Competitive Parity Explained: What Is Competitive Parity?

Competitive parity is a budgeting method in which a company spends the same amount of money on advertising and marketing as its competitors. As a business strategy, competitive parity is designed to defend a competitive position by not overspending on promotion and marketing budgets. It is typically employed by companies that create parity products—an identical or similar product to their competitors. This strategy relies on mimicking the allocation to marketing activities of competitors, and thus negates the need for complicated forecasting methods. Instead, a company using competitive parity bases its marketing objectives on its competitor’s advertising budget.

When differentiation is not a viable marketing strategy, the competitive parity method can help a company achieve industry-average results without overspending on its advertising budget. It is most effective for established businesses with a large market share. Startups and small business entrepreneurs do not typically benefit from competitive parity budgeting due to the fact that they’d have to pay incredibly high opportunity costs in order to match the promotional budgets of their competitors.

Competitive parity is a defensive budgeting method designed to secure a brand’s reputation and market position. It does not seek to beat the market competition but simply maintain the same level of market share as its competitors. Competitive advantage, on the other hand, is an attribute of a business that offers greater consumer value or appeal to its products or services relative to its competitors. A business that has a competitive advantage over other businesses is likely to spend more on its advertising budget to make consumers aware of a new product or to educate consumers on why their product or service is better than their competitors’.

For a general overview of how competitive parity works, consider two hypothetical businesses: Company A and Company B, both of which make seltzer water. Company A is an industry leader and competitor of Company B. Company B wants to achieve the same sales results as Company A. Company A spends a certain dollar amount to advertise its seltzer water on social media. Company B will set its marketing budget to match the amount Company A spends on its social media marketing in order to achieve the same or similar results as Company A.

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