity, and determine the price for maximum revenue.
Impact on profitability: What is the contribution margin of every widget and what are our fixed costs? Does the price at maximum revenue cover the variable costs? From here you can determine the price for maximum profit.

I think once you do the highly simplified math, you can start to dive into the second order considerations of price-war risk, brand perception, differentiation, capabilities, supplier considerations (e.g., do they have a minimum price requirement?), etc.

Hope this helps! I always think setting up the simple math first is best (especially for Bain) because it keeps you focused.

Good luck interviewing!

Answer 2

Hi there,

Ultimately having a set-it-and-forget-it framework for any case type is a recipe for disaster.

My framework for competitive response changes based on what the competitor has done.

Have they entered a market? Well, let's leverage how I think about market entry? Are they changing prices? Well, let's leverage the pricing framework. Have they merged? Well, we need to look at the impact of that merger on their competitive advantage (synergies, essentially).

The way in which you frame a competitive response should change based on the prompt! That said, it ultimately comes down to how that competitive move is specifically impacting your profits and what you need to do to mitigate that!