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Budgeting for competitive parity aims to produce results
that are typical for the industry. Learn more about the differences between
this budgeting approach and competitive advantage.
According to the budgeting strategy known as
"competitive parity," a business should spend the same amount on
marketing and advertising as its rivals. Competitive parity is a business
strategy used to maintain a competitive edge by limiting spending on
advertising and marketing. It is frequently used by businesses that produce
parity products, which are identical to or closely related to those of their
rivals. This tactic does not require complex forecasting techniques because it
copies the allocation to marketing activities of rivals. Instead, a business
that practices competitive parity bases its marketing goals on the advertising
budget of its rivals.
The competitive parity method can assist a company in
achieving industry-average results without exceeding its advertising budget
when differentiation is not a workable marketing strategy. For well-established
companies with a sizable market share, it works best. Start-ups and small
business owners typically do not benefit from competitive parity budgeting
because they would incur extremely high opportunity costs to match their
rivals' promotional budgets.
Competitive Parity vs. Competitive Advantage
A defensive budgeting strategy called competitive parity is
used to protect a brand's reputation and market position. It simply aims to
maintain the same level of market share as its rivals rather than outperform
them. Contrarily, a company with a competitive advantage is one that provides
more consumer value or appeal to its goods or services than its rivals do. A
company that has a competitive advantage over its rivals is more likely to
spend more of its advertising budget on informing consumers about new products
or proving to them why their goods or services are superior.
An Example of Competitive Parity
Consider two fictitious companies Company A and Company B,
both of which produce seltzer water, to get a general idea of how competitive
parity functions. Industry pioneer and rival of Company B is Company A. The
goal of Company B is to equal Company A's sales performance. A certain sum of
money is spent by Company A to promote its seltzer water on social media. In
order to achieve the same or comparable results as Company A, Company B will
set its marketing budget to correspond to the sum Company A spends on its
social media marketing.
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