Final answer:
Setting a communications budget to match a competitor's spending characterizes a competition-based approach that can lead to neutral marketing effects and challenges in brand differentiation.
Step-by-step explanation:
Some firms set their communications budgets by observing the spending of their closest competitors, which is an example of a competition-based approach. The characteristic or example that best matches this description is setting the budget to equal the spending of the company's closest competitors.
This approach can result in problems if competitors are not budgeting strategically, as it may lead to a neutralization of marketing efforts, where rivals simply cancel each other's advertising impact without gaining any competitive advantage. This is because if each of two rivals makes equal efforts to attract customers away from the other, the net effect could be as if neither had made any effort, which does not help in brand differentiation or achieving a competitive edge.
For example, if a company's closest competitor is spending 10% of the total industry communications spending, the company may set their communications budget at 10% as well to maintain a similar level of visibility and reach in the market.
Therefore, the correct answer is A. setting the budget as a percentage of total industry communications spending.