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Amazon's ascent in India shows that price isn't everything

Amazon continues to invest aggressively in India's growing online shopping market.

MUMBAI -- Just three years after entering India's online shopping market, U.S. powerhouse Amazon.com is fast gaining on local rivals Flipkart and Snapdeal.

According to Morgan Stanley, Amazon controlled 12% of the market in 2015, compared with 45% for Flipkart, which set up shop in 2007, and 26% for Snapdeal, which launched in 2010.

Some industry observers argue that the U.S. company has already bumped Snapdeal from the No. 2 slot. And a recent consumer survey showed that Amazon has replaced Flipkart as the preferred online shopping site for Indians.

The survey, released by U.S.-based Forrester Research in July, asked Indians which online shopping sites they use, with multiple answers allowed. A leading 76% of the respondents named Amazon, compared with 68% for No. 1 player Flipkart and even lower for Snapdeal.

In a similar survey conducted by Forrester Research in 2014, only 30% of the respondents named Amazon, compared with 63% for Flipkart.

"I've experienced many delivery mistakes with Snapdeal, but I've never had a bad experience with Amazon. Also, Amazon sells a wide variety of goods," said an office worker in her 30s living in New Delhi. She said now she only uses Amazon when shopping online.

A hospital employee in her 20s living in Mumbai said that when she buys clothing on the internet, she prefers Amazon to other sites. "Amazon delivers products in two or three days. But other companies take five days," she said.

It is not just shoppers who are embracing the U.S. company; Amazon is becoming increasingly popular among people and companies that sell goods online.

In a survey conducted by U.S. research company Nielsen between January and March asking online sellers which shopping sites they use to sell their products, a leading 25% named Amazon, compared with 21% for Flipkart and 20% for Snapdeal.

Not slowing down

Despite its big gains in India, Amazon is showing no signs of complacency. That can be seen in its aggressive investment.

Since 2014, the company has unveiled investment plans worth $5 billion in India. And in July, Amazon announced it will set up six new distribution centers in the country.

Alarmed by Amazon's rapid ascent, Flipkart and Snapdeal are fighting back.

Flipkart announced in late July that Myntra, its online fashion retail subsidiary, will acquire rival Jabong. Flipkart has also partnered with government-owned State Bank of India, the country's largest bank, to allow buyers of durable consumer goods to pay in monthly installments at fixed amounts.

Snapdeal, meanwhile, has tied up with a booking website operator to enable customers to reserve hotel rooms or airline tickets via its own site.

But as strong as the Indian players are on their home turf, they are dwarfed by Amazon, which has established an unrivaled presence across the globe and leads the pack in know-how and efficiency.

Flipkart and Snapdeal have won over many consumers through heavy discounts and services tailored to the local market. Their cash-on-delivery options, for example, take into account that many Indians do not have credit cards.

But while steep discounts have provided an easy way to boost their sales volumes, winning the confidence of customers has proved more difficult, according to Forrester Research.

The more deeply online shopping takes root in India, the more consumers there put a premium on service quality. This presents a big challenge for online retailers there, who face many infrastructure hurdles, such as establishing reliable home-delivery services and distribution systems. Improving the quality of services is difficult under those circumstances.

Amazon's rise in India suggests that user-friendliness and service quality are potent weapons alongside pricing and product lineups.

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