What does the competitive parity method involve?

The competitive parity method involves matching competitor or industry average spending as a strategy for establishing a marketing budget. This approach assumes that by aligning marketing expenditures with those of competitors, a company can maintain its position in the marketplace and remain competitive. The rationale is that competitors have likely conducted their own analyses and determined optimal spending levels for their success, so mirroring this spending can help a brand not fall behind.

This method is advantageous as it provides a straightforward benchmark and can be particularly useful in markets where competition is strong and spending levels are relatively consistent across players. The idea is to avoid being outspent by competitors, which could lead to a loss of market share or brand awareness.

The other options present different budgeting approaches that don’t specifically focus on aligning with competitors' expenditures. For instance, setting budgets based on sales forecasts looks inward at the company's projections, whereas creating budgets without prior benchmarks might lead to spending that isn’t grounded in competitive realities. Similarly, investing a fixed amount into marketing doesn’t consider the competitive landscape and might not be sufficient for effective market presence.