All You Should Know About Competitive Parity 

Are you wondering what competitive parity means? What is a competitive parity budgeting method? We have covered it all in this guide along with a few examples.

Companies face stiff competition in today’s marketing world. For this reason, most companies are fast to adopt marketing strategies to create brand awareness and beat the competition. 

Ideally, there is more a business can engage in to gain a competitive advantage or remain relevant in the industry. This article explains more about competitive parity, what it means, what it entails, and some of its benefits to companies.

What is Competitive Parity?

Competitive parity is a concept in which a company will spend its entire marketing budget to remain at par with the competitor and the industry’s average. A company applying this concept will avoid using any competitive budgeting strategy to outshine its competitors.

In applying competitive parity, a company ensures that its promotional activities and the funds it allocates for advertising will be more similar to the competitor’s budget.

Most companies and businesses applying this concept only do so to maintain their reputation in the industry. They employ competitive parity to defend their position and remain relevant in the market. Simply put, a competitive budget is also known as defensive budgeting, competitive equivalence, or competitive equality.

What Constitutes Competitive Parity 

A business applying the concept of competitive parity remains at par with rival companies in the following aspects:

  • Customer service
  • Pricing
  • Product offerings
  • Marketing strategies 

Once a company has achieved competitive parity, it is neither at an advantage nor a disadvantage compared to its competitors in the industry.

By applying the concept of competitive parity, the company has positioned its resources and management to ensure an equal foot in delivering value to customers, meeting customers’ needs, and simply capturing market share.

Notably, most companies applying competitive parity look forward to remaining relevant and competing favorably with rivals in the industry. However, some companies may still strive to gain a competitive advantage and outperform others by establishing a superior position in the market.

competitive parity
competitive parity

What to Remember When Applying Competitive Parity?

As a business, when you want to apply competitive parity, you should re-examine your budget and marketing strategy. You want to ensure your marketing is simply in line or outshines what your competition is doing. Here are the major key points you should have in mind:

1 – Benchmark industry standards 

A thorough understanding of the industry standards is important before applying the competitive parity concept. Therefore, as a business, you should understand or benchmark the basic industry best practices and set industrial standards.

Analyze what your competitors are doing and determine your position concerning their success. You should also research and dig into your competitor’s offerings and strategies.

2 – Outline Brand offerings

Is there anything that differentiates your products and services? Your brand should offer value and stay ahead of your competitors.

As a business, you want to focus more on delivering products that either outshine or complement your competitors. The products you deliver should be comparable in benefits and functionality to meet expectations and remain competitive.

3 – Evaluate the pricing strategy 

When applying competitive parity, companies should evaluate their pricing strategies in relation to prevailing market conditions. That means researching competitors’ marketing and pricing strategy and applying it. 

In competitive parity, businesses should set prices considering the industry norms; the prices should not be high or low. When setting a price for your products and services, consider factors like target customers, production cost, and their impact on the market.

4 – Branding and marketing 

Clearly outline and examine your brand position and marketing efforts to ensure they align with your competition. 

This should include messaging, promotional activities, advertising, and brand identity. When you choose a marketing campaign, you should ensure relevancy and consistency.

5 – Customer service and experience

When applying competitive parity, you want to focus more on customer experience and service. Therefore, you should pay attention to the customer experience with your brand.  

Find out whether your competition offers a better experience for the target customer. Also, determine how to enhance service delivery and experience to existing customers. 

Competitive parity requires that companies deliver almost the same customer support and service level to ensure customer loyalty.

6 – Ongoing monitoring 

Competitive parity is an ongoing process and requires continuous monitoring. Companies must monitor customer preferences, competitor strategies, and prevailing market trends. Business managers should strive to improve brand and business operations to surpass or remain at par with the competition.

When you apply competitive parity in your business, keep innovating new ideas and adapting to changes in the industry. Companies should also focus on creating new opportunities and differentiating their products to gain a competitive advantage. 

competitive parity

What Are the Advantages of Competitive Parity?

Competitive advantage comes with many benefits for your business. Here are the key benefits of applying competitive parity:

1 – Avoid price wars 

When you engage in competitive parity as a business, you simply avoid price wars with your competitors. Competitive parity helps stabilize market prices and ensures a healthy profit margin for all the key players in the industry.

