Competitive parity
Definition of competitive parity describes a process of allocating a budget for promotional activities. Competitive Parity includes activities which keep value for the business and are not rare. Competitive parity may be expressed like a valuable activity that is homogeneously spread amongst firms. If valuable activities are different from competitor's activities or not rare then it might be implied that they are homogeneously spread amongst competing firms. In this case, this activity determines a competitive parity at best[1].
Principles of competitive parity
The principles of competitive parity which are an alternative to the parity principle, are in the interest of Taylor and Kahn, who envolved the principles into a comment on Sidak and Baumol's efficient components pricing rule. The main point of there principles is to guarantee that the competition between the inspector of an intermediate productive input and its virtual rivals in end-user markets is efficient. These one's principles are included in two rules:
- the retail operations of the firm monitoring the input have to be subject to the same access or correlation charges as it spread on its competitors, (except for the area that the incremental costs of supplying that service to itself and to its competitors are different) and
- the input supplier's retail charges have to recover both that interconnection charge or access and also the incremental cost of its own retail operations. That rules make the same results as the efficient component pricing rule, but with a subtle difference.
Sidak and Baumol suppose that the retail downstream price is given, and obtain the terms of access to upstream inputs. However, Taylor and Kahn suppose that the terms of access to upstream amenities are arriving and given at the proper retail price needed for competitive parity. Fundamentally Taylor and Kahn obtain the proper relationship between downstream and upstream prices required for competitive parity and complete that the contribution from the downstream service could be compared with the contribution from the upstream service. Nevertheless, the Taylor and Kahn approach are not different from the Sidak and Baumol approach. It only looks in different ways at the same problem and obtains a method of arriving at the downstream price floor which will guarantee competitive parity[2].
Competitive advantage
This category includes activities that represent or support the firm's services or products to its customer and might consist of significant intangible capabilities and resources, which are used to compete with the firm's competitors in a given industry[3].
Examples of Competitive parity
- Competitive parity is often used in marketing campaigns. For example, a company may decide to allocate an equal percentage of their budget to both television and radio ads. This way, they can ensure that both mediums receive the same amount of attention and resources.
- Competitive parity can also be used when setting prices for products. For example, if two companies are selling the same product, they may decide to set their prices at the same level. This allows the companies to remain competitive without having to lower their prices to match their competitors.
- Another example of competitive parity is in the promotion of a product. A company may choose to spend an equal amount of money on both print and online advertising for a particular product. This ensures that both forms of promotion are given the same level of attention and resources.
Limitations of Competitive parity
Competitive parity is limited in several ways. *It does not take into account the effectiveness of different promotional activities, or their ability to reach customers. *It does not consider the relative cost of each tactic, which could lead to budget imbalances. *It also does not consider other markets or competitors, which could place a company at a disadvantage. *Finally, it does not measure the impact of those activities, making it difficult to determine whether the budget is being used effectively.
Competitive parity is a process of allocating a budget for promotional activities, but there are also other approaches to budgeting for marketing and advertising. These include:
- Objective and Task (O&T) budgeting - This approach sets a budget for each advertising task and adjusts it according to market conditions. It is often used when a company has multiple products and needs to compare their relative advertising strengths.
- Percentage of sales - This approach sets the advertising budget as a fixed percentage of current or projected sales. It’s often used when advertising is seen as a variable cost.
- All-you-can-afford - This approach sets the budget as high as the company can afford, taking into account the potential return on investment. It’s often used when advertising is seen as an investment.
- Competitive-parity - This approach sets the budget to match the spending of competitors in the same market. It’s often used when a company is trying to catch up with competitors.
In conclusion, there are various approaches to budgeting for marketing and advertising, all of which have their advantages and disadvantages. Competitive parity is one of them, but there are also other methods such as objective and task budgeting, percentage of sales, all-you-can-afford and competitive-parity.
Footnotes
| Competitive parity — recommended articles |
| Cost oriented pricing — Competition-based pricing — Trade allowance — Standard price — Market based price — Market structure — Cost per unit — Discriminatory pricing — Pricing strategy |
References
- Grant K., (2008)., Processdings of the 4th European Conference on Management Leadership and Governance, Academic Conferences Limited
- Hodgkinson G.P., Ford K., (2012)., International Review of Industrial and Organizational Psychology 2012, John Wiley and Sons
- Kotler P., Armstrong G., (2010)., Princpiles of Marketing, Pearson Education
- Sapronov W., H.W. Read., (1998)., Telecommunications: Law ,Regulation and Policy,Greenwood Publishing Group
Author: Agnieszka Piwowarczyk
