According to the table, MedNet is almost equal to the newspaper ad in terms of cost per one dollar of contribution. Marvel showed to be almost twice as expensive than MedNet.
Situation with cholesterol.com is far more complicated. Case contains no information on cholesterol.com ad effectiveness other than that most often niche type sites become first source for the newly diagnosed. However, survey says that 85% of broad audience visit 3 or more sites to research their condition. Taking into account high trustworthiness of the MedNet.com it is reasonable to expect that 85% of cholesterol.com users will also visit MedNet. Out of these 85%, 93% will visit MedNet again when medical information is needed. Therefore, roughly 80% of cholesterol.com visitors will either switch or become regular MedNet’s visitors. Generally speaking cholesterol.com will share almost all its visitor pool with MedNet.
I would advise Marhia to request sample ad effectiveness metrics from cholesterol.com. From the tone of the case it seems like cholesterol.com charges disproportionally high premiums for their not so obvious competitive advantage. Chances are that cholesterol.com will prove less effective than MedNet.
If cholesterol.com will prove to be more efficient and Windham will switch away from MedNet, the decision of future MedNet strategy will depend heavily on the competitive landscape and internal flexibility of the MedNet.
In the first option, from the survey we know that 75% of MedNet’s audience will switch away once charge is introduced, so if 25% agrees to pay we would need to charge approximately $11.50 per visit per month to achieve same profitability of one million. $11.50 seems to be fairly reasonable number, but further elasticity research will be needed.
Second option doesn’t solve the problem of flattening the advertising budgets, moreover, additional content will involve extra costs that MedNet won’t be able to recoup.
Third option will be very capital intensive, as it will take long time to accumulate enough corporate contracts to remain profitable, but will almost immediately cut off advertising income. MedNet will need to find extra liquidity to pursue this option.