Why should I hire you from the outside when I could promote someone from within?
Don’t worry; this question is not trying to discourage you. Instead, look at it as an opportunity; an opportunity to highlight you skills and to show them why you would be the best candidate for the position.
Similar to the questions, “Explain how you would be an asset to this organization?” and “Why should we hire you instead of the other applicants?”, the interviewer wants to see why you think you would be a better candidate. Now, you don’t actually know anything about the other people who interviewed for this position, and you don’t know any of their employees either. Hence, you can’t actually make a direct comparison, but that’s okay, you don’t actually need to. Instead of worrying about their skills or qualities, focus on your own. Highlight why you think you are a good candidate for this position. What makes you unique? Why should they hire you?
If you have done research on the company and the job, you should know what kind of skills they would be looking for. Try to point out those skills in yourself. Show that you would be a good addition to the company.
Also point out that while an internal employee might know more about the company, the job requirements, the company culture, etc., hiring someone from the outside will introduce new blood, hence shaking some things up. When people work together for a long time, they tend to think similarly, bringing in someone from the outside guarantees a new perspective which will lead to more discussion, hence leading to better solutions.
The fact that the company is interviewing you and other candidates shows that they have already decided to hire from outside, otherwise they wouldn’t go thought the hassle of interviewing candidates. However, you have to show that you understand why they would hire somebody from the outside rather than from the inside. And the answer to that is simple: new blood.
Now you just need to show why they should hire you instead of the other people they interviewed. So, try to show why you are unique, why you would make a better addition to the team.
While, you are at complete liberty to promote someone from within the company, I think that it would be a good idea to bring in someone from the outside instead. They would be able to bring in a newer and fresher perspective which may lead to a more open dialogue and lead to better solutions; preferably someone who has vast experience in the field and is open to new ideas. I do have over five years of experience in the industry and having previously worked on the XYZ Project, I feel that I may have the unique experiences that not many else would be able to bring to the table.