ADVERTISEMENT

Pricing Note: BISR

March 2014 Pricing

Pricing Note:  BISR

BISR is one of several methods of evaluating media effectiveness.  It is particularly appropriate for stimulus-response-type media (newspapers, direct mail, email, et cetera) as opposed to branding-type media (magazines, television, broadcast, web, et cetera).

It was developed from the work of Scott Neslin, the Albert Wesley Frey Professor of Marketing at the Amos Tuck School of Business Administration, Dartmouth College.

Reference:  Scott A. Neslin, “A Market Response for Coupon Promotions,” Marketing Science 9, No. 2 (1990): 123-45.

A BISR analysis differs from standard CPC (cost per customer) and ROI (return on investment) calculations to reveal the true ROMI (return on marketing investment) after accounting for the fact that many of the purchases related to an advertisement or coupon would have occurred in the absence of the promotion.

Key to the BISR is the identification of the lift from incremental sales, rather than overall lift in sales.

The overall lift in sales related to redeemed coupons includes sales that would have been made in the absence of the coupon along with the sales that are made specifically due to the coupon.  That is, under most conditions, many coupon redeemers are customers that would have purchased without the coupon and therefore the coupon represents a gratuitous price-eroding discount.  Only those sales that are truly incremental, that is, would not have occurred without the coupon, deliver value to the advertiser.

Calculating the ROMI including BISR factors provides a truer evaluation of the effectiveness of couponing and other price-promotional activities.

For direct mail, this analysis has some particular important implications.  For instance, consider the following two coupon distribution channels:

  • In-store coupons target customers that make their purchase decision at the store, as opposed from shopping from a list.  They are also conspicuously available to customers that would have purchased without the coupon.  This implies the observed revenue increase and calculated return on marketing is inflated by people who would have purchased the product without the coupon, and the true return on marketing is much lower.  The incidence of individuals redeeming this coupon that are truly incremental is relatively small.  (How small has not been universally measured.)
  • Direct mail and newspaper distributed coupons target customers that are extremely price conscious (takes time to identify those coupons, cut them out, and recall to bring them to the store) and therefore make a better form of price segmentation.  Furthermore, by going to all shoppers rather than just the ones traveling a given aisle (likely to be shopping for that product anyway) they are likely to have a larger redemption rate among incremental buyers.

ROMI models which include the BISR provide a more accurate description of coupon effectiveness.  They also can tip the favor of balance between different coupon distribution methods.  As such, they can be used to help direct mail sales and intermediaries identify the value of their offering better, target their offering better, and price those offerings better.

For an example of the effect of the BISR, see:

http://www.wiglafjournal.com/pricing/2011/09/groupon-%E2%80%93-show-me-the-money/

http://www.wiglafjournal.com/pricing/2010/10/groupon-goldmine-tar-pit-or-niche-solution/

 



About the author

Tim J. Smith, PhD is the Managing Principal of Wiglaf Pricing, and an Adjunct Professor at DePaul University of Marketing and Economics. His most recent book is Pricing Strategy: Setting Price Levels, Managing Price Discounts, & Establishing Price Structures.

Tim J. Smith, PhD
More by Tim J. Smith, PhD