What is the Competitive Parity Method?
The competitive parity method is a strategic approach in which a business sets its
marketing budget and operational strategies based on the spending and activities of its competitors. This method allows businesses to remain competitive in the market by ensuring they do not fall behind their peers in terms of visibility, customer engagement, and overall market presence.
1.
Market Positioning: It helps new ventures understand their position relative to competitors and make informed decisions to improve their standing.
2.
Resource Allocation: By analyzing competitors' spending, entrepreneurs can allocate their resources more effectively to match or surpass industry standards.
3.
Risk Mitigation: It minimizes the risk of underinvestment in essential areas like
marketing, which could otherwise lead to losing market share.
1. Identify Key Competitors: Determine who your main competitors are. This includes direct competitors offering similar products or services and indirect competitors serving the same customer needs differently.
2. Analyze Competitors' Strategies: Research your competitors' spending patterns, particularly in marketing and advertising. This can involve examining their presence in various media, promotional activities, and digital marketing efforts.
3. Set Your Budget: Based on the data collected, set a budget that aligns with or slightly exceeds your competitors' spending to ensure competitive parity.
4. Monitor and Adjust: Continuously monitor competitors' activities and adjust your strategies and budget as necessary to maintain a competitive edge.
Pros and Cons of the Competitive Parity Method
Like any strategic approach, the competitive parity method has its advantages and disadvantages.Pros:
- Simplicity: It offers a straightforward way to set budgets and strategies by following industry norms.
- Benchmarking: Provides a clear benchmark to measure your efforts against competitors.
- Risk Reduction: Reduces the risk of underinvestment, ensuring your business remains visible and competitive.
Cons:
- Reactive Approach: It tends to be more reactive than proactive, potentially leading to missed opportunities for innovation.
- Assumption-Based: Assumes that competitors' strategies are optimal, which may not always be the case.
- Limited Differentiation: Focusing too much on parity can limit your ability to differentiate your brand and stand out in the market.
Is Competitive Parity Suitable for All Entrepreneurs?
While the competitive parity method can be beneficial, it may not be suitable for all entrepreneurs. Startups with limited resources might find it challenging to match the spending of well-established competitors. In such cases, it might be more effective to focus on
niche markets or innovative marketing techniques that offer high impact at a lower cost.
Case Study: Competitive Parity in Action
Consider a new entrant in the
organic skincare industry. By analyzing competitors like established organic skincare brands, the entrepreneur can identify that a significant portion of their budget is allocated to social media marketing and influencer partnerships. Using the competitive parity method, the new business could allocate a similar budget to these areas, ensuring they remain visible and relevant to their target audience.
Conclusion
The competitive parity method offers a valuable framework for entrepreneurs to set budgets and strategies based on industry standards. While it has its limitations, it can be an effective tool for maintaining market presence and ensuring resource allocation aligns with competitive benchmarks. By carefully analyzing competitors and continuously adjusting strategies, entrepreneurs can leverage competitive parity to achieve sustainable growth and success.