Strategic Responses of Companies to Market Competition

Context:
- At the time of the deal EachNet.com was China’s No.-1 C2C marketplace ("the eBay of China").
- eBay was looking for rapid access to the Chinese market rather than building its own local infrastructure from scratch.
Deal structure & numbers
- eBay injected capital in exchange for 30\% equity in EachNet.
- Post-deal relationship: the two firms became "very close," allowing knowledge and platform‐level integration.
Broader strategic motive (connection to earlier lectures on foreign market entry):
- "Partner-then-control" pattern → initial minority stake gives learning option, later majority/ buy-out possible.
- Reduces liability of foreignness while giving access to local know-how, regulatory relationships, and user base.

Fragment of lecture question: “Why do consumers purchase three?” (Interpretation: repeated purchase of premium/luxury items.)
- Hypotheses offered by the instructor:
1. They love the item (intrinsic enjoyment).
2. They want to “make a hole” (create an impact / stand out / fill a gap in self-image).
Mercedes-Benz case – classic model of conspicuous consumption:
- Car costs 3–4× the price of a Hyundai, yet still in demand.
- Core driver is status signaling, not functional utility.
- Direct audience benefit: “show up,” bragging rights (social display of success).
- Links to Veblen’s concept of pecuniary emulation from previous economic theory.
Dining-table metaphor:
- Ultra-large dining table symbolizes status but is impractical (so big it cannot fit into a new apartment).
- Consultant’s “aha” moment: understands that emotional & symbolic value > functional value.
Managerial implication
- When selling luxury, firms market identity reinforcement and storytelling, not features.
- Ethically, marketers must balance aspiration-setting with avoiding wasteful over-consumption.

2010-2012: Rapid sales decline as Amazon’s “lowest-price + brutal competition” turned many brick-and-mortar chains into mere showrooms (e.g., Circuit City exit).

New CEO response:
- Matched Amazon’s pricing.
- Transformed stores into experiential showrooms:
- Recruited brand experts to demo products.
- Built shop-in-shop modules (mirroring Apple Store aesthetics).
- Evolved into “mini consumer-electronics fairs.”
Omnichannel logistics upgrades:
- Constructed exhibition areas doubling as fulfilment hubs.
- Cut delivery lead time by 33\%.
- Enabled same-day pickup for online orders.

Concept: “Service that only people can do.”
- Home visit technicians (= “geeks”) knowledgeable about smart devices.
Operating metrics (2017–2018):
- ≈20,000 technicians nationwide.
- ≈30 Geek Squad staff per physical store.
- >4,000,000 customer contacts / calls per year.
- Up to 90-minute free in-home consulting sessions (design, brand advice, tutorials).
- Compensation: annual salary not hourly → aligns incentive with relationship quality, not billable hours.
- Financial impact: Geek Squad made up 26\% of Best Buy’s total sales in 2017.
Customer relationship logic:
- Become a long-term “tech friend”, not a transactional salesperson.
- Builds switching costs and lifetime value.

April 2018: Best Buy started selling Toshiba & in-house Insignia TVs bundled with Amazon Fire TV OS + Alexa.
- Supports Netflix, Prime Video, Hulu out of the box.
- Short-term effect: Best Buy stock price jumped 4\% on announcement.
Lesson: partnering with a rival can create immediate customer value and positive market sentiment.

Conspicuous vs. Utilitarian Value: Both Mercedes and oversized dining table show that buyers often treat goods as social signals. Ties back to marketing theories of self-expressive benefits.
Omnichannel Reinvention: Best Buy illustrates how legacy retailers can survive by blending digital parity (price + logistics) with human superiority (service empathy).
Option Value of Minority Stakes (eBay–EachNet): Minority investments serve as real options; revisit real-options theory for high-uncertainty international expansion.
Ethics: Luxury signaling can encourage over-consumption; service-heavy models (Geek Squad) raise questions about data privacy (technicians inside homes).

eBay stake in EachNet: 30\%.
Mercedes price premium vs Hyundai: 3–4×.
Best Buy delivery improvement: 33\%\downarrow lead time.
Geek Squad stats (2017):
- 20,000 daily technicians.
- 4,000,000+ service calls/yr.
- Contribution to revenue: 26\%.
April 2018 TV partnership lifted BBY stock by 4\%.

M&A / JV entry: A partial stake often beats a full acquisition when navigating foreign uncertainty.
Competing with category killers:
1. Match the table-stakes (price, convenience).
2. Differentiate on uniquely human dimensions (advice, empathy, trust).
Luxury marketing: Understand the psychological “why” (status, identity) before the functional “what.”

Remember: products are bought for functional value, emotional value, and social value. Successful strategies align at least two of the three.