Competitive Parity - Definition, Importance & Example
What is Competitive Parity?
Competitive parity is a method of allocation of promotional or advertising budget which is at par with the budget expense of its competitors. The adoption of this method is based upon the optimality of market competition. Companies deviate from their status quo budgeting in the apprehension of trailing in the competition. The relative study of merits and demerits of using this method will be more explanatory.
Competitive parity can expand to overall spending at part with competitors in all the aspects of business also like strategy, IT, finance and other aspects of business but mainly it is used in context of promotion and advertising.
Importance of Competitive Parity
Competitive parity is an interesting marketing strategy when it comes to promoting a product in an industry where there are a lot of established competitors. Many times an organization does not want to out do a competitor to gain competitive advantage as it might still be understanding the market and consumer behavior. On the other hand, they do not want to spend nothing or so less of promotion that the customers do not even notice the product availability and features. One of the best options at that time is to match the advertising strategy and importantly the budget with the competitor in the market.
This is mostly done for products or services which may not be flagship or part of the main offerings of a company. in that case company might look to outdo its competitors and promote heavily to make sure that the customer is well aware of the new product offering in the market.
Competitive parity is an optimum and safe strategy at times as it keeps the product in competition but does not spend too much money on its promotion.
Advantages of Competitive Parity
1. The budget allocations is always optimum and overspending can be prevented on products which are not very core to the business
2. By matching the competitor's advertising strategy and budget, the company keeps the product in the market and in consideration set of the customers.
By not spending at all, it may get lost in the market and by spending too much, it may lead to losses.
3. It can be a safe strategy to follow when not fully aware on what has to be done to succeed in the market.
Disadvantages of Competitive Parity
1. This method will never lead to competitive advantage in the market as it is based on following a competitor which might be the leader in the market and customers will observe that.
2. Competitive parity may lead to wrong budget allocations for few products where there might be definite requirement for more or less spending
Example of Competitive Parity
Let us say there are 2 CPG or FMCG companies ABC and XYZ, which sell Soaps. ABC is the leader and XYZ is the follower. If ABC is spending 10000$ per month on the promotion of their flagship Soap on a particular channel then XYZ will try to match it for its competitive offering on the same channel with a similar budget.
We see many examples of this in the smartphone industry as well where lot of companies compete with similar products.
Hence, this concludes the definition of Competitive Parity along with its overview.
This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.
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