What is 'Parity Product'

A parity product is a brand of good that has enough similarities with other brands of the same good type that it is considered readily substitutable. A parity product is functionally equivalent to a product offered by a competitor. The existence of parity products means that a monopoly does not exist. Toothpaste or contact lens solution could be considered parity products.

BREAKING DOWN 'Parity Product'

A business selling a parity product will in most cases be unable to command premium pricing because of the substitution effect. If the business raises its price while competitors do not raise theirs, consumers will buy less of its product and instead purchase competing products. In this sense, the cross elasticity of demand for the competing goods will be positive, since an increase in price of one brand's good will result in an increase in demand for another brand's good. This is so because a parity product is a broad product that many companies make, and, because of their similarities across different manufacturers, they can be used interchangeably. Substitution is possible because each product has similar functions, ingredients or both. The existence of parity products reduces the chances of monopolization, while keeping prices low across the product category. Therefore, the battle for sales comes down to marketing and branding strategies that are designed elevate a company's product over the competition. Sometimes, this is the only way to create differentiation among parity products – but such strategies can be very successful depending on how well they're executed. Examples of parity products include common household items, such as nails, toothpaste, forks and peanut butter. 

Points of Parity vs. Points of Differentiation

Points of parity refer are those elements which are mandatory for a brand to be considered a legitimate competitor in a specific product category. It is what makes consumer consider your brand, along with your competitors. By contast, points of differentiation are the attributes that make your brand unique. It is your competitive advantage.

Creating Differentiation Among Parity Products

If a company is to successfully employ a brand or marketing strategy to grab a larger share of a parity product market, the first order of business is to address the points of parity, i.e., places where you need to show you are as good as your competitors (not necessarily better). This is necessary, so you can first level the playing field between your product and competing parity products. Once that has been accomplished, the next step is to highlight areas that make a product unique compared to the competition. A good example of this would be the smartphone wars between Apple and Samsung. While both Apple and Samsung smartphones offer most of the same features and benefits, one of Apple's points of differentiation is their phone design and the usability of the iOS operating system. Samsung, meanwhile, has made a point to elevate their points of differentiation, which have lately been higher performance components, such as a higher performance camera.

 

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