In B2B marketing, competitive parity is an unusual phrase for marketers, but an interesting and useful concept. Now follow JumoreGlobal Insights to take an overall look at this less common marketing term.
Though the context of competitive parity might not be clear from its term, its intrinsic nature is. Literally, competitive parity refers to a marketing strategy used for being on par with competition.
Definition of Competitive Parity
In the field of B2B marketing, “competitive parity” refers to a method used to determine the optimal expenditure needed for promotional activities, like advertising and branding, to keep up with the competitors of a particular brand, product or company in all respects. In this way, a business will allocate its promotional budget depending on the view of optimal level of market competition.
Taking the widespread competition between KFC and McDonald as an example, if there is any new territory that KFC or McDonald tries to establish itself in, these brands check their competitor’s presence. Consequently, the two sides budget their promotional spending with reference to each other.
Competitive parity can mostly be regarded as a defensive strategy that is used by businesses to defend their reputation, brand awareness and its positioning not at the cost of overspending of financial resources.
Now that we have a simple understanding of what competitive parity is and what its role is in B2B marketing, let us go further to see the pros and cons of this budgeting strategy.
One of the apparent advantages of using this method to calculate the cost of advertising and branding is that a company will not be too far away from its competitors. The spending will match that of the competitors, so will the visibility of the brand and its exposure to prospects. This means that the brand need not overspend much for achieving comparable business goals.
A number of companies use sales and demand forecasts to predict how much they should spend on branding and advertising activities for future periods, but this approach is relatively simple and does away with complicated forecasting methods. Instead, the constant changes in the promotional expenses, if made by competitors, can be easily replicated since it is easy to calculate the necessary expenditure.
The good points mentioned above are not necessarily advantageous for a company. As standalone points they are certainly advantageous but can vary from situation to situation. For a company that is not doing so well financially, this kind of budgeting strategy may not function well.
For B2B beginners, following this type of spending calculation might prove disastrous. They will have to bear huge opportunity costs to be able to match up to the advertising or branding budgets of existing giant players in the market. This might prove detrimental to their financial health and to the end cause severe losses to them. For new players, this kind of budgeting method is not always advised.
Another trap that businesses may fall into with this method is spending excessive amounts of money on products that are different in nature and not totally competitive. Two companies may have products that are competing one another but they may also have products that are not mutually competitive. But the market competition gets so intense that companies neglect this and keep raising their expenditure on branding and advertising even when it is not required.
If you watch closely the advertising of certain competitors, you will find them really competing with each other, therefore matching their spending on advertising and branding. Take the example of Coca Cola and Pepsi.
Therefore, if you have an idea to budget marketing activities of your own business by way of competitive parity, make sure you have fully understood the competitors and yourself, so that you can take full advantages of that strategy rather than getting hurt.