The Amazon Effect: How E-Commerce Businesses Can Compete

Trying to build an online e-commerce business? Then you know that competing against giants like Amazon and Walmart can sometimes feel like you’re stepping into the ring against a heavyweight champion. The odds are stacked against you — they have massive scale, resources, and market dominance. But smaller contenders can win against bigger opponents by turning their own strength against them, using speed and strategy. 

In this post we’ll explain:

• What the Amazon effect is, and what it means for retailers — especially smaller local businesses and startups.
• 3 ways to win market share as a small business. 
• Why free delivery is a double-edged sword — and how to compete without allowing delivery costs to drain your resources.

Grappling with the Amazon effect

So what is the Amazon effect? It’s the way online retail giant Amazon has reshaped the whole retail landscape — not just for e-commerce, but for physical retail as well. It has drastically raised consumer expectations for online shopping as well as brick-and-mortar stores.

Here’s a sample of what Amazon has introduced:

• Fast shipping, including next-day delivery
• Vast product selection — including a third-party marketplace
• Competitive pricing
• Automation of just about everything, including marketing and warehouse management

In 2024, customer expectations are shaped to expect convenience and efficiency from online retailers and in physical stores — because that’s what they get from Amazon. 

Not only that, the Amazon effect extends far beyond shopping to include supply chain, delivery services, and logistics operations.

These stats underline the scale of Amazon’s dominance, especially since the pandemic:

• In 2023 Amazon took 40% of all e-commerce sales.
• 82% of Americans born in the 1980s are Amazon Prime members.
• As of late 2022, Amazon delivered more packages in the US than Fedex or UPS. 
• Around the world, 279,000 Amazon delivery drivers drop off 20 million packages a day.

Their phenomenal logistics infrastructure means Amazon benefits from massive economies of scale, and it can offer services that would break the bank for smaller retailers. 

Customers now know what is possible in terms of speed and convenience, and they have come to expect it.

In other words, the Amazon effect has reshaped the market, in North America and Europe especially — and it’s forcing retail stores to adapt. 

There is an upside to the Amazon effect!

Before you get too downhearted, let’s take a deeper look at one of those stats. Amazon may have taken 40% of US online sales in 2023, but even factoring in Walmart and E-bay, that still leaves a lot of room for small retailers. And Amazon only took 4% of all retail sales — which means there’s still a role for traditional retailers with physical locations.  

In fact, size is not always an advantage. According to post-purchase data expert WeSupplyLabs:

“Unencumbered by the vast scale that sometimes limits big companies, small enterprises are uniquely positioned to personalize, specialize, and swiftly adapt in ways Amazon simply can’t match.”

In a nutshell, small e-commerce businesses can succeed by embracing their unique identity and making the most of their strengths.

3 ways to beat the Amazon effect 

Consumers need to know that you can seamlessly fulfill an order and provide a frictionless customer experience, from purchase to delivery. That’s the baseline today, and there are plenty of e-commerce platforms that can help you achieve it. It’s easier than ever for even very small businesses to be able to offer omnichannel retail that includes seamless desktop and mobile experiences, from online ordering delivery.

Beyond that, here are three ways to build a profitable business by leaning into simply being yourself:

1. Embrace your flexibility

A big guy can’t knock you out if you keep bobbing, weaving and staying just out of reach. Flexibility is one of the biggest advantages small retailers have. 

For example, let’s say your customer wants to change where or when a package is delivered. With Amazon or another faceless corporation, they might not even try. But a small business that actually responds to customers emails, texts or calls? You can accommodate the flexibility many customers crave.

To make adaptability a differentiator for your small business, get the right technology to support flexibility, including last-mile delivery software. A good delivery management system can help you:

• Deliver packages faster.
• Offer a great customer experience, including real-time delivery tracking on desktop or mobile devices.
• Lower your cost per delivery to improve your bottom line. 

2. Lean into local roots

‍Niche, locally-made products are one area where the giants of e-commerce struggle to compete. Discerning customers value products that not just anybody can buy off Amazon, and they like supporting neighbors and local businesses. When you own a niche, you’ll find a ready-made, loyal audience for life! 

Leaning into local can also help you get profitable, and stay that way. Local delivery is quicker than long-distance shipping, has a lower environmental impact, and is more cost-effective. 

