GMAT Preparation Sample Essay AWA
The presence of competitors are usually beneficial to a company. As long as the competitors do not initiate unsustainable price wars, competitors are usually helpful in that companies can learn from each other to create better products and services for consumers, sometimes at lower prices. Drawing from examples in the automotive industry, computer industry, college counseling industry, and mutual fund industry, it is shown that overall competition is helpful to companies.
Competitors that price their products or services under market value can be harmful to a company because the competitor will initiate a price war that will lead everyone in the industry to bankruptcy unless companies are able to respond to competitive threats by subsidizing the low prices and waiting until the new competitor goes out of business, or by starting a marketing campaign to explain why their product is better than their competitors and why their product deserves a premium price. If the competitor's product is perceived as "cheap" and the product is important to consumers, then maybe your company will survive by differentiating itself on value. BMW and other well-branded firms regularly charge a premium of 16% over their competitors and get it.
The venture capitalists featured in the movie "Startup.com" said that an industry only has room for 2 large companies or leaders in the industry, that will make large profits and everyone else will just break even or will not be profitable. From the position of a leader in industry, additional competitors don't really matter because they won't be able to topple the leader from the industry.
In the computer industry, Michael Dell disrupted the personal computer industry by developing a way to provide superior products at lower cost than his competitors by eliminating the middle man in the sales process by selling directly to consumers. In this case, Dell was great for consumers because he drove prices down and made computers more affordable. Compaq, HP, and IBM probably aren't happy about Dell because Dell forced them to lose money or drastically cut their profit margins on computers because Dell computers were better and cheaper than theirs.
The presence of competitors may hinder future research and development by driving down profit margins that are helpful for funding research.
HP is also worried that Dell is moving into computer printers, one of HP's cash cows. HP is known as an innovative company that makes great printers, but Dell is now creating laser printers that may be just as good as HP's for half the price. If Dell doesn't spend as much on research, they may not be able to create better printers and products in the future, which HP was able to do because of HP's large research and development budget. So the presence of Dell in the printer market may be good for consumers in the short-term, but long-term, it may hurt the printing industry if HP lowers its research budget and doesn't continue to innovate.
In the case of INTOTHEBEST, a company that provides college counseling, competitors are helpful, because I can learn from them and improve my own company's product offering and Web site. I can learn from EssayEdge by looking at how their e-commerce site works, how the site is laid out, what is given away, and the importance of affiliate programs in getting referral business. The founder of EssayEdge also built a site called HighSchoolStartups.com that discusses the steps he went through to found EssayEdge and the lessons he learned along the way. This is helpful to me since I can learn from his mistakes and avoid making the same mistakes that he made. The presence of the Princton Review is helpful because I was able to participate in a conference call with the founder of the Princeton Review, John Katzman. After reading the Princeton Review's annual report, I learned that they have a division called Princeton Review 121. It sounded like a college counseling division, so I asked him what it is. He told me it is a tutoring division. I asked him about tutoring, an industry I had thought about entering, and he said that the Princeton Review does some tutoring, but can't really compete with the people who do tutoring but don't pay taxes. In addition, the founder of the Princeton Review said that if he had to start the Princeton Review today, he wouldn't build offices in many cities, but would just hire people in different cities and have virtual offices, a strategy that INTOTHEBEST is employing effectively, greatly reducing startup costs.
I am also learning from another competitor, CollegeConfidential.com, which is the site used by a college counselor. It receives many visitors every day and the owner sells advertising on the site, which is similar to INTOTHEBEST's business model. One feature of the site that seems to work well is a forum that allows people to have discussions with each other online. The messages in the forum are saved and displayed online and become indexed in search engines, leading to CollegeConfidential.com showing up in the top results on popular search engines such as Google and Yahoo. I can learn from my competitor by finding out what forum software he uses and integrating it into INTOTHEBEST.com to improve my site offering and search results.
In the case of Vanguard, the mutual fund company, having competitors that won't compete on price is very helpful to the founder of Vanguard, John Bogle. John Bogle told me that he wished he had a competitor that would compete on price, because it would be helpful to him. Not having competitors that will compete on price of course makes Vanguard the natural choice for investors who want to lower their investment costs.
Overall, competition is helpful in allowing companies to produce better products. Competition helps some companies realize that they cannot produce products at a competitive market price and helps them to realize that they should focus their efforts on other industries that have higher profit margins.