There are various types of strategies companies use to determine their budgeting for marketing and promotional activities. Today we will study about the definition of the Competitive parity after that we dive into the difference between competitive parity and competitive advantage then atlast we will discuss key advantages of competitive parity.
What is Competitive Parity?
It is a concept of strategy, where a company spend all the budget of marketing activities at par with our competitors or industry average. It doesn’t use competitive budgeting strategy to beat competitors. The allocation of funds on advertising and promotional activities will be totally similar to the competitors budgets. It is just done to defend the competitive position and to maintain the reputation of a brand by not spending much. That is why it is known as defensive budgeting.
This is done to achieve a decent position as compared to your competitors in the market. For example, Samsung and Apple If one brand establish itself in a particular technology, others will try to emulate the same strategy and try to allocate the budgets accordingly to make their presence in the same space.
COMPETITIVE PARITY V/S COMPETITIVE ADVANTAGE?
Competitive Parity refers to spending at par with your competitors, whereas in competitive advantage we spend to outperform our competitors. In competitive parity the products offered by the competitors are similar in nature and the product can be easily substituted. Many FMCG products are to be considered as the competitive parity products. It is very difficult to change the pricing in the market.
What is Competitive Parity Budgeting Method?
In competitive parity method, we determine the advertising budget by analysing the spending done by our competitors. The main disadvantage of this method is that it may not be necessary that our objectives/goals are the same as our competitors.
Key Advantages of Competitive Parity:
The main advantage of this strategy is to calculate the advertising and branding expenditure because it will be similar to our competitors. The spending on promotion and brand presence will be at par as planned by our competitors. The Promotion outcome and customer reach will match as of our competitor. That means there will be less overspending of budget.
Various companies are using demand forecasting method and sales forecasting methods to predict sales in the near future. Instead of using the forecasting methods, which is quite expensive and consume lots of funds, using competitive parity method is easy and less expensive. In that we have to predict the major expenditure by our competitors which is fairly easy to calculate.
Brand can be benefited from the decision taken by its competitors over pricing. If a brand has increased the price of its product, then it will get substituted by the similar product of the other brand and thus increasing the sale of brand with price advantage.
The above listed advantages are not true in each and every company case, It may be advantageous for one but not at all useful for another company. It also depends on the financial conditions and the competitive positioning of a brand. Company with less advertising budget this strategy will not suit well.
Disadvantages of Competitive Parity:
The main disadvantage of the competitive parity method, when you’re defining your product goal it will not be similar to the competitors goal. His goal may be to increase the brand awareness. Yours may be to increase the number of units sold in a period of time. So while implementing competitive parity budgeting method we may take wrong decision to emulate the budgets of competitors.
For new entrants in the market, it is very difficult to implement the strategy because it wants huge budget to be implemented. They have to bear exorbitant opportunity cost, they will not be able to match up the competitor they will get perished in the process.So it is not advised to the new players in the market to implement competitive parity budgeting method until and unless market is at a nascent stage and the market is very new in existence. Instead, they can focus on competitive advantage so as to increase the chances of survival.
If we look at the brands, they tend to spend a huge amount of money on promotion of the products which are not at all competitive and different in nature. But while competing, companies tend to forget the basic concept and keep raising their budgets on promotions.
If we look at the Uber and Lyft they are competing in the huge competitive market and raising their promotion budgets, so as to get as much advertising space as they can buy either it can be online or billboards or on Television. If we look at the advertising space online, both are competing for the same audience and flood their ads to the customers so as to overtake one another but in this process they are spending a huge chunk of money. The online spaces are filled with the marketing strategy and tactics to lure customers.