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I have a big problem with companies or people who give job seekers very general information about interviewing. Yahoo Jobs writes about how the “Why Should I Hire You?” question can make or break your interview chances. This is true, but they don’t really do anything to prepare a nervous job seeker. They give general advice like “use the story approach” or “demonstrate your accomplishments.” If you are a nervous job seeker, does this advice ease your nerves? Most likely… No.So I’m here to tell you how to really approach this question and score big points with your interviewer:
Overview
This question tests how you handle yourself under pressure, your level of self-confidence, and your ability to be clear, concise, and direct. Be calm and self-assured when you respond. Believe in what you say. Sometimes this question is the tipping point, and the interviewer will make a decision based on what you say. At other times the question is merely a way to test for additional characteristics. Either way, it is among the most important questions you can receive, so develop a strong response.
Key Points
Approach
Remember, the interviewer is only looking for two things:
If you can demonstrate these two qualities effectively, then the job is yours.

Miriam - Great point! Drawn out answers are the worst. They put the interviewer to sleep, and worst of all, the interviewer will not remember what you said because it was so long!
Lance - Great story. I think that the position you didn't get would have ultimately not been the ideal place for you to work at. I know a lot of people suggest to lie or pretty much do anything to get the job. In contrast, I recommend that everyone be themselves as much as possible. You really want to know that you're skill set is being used optimally so that you're personally growing and becoming better and you want to know that these people fit with you personality and culture.
Thanks for the comments guys!

When I am doing hiring, it is always refreshing to hear someone both understand and discuss ways they can bring value to the organization.
I think you have to understand, like Miriam said, that even if the question isn't asked directly, it is the underlying motivation of nearly every question you'll be asked during the interview.
But on top of all that, I think it is important to really understand where you bring value to an organization. If I told someone during an interview that my value is that I am a finances driven HR person, not only would that not be true, it would be giving a false impression of my experience (and changing their expectation). Even if that is the value that they wish to add to their organization, I'm not going to enjoy that position.
When I was interviewing, I went to several job interviews that were for benefits admin and payroll positions. When I was talking about my value proposition, I didn't mention either one of those because that's not where I add value. As I told them in the interview, you can hire a clerk to do that at $12-15/hour and if that's all you want from this position, you shouldn't be hiring an HR Generalist/Manager at all. In kinder words I told them this is why they need someone who is a HR Generalist (who could also handle those two things but also fix some of their larger issues).
Did I get hired? No. But that's alright. If I would have tailored my value to precisely what they needed when I knew that wasn't the case, we would both lose.

Jun-
These are great points! Being prepared to reply to "Why should we hire you?", which is the underlying question in every interview transaction - even if no one actually asks it directly - is key.
I want to stress your point about keeping answers short...Nothing kills an interview like long, overly drawn-out replies that don't seem to have an end point. Job seekers should practice and time their answers. You may be surprised by how many words you can say in just a minute or two. If you bore yourself with the answer, assume the interviewer will be bored as well :-)
Miriam Salpeter
Keppie Careers