Posted in Marketing and Strategy Terms, Total Reads: 2600
Definition: Competitive Parity
Competitive parity is a method of allocation of promotional budget based on the budget expense data 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.
The firm is never away or behind the competition even in case of any drastic change. Thus this method is very suitable in a perfectly competitive economy.
A drastic change is also not difficult to implement as this will not require complicated sales forecast.
By using this method, a relatively late entrant into the market may have to bear a high opportunity cost for not taking advantage of opportunities to keep up with its competitors already operating in the mature stage (and hence not capable of taking such opportunities) of their life-cycle.
An assumption of this method is the relative similarity of products which, often is not the case in reality. This often distorts the advertising technique and gets the firm deviated from its real potential consumers.