Friday, December 08, 2006

When Bigger isn't Really Bigger

How does the law of large numbers impact analysis?

In a recent article on media spending, the trends are up for targeted and personal channels: spot, Internet, and Direct Mail (11%, 20% and 8% respectively). Network spending grew at much lower rate (5%).

Large, bulky items like national advertising or Great Lake freighters are difficult to move. So the smaller growth rates for network spending and direct mail actually represent significantly larger dollar figures. The absolute growth of direct mail was still 3 times that for the Internet: $4.71b for direct mail vs. $1.56b for Internet. The absolute difference is twice the current level, so at current growth rates it will take several years to match the contribution dollar for dollar.

Of the $14.07b year-over-year growth in total ad spending, half of the gain came from the channels listed above, even though they account for just less than 30% of all activity.

So when considering growth rates, it is equally important to understand the starting point.

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