Local businesses also have an advantage when it comes to communication and customer relationships. Consumers prefer dealing with real, relatable people over bots, no matter how sophisticated they are. Whether it’s on a customer call, on the website, in-store or via delivery, there is something about the human touch in the retail industry that is valuable.

Think about how you can emphasize the people-driven nature of your company. Here are 5 suggestions you can use today: 

• Let your sales people be themselves when they’re on a call. 
• Don’t force customer service to read from a script. 
• Use local suppliers with roots in your community and make sure people know it. 
• Add a little something extra and personal to your delivery. 

Case Study: Yuppiechef’s “thank you” notes turbocharged customer loyalty 

For example, South African home and kitchenware retailer Yuppiechef grew a devoted following using handwritten thank you notes.  When the business was still being run out of their living room, the founders included a personal note in every single order. It was so successful that the company is still doing it, a decade and many millions of dollars later. They also developed the habit of popping a fridge magnet into each box just before it's sealed, and it wasn’t long before people started boasting about their collection of magnets! 

3. Invest in sustainability

There is a hunger in the market for sustainable products and services. According to the 2024 Sustainability, EV, and Convenience Retail Survey Report, 80% of consumers are concerned about the environmental impact of the products they buy.

Here are some more standout stats from that report:

• When comparing two similar products priced at $10 or less, 71% of consumers choose the one that follows sustainable practices.
• 77% of consumers want to pair sustainable products and services with loyalty programs.
• 27% prefer sustainable options regardless of price.

The data is overwhelming that incorporating sustainable business practices boosts retail sales. This is an area where small businesses have the flexibility and local knowledge to gain an advantage that the giants can never match. 

Route optimization can improve your sustainability overnight

Route optimization is a good example of how sustainability can actually save you money.  Last-mile delivery is the most expensive and highest polluting segment of the supply chain, mainly because it involves driving many miles for each item delivered. Using route optimization algorithms to plan more efficient delivery routes has a whole lot of benefits:

• Around 20% fewer miles driven
• Lower emissions
• Better working conditions for drivers

💡 Check out some of the biggest sustainability trends for 2024, including all the ways that AI is impacting last mile delivery. 

You can do better than Amazon at sustainability

Amazon is well aware of the craving for sustainability. In 2019 they introduced Shipment Zero, a plan to make 50% of Amazon shipments net zero by 2030. That vision has quietly fallen away in recent months. Amazon’s story is that it’s focusing on a separate Climate Pledge target with a longer deadline of 2040 — but even Amazon employees are disappointed. 

Small retailers should use this as a strategic opportunity. You can, and should, be able to reach carbon zero much earlier than 2040. When you do, and with every step along the way, announce your achievements loudly to your customers!. 

When you incorporate sustainability, a niche focus and flexibility, you are able to compete with companies that are a lot bigger than you. 

What’s the alternative? Competing on price — and that’s a loser’s game, especially when it comes to deliveries.

Free deliveries: a double-edged sword

It’s very risky to go toe-to-toe when you’re up against the Amazon effect. Take the issue of free delivery for all e-commerce purchases. 

On the face of it, it makes sense. The U.S Chamber of Commerce says free delivery leads to higher conversion and sales rates, and boosts customer loyalty and recognition. 

But free deliveries can create a whole new set of problems for retail businesses: 

• Other costs may increase as you try to absorb the shipping costs elsewhere. 
• Logistics become a lot harder to plan efficiently.
• The customer experience worsens as people may have to wait longer for delivery. 

Free shipping is an economic response to the Amazon effect. The bottom line: if you try to out-amazon Amazon, you will probably lose. 

Whether you’re a small e-commerce company, or a traditional brick and mortar retail store, focus on an area where you are able to compete.

It doesn’t have to be free delivery if it’s better delivery

What’s better than free delivery? A bunch of things: 

• Predictable, on-time delivery (and it doesn’t even have to be overnight or two-day delivery, so long as it’s convenient).
• Delivery at a time the customer can choose.
• Low-waste delivery. 
• Low-emissions delivery.

💡Route optimization software like Routific can help you offer all of these —  while also reducing costs by 20-30%. Get a free trial now.