Competitive parity is a measure of the key metrics for a business against its competitors or industry average. As businesses compete to gain the edge, competitive parity is an important way to keep score of the most vital aspects.
Companies use competitive parity to improve their performance, especially in non areas of their business. For e.g. the concept of competitive parity is used in marketing. Pepsi and Coca Cola are competitors and often look at the marketing costs for a region. None of them wants to be behind the other, so they benchmark the promotional, advertisements and branding costs for a specific territory. The concept of competitive parity helps a company stay on par with its competitors for a chosen metric like marketing expenditure, quality standards for a product or use of technology etc.
Here’s a look at some of the types of competitive parity that influences your business:
1. Quality of Products & Services
When Apple launched the iphone, it had set a standard that challenged smartphone manufacturers. Companies like Samsung and Google etc. were compelled to improve their technology to meet the consumer expectations.
In any industry or market segment, the quality of your product or service has to meet the expected standards for it to perform. Whether it is the incumbents or new startups, your products or services have to measure up against your competition. You cannot create or sustain a business in a competitive landscape with substandard products or services.
2. Best Practices & Processes
Is your company measuring up against its competitors in terms of the best practices and processes? For e.g. are you following and sticking to standard processes for building your products or services? Are you meeting the regulatory needs? Are you following up with quality standards and streamlining things for your employees?
When businesses adopt standards and processes, it helps them to stay focused and meet the market needs. Despite the ongoing disruptions, changing market situations and chaotic business dynamics, the best practices can still be followed. The best businesses are driven by key best practices in various disciplines. For e.g. a company may check to see the best practices for the human resources to meet the industry standards. It may not invent these things, but follow them to meet certain guidelines in order to be competitive.
3. Pricing Strategy
When you’re servicing a niche segment of clients, you can charge a premium for your services inline with the value you provide. But if you are into a customer space with many competitors, you have to measure yourself against existing competitors.
Your products or services have to be developed and benchmarked against the industry average. Your pricing strategy needs to take into account the customer options and evaluate your offerings for them. When you’re offering unique capabilities, niche services and innovative products above market standards, your customers will be happy to pay a premium.
4. Use of Technology
Is your business up to date with technology standards? Are you measuring favourably against your existing competitors & new technology innovations? For e.g. banks today need to provide state of the art technology services for their customers, they are also challenged with innovations happening in the financial technology space by startups.
A business needs to be aware of the latest trends affecting its customers, employees, industry and business. As the rate of technological evaluation is phenomenal, businesses that are not proactive get left behind. The demand for the latest tools and technologies has become a necessary obligation for companies to force their way forward today.
The expenditure of a business for various business functions like marketing, product or services development, advertisements, human resources, technology, IT services, & R&D etc. is often benchmarked against the competitors for establishing competitive parity.
Although companies have different levels of resource utilisation, efficiency metrics and output levels, expenditure into some of the business functions helps them boost their presence in the same space vis a vis competition.
Companies that are well established and market leaders often spend more for marketing & advertisements. New entrants are generally more focused on innovative strategies to build differentiation and brand recognition. But businesses of all sizes need to guard against their competitors and new entrants in their customer space.
6. Finer Details
The best businesses are often built on finer details that are missed by others. Attention to details in design, features and functions of your products and services is crucial for gaining competitive parity. Companies that study the competitors products, their features and details can uncover many opportunities for working finer details that add value to their business.
The best companies are not doing incremental stuff, but they work backwards from what the customers need. Sometimes, if you need to improve things 10x, it needs a completely innovative mindset. It can be done by working on the finer details and building a new experience for the customers.
Companies that pay attention to customer needs and aspirations can create out of the box experiences for them. They usually innovate with the customer needs in mind & understand the current pain areas for them. It helps them pick up finer details to improve the customer experience.
Businesses need to have a strategic perspective of things to stay in touch with ground realities. Whether it is competitors or market demand, companies need to be able to establish and constantly update their standards for some of the following:
Automation: Are your competitors using automation for key processes? Can your business deliver better results with algorithms, data and technology?
Business goals: What are their business goals?
Key Drivers: What are the key drivers for your business and how you can build on them?
Products: How do you plan to differentiate and add value to your products & services?
Markets: What are the key markets & locations for your business?
Customer Service: How are you measuring your customer service levels?
Experimentation: What is your framework for experimentation and moving forward against your competitors?
Companies that have a deep understanding of the strategic framework for their business operate with strong fundamentals. The decision making is done using data to uncover new business opportunities & gain competitive parity in their business.