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Amazon launched its Prime subscription service in Mexico on Tuesday, indicating a major push by the tech giant into the country's crowded e-commerce market, according to The Wall Street Journal.
Prime membership in Mexico will cost $23 annually, and will include free video-streaming services similar to those offered in the US.
The launch of Prime will also expand Amazon's free shipping options in the country. Free one-day shipping will be available to members in Mexico City, Guadalajara, Puebla, and Querétaro, and free two-day shipping will be available to members nationwide. Amazon initially expanded to Mexico in 2015, offering customers in the country free shipping on orders over $38, with delivery typically taking several days.
Amazon Prime's perks and shipping benefits may help the e-commerce giant steal share in a crowded market. Several companies claim a piece of Mexico’s business-to-consumer e-commerce market, and market share is increasingly being distributed evenly among them. The share of current market leader, MercadoLibre, dropped from 21.2% in 2011 to 9.5% in 2016.
Amazon may be able to use its free two-day and one-day shipping — an enticing benefit for online shoppers — to become a market leader in Mexico and fill the vacuum left by MercadoLibre's decline. However, MercadoLibre has already responded to Amazon's move, announcing that it plans to spend $100 million to expand its own free shipping options.
Uncertain trade policies in the US could make it difficult for Amazon to compete in Mexico. Amazon plans on using its existing distribution centers in the US to ship goods quickly and cheaply to Mexico. It currently has only two fulfillment centers in Mexico and plans on opening a third in 2017. However, the Trump administration has repeatedly threatened to pull the US out of the North American Free Trade Agreement (NAFTA). If it follows through on that threat, Mexico could enact new tariffs or other restrictions on goods coming from the US that could erode Amazon's competitive advantage in free and fast shipping.
Amazon will also face additional challenges in addressing the largely unbanked population in Mexico. Although more than half the population uses the internet, only 19% of Mexicans have a credit card, and debit card ownership is minimal. Amazon is addressing these consumers by partnering with convenience store Oxxo to allow customers to purchase prepaid Oxxo cards or Amazon gift cards in cash to make their online purchases. Several other e-commerce companies in Mexico have similarly partnered with Oxxo.
Although Amazon’s free two-day shipping is usually the company’s most potent competitive advantage, it will first have to address Mexican consumers' unfamiliarity with online payments to grow its market share. If Amazon increases partnerships that allow shoppers to use cash for online purchases, it could be poised to become a market leader in the country.
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