Jeff Bezos, with a relentless focus on innovation, efficiency, and quality, drives the e-commerce world, and everyone else who wants to succeed needs to learn how to flourish in the ecosystem he has largely created.
Shipping is one area where Amazon's gravitational pull defines the landscape. An expectation with consumers has been created of cheap (if not free) shipping and speedy delivery, though surveys show that most customers prefer low cost over speed.
Most e-commerce companies can't afford to give away the shipping. They need a certain level of purchase before they can offer it, but whatever your free-shipping rules, make sure they are prominently displayed on your website. One of the biggest causes of shopping-cart abandonment is customers not finding out about delivery options until the checkout phase. So advertise your options early in the process, and if there is a free-shipping one, make a big deal out of it.
Does everybody have to match Amazon's free two-day shipping policy (though it's not really free)? The answer is, sometimes, but not always. It depends on the product. Niche products have more shipping leeway because they are perceived to be special, while everyday household products are held to a different standard because a behemoth like Amazon can easily stock and sell them.
So what is the best strategy for competing with Amazon?
You have a choice -- set up your own operation or find a third-party provider. People who want to spend most of their day managing fulfillment might choose the first option, but keep in mind the expense involved -- a multi-year warehouse lease, equipment purchase, systems development. Figure a million-dollar investment to get up and running, plus ongoing overhead costs (rent, employees, benefits, etc.). And a startup is unlikely to receive favorable shipping discounts from the major carriers until volume is reached.
Third-party providers get you there faster, both because the above-mentioned overhead is already in place and they have existing contracts with the shipping carriers that provide lower shipping costs.
The key factor with a third-party provider is reliability. Since this provider will house your inventory, it must be rock-solid. Referrals are important here.
To summarize, you can compete with Amazon, especially if you are offering a niche product that can't be reduced to a commodity (like laundry detergent), either by setting up your own fulfillment operation (if you are an operations-oriented person with the the funds to invest) or by leveraging the experience and contracts of a reliable third-party provider who gives you quick turnaround and less- expensive shipping options.