It should be no surprise that more and more consumers around the world are shopping on Amazon.com (AMZN 0.87%). As more people gain access to the internet and Amazon expands to more countries, it's only natural that it would attract a broader audience. According to a survey by PwC, 59% of shoppers across 27 countries bought items on Amazon.com last year. That's up 3 percentage points from the prior year.
What is surprising, though, is that the percentage of people who shop exclusively on Amazon.com, when they shop online, increased from 10% to 14%. Amazon is facing more online competition than ever from the likes of Walmart (WMT +0.99%), MercadoLibre (MELI 1.24%), and Flipkart, among others. Even so, its customers are increasingly loyal, making it difficult for even incumbent e-commerce companies to face off against Amazon.
Image source: Amazon.
3 big factors driving loyalty
There are several factors that make Amazon shoppers increasingly loyal.
Amazon Prime is, no doubt, one of the biggest factors keeping customers coming back over and over again. Not having to worry about shipping cost or speed is a big draw for Prime members, but the sunk cost of the membership may also encourage members to get as much value as possible out of the $99 annual fee (for U.S. members).
Prime is growing faster than ever, too. Amazon just reported adding more members in 2017 than any year before both in the United States and worldwide. India likely played a big role in that, as Amazon added more Prime members in that country than it did in any other country in its first year of offering the program.
A second factor is the growing product selection available on Amazon. There's been a massive increase in third-party merchants on Amazon over the last several years, expanding Amazon's product selection. Many have opted to use the Fulfilled by Amazon service, in order to offer Prime shipping benefits. As a result, the number of Prime-eligible items on Amazon.com has grown to 100 million.
And third, Amazon's customer focus makes its shopping experience better than what's offered by most other large online retailers. Amazon is willing to sacrifice profits today in order to make its customers happy, which is paying off in the long run with more loyal shoppers.
The competition doesn't stand a chance
Walmart tried to undermine Amazon's Prime shipping benefits in 2017, offering free two-day shipping on a couple million items on its website -- no membership required. Walmart saw excellent growth through the first three quarters of 2017. But that growth largely came from its acquisitions -- like Jet.com -- and the growth of its online grocery ordering platform. With Amazon moving into online grocery ordering, that growth may slow more than anticipated in 2018.
Walmart is also facing e-commerce challenges internationally. It's shutting down its first-party e-commerce business in Brazil. At the same time, Amazon is expanding its operations in Latin America's largest economy to include electronics and appliances. That's unwelcome news for MercadoLibre investors, who've seen their company dominate e-commerce throughout the region. Brazil accounted for 59% of MercadoLibre's revenue in 2017.
Amazon's early growth in India is promising as it looks to take on Flipkart. Amazon is winning customers with its extremely underpriced Prime offering, which costs about $15 per year in India, but still offers streaming video, music, and -- of course -- fast shipping on every order.
Incumbent Flipkart is bringing on more investors, raising money to battle the well-funded Amazon. In fact, it's reportedly close to a massive $7 billion deal with Walmart valuing the company around $20 billion. Flipkart could use the cash injection as Amazon has pledged to spend $5 billion in India building out infrastructure, logistics, and payments systems.
As Amazon looks to bring Prime, product selection, and its customer-first focus to the rest of the world, it presents a massive challenge to every retailer unwilling to forgo profits for customer loyalty. With 14% of online shoppers exclusively using Amazon.com, it shows Amazon's strategy is paying off.