2 – Reduced spending on marketing 

Competitive parity helps to cut the marketing budget. It means when you apply this concept in your business, all your advertising, branding, and marketing expenditure will remain similar to that of your competitors. When you keep track of what your competitors are doing, you will not be overspending. 

3 – Market stability 

In competitive parity, no simple player holds a competitive advantage over others. A level of market stability creates a perfect market environment for all businesses.

It means there is no monopolistic tendency in the market. This promotes fair competition in the market, which is an advantage to buyers.

4 – Build trust and loyalty 

Competitive parity helps to build trust and credibility in the market. When your business offers products and services that are always at par with the competitors, it establishes trust and credibility with your customers. 

Customers will perceive that they are receiving comparable value across all brands in the market.

5 – Reduce customer confusion

When all businesses in the market offer similar products in terms of value and prices, it becomes easy for customers to make choices. People can easily make the right choices depending on convenience, brand reputation, and personal preferences. 

Customers can focus more on the value of products rather than the differences in products on the shelves.

6 – Encourages collaboration 

In most cases, competitive parity encourages the development of industry best practices and standards. 

It also encourages collaboration amongst companies in the same industry. This way, competitors in the industry can work as a team in setting best practices and quality policies and establishing guidelines for the industry. 

When there are guidelines in the industry to be followed by all, it ensures ethical business practice, quality, and safety. 

There are a lot of opportunities that come with competitive parity. However, you should strive for continuous improvement when you apply this concept. When you keep improving your business, you stay ahead of the market. You also utilize all the opportunities that come your way.

The Drawbacks of Competitive Parity

Competitive parity has many benefits but also has a lot of disadvantages. Here are some of the downsides of applying competitive parity in your business. 

competitive parity

1 – Struggle to differentiate 

By applying competitive parity, businesses may need help differentiating their products. It becomes difficult for individual companies in the industry to stand out from the rest. 

Additionally, companies that strive to remain unique will still need help attracting customers looking for value for money.

2 – Limits pricing flexibility 

When your business applies competitive parity, you’ll be pricing products and services at par with your competitors. This limits you to a pricing threshold and flexibility. It is challenging to adjust prices, so you respond to fluctuations in production costs and prevailing market conditions.

3 – Low-profit margins 

There is stiff price competition in an industry where companies apply competitive parity. When a business maintains competitive parity in pricing its products, it will likely incur low-profit margins. Businesses are forced to lower product prices to match their competitors, resulting in low-profit margins.

4 – Lack of innovation

Companies that stick to competitive parity are applying a conservative approach. This is where businesses are simply matching their competitors. 

Most businesses don’t pursue product innovations to stay ahead of the market. In most cases, this limits the ability to capture new markets and hinders long-term growth. 

5 – Industry shifts 

Businesses that apply competitive parity in marketing are more vulnerable to industry-wide shifts. When businesses align their operations closer to their competitors, they are most likely affected by industry shifts. 

For instance, if a significant competitor introduces a better innovation offer, the other businesses may need help to cope and lose their market share.

Examples of Competitive Parity in Various Industries 

Competitive parity is a concept applied in different industries. Here are some examples we find in different markets today:

  • Automotive industry: Most car manufacturers offer vehicles with the same safety features, comparable performance, and technology to meet customer expectations and compete fairly.
  • Mobile phone industry: Tens of mobile phone brands are in the market today. However, most offer the exact specifications, performance, and almost comparable pricing. This aims at achieving competitive parity in the mobile phone industry.
  • Airline industry: Most airlines offer similar amenities, in-flight services, and ticket pricing. They do this to remain on par with their competition.
  • Fast food industry: Multiple food chain stores offer similar promotions, pricing, and menu items to maintain competitive parity.
  • Retail industry:  Brick-and-mortar or online stores offer similar pricing, product ranges, and customer support services to achieve a competitive parity and attract the most customers online.

Final Thoughts 

Competitive parity has more benefits than drawbacks. However, a business applying this concept in marketing should consider all drawbacks in decision-making. By balancing innovation and product differentiation, businesses can always mitigate the disadvantages of competitive parity.

A clear understanding of competitive is vital for business managers. You can strategically plan your business in areas you will likely win or break even. You don’t have to break the bank or blow up your marketing budget when applying competitive parity and succeeding is possible.

Bijoy Pal is a business-focused website, we cover business-related topics that can help you get specific information. BuzBusiness was founded in April 2021.

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