We all know that Amazon is the online king, trying to impose its will on retailers big and small in its quest to become "The Everything Store."

A recent study by Millward Brown Digital, which monitors website traffic, offers Amazon's competitors further cause for concern.

Consider just three points that Internet Retailer shared in its article about the study:

  • The average conversion rate for shoppers at Internet Retailer Top 500 stores (i.e., the largest online merchants in North America) is 3.32%.
  • The average conversion rate for non-Prime shoppers on the Amazon website is 13%.
  • The average conversion rate for Amazon Prime members on Amazon.com during the most recently measured time period was 74%—22 times higher than the average rate of the IR Top 500.

Most retailers would hail the non-Prime member rate as an unqualified success and do everything in their power to sustain it; remarkably, the Prime rate was more than fivefold higher.

What explains this remarkable rate? Just as critically, what can you do to combat the threat by turning your shoppers into more loyal, frequent buyers?

A look at Amazon Prime offers you three tips on how to fight back.

1. Offer free shipping

Prime launched in 2005 with just one benefit: In exchange for a $79 annual fee, shoppers could get two-day shipping, at no additional charge, on practically everything they bought from Amazon. A one-benefit program might not seem all that enticing, but Prime chose its benefit extremely well. Free shipping has long been the most attractive offer available to direct-to-consumer retailers:

  • It's twice as effective in closing sales as percentage-off discounts are.
  • 88% of US consumers are more likely to shop online if they're offered free shipping.
  • 74% of shoppers cite free shipping as the top factor for improving their online shopping experiences, outpolling lower prices (50%) and same-day delivery (9%).

Prime members know that everything they buy at Amazon will be shipped quickly and for free. Amazon is therefore top-of-mind with these shoppers before they even consider an online purchase.

You may not be able to match Amazon's delivery speed, but a well-designed, consistent free shipping offer can help you drive enough sales to cover your delivery charges (and then some). Plus, as the data above and elsewhere demonstrate, free shipping is far more desirable than fast shipping.

2. Embrace a paid subscription model

Building loyalty has become increasingly difficult in the e-commerce age. Consumers have well over 100,000 online shopping outlets in the US alone, and lower prices can always be found somewhere. You need to give your customers a compelling reason to choose your site every time they want what you sell, and a paid subscription program can do just that.

Amazon Prime raised its annual fee to $99 in March 2014, partly to help cover the benefits that it now offers on top of free two-day shipping: unlimited access to streaming music and video; unlimited photo storage; free Kindle book rentals; and more. That higher fee didn't dissuade shoppers from joining the program, though; Amazon announced at the end of December 2014 that 10 million new members had joined Prime that month.

Although Prime's extra services have obvious appeal, and holiday shoppers love free two-day shipping, those are, in good part, inducements to get consumers into the program. In one critical respect, it's the Prime fee itself that keeps members coming back to Amazon. People who pay to join a shopping program are investing in shopping at a specific retailer, and once they have "skin in the game," they'll want to maximize their return on that investment.

Assuming your subscription offering gives customers good cause to join the program and then to take continual advantage of it, you can reap the rewards—both in loyalty and in revenue—that come from building an audience of highly motivated shoppers.

3. Align your program with your corporate goals

Amazon's corporate goal, as noted earlier, is to become "The Everything Store," so it continues to expand—into groceries, home services, theatrical releases, corporate cloud services, and much more. To support that mission, it keeps adding benefits to Prime, even though the current $99 fee doesn't even cover its two-day shipping costs, let alone everything else.

Prime's main purpose is to bring more and more consumers into the Amazon fold; once they're there, Amazon hopes to retain them by trying to service their every possible need and interest.

Very few retailers have the deep pockets that Amazon has. You do, however, have intimate knowledge of your company's short-term and long-term goals, as well as its areas of strength and weakness. You can therefore use your subscription program to shore up a particular product line, encourage customers to spread the word about your store, drive more traffic to your brick-and-mortar location, or promote something else entirely.

The only real requirement of an effective program is that it support one or more of the larger objectives of your business.

Amazon's e-commerce presence is substantial enough that the world's leading brick-and-mortar retailer, Wal-Mart, is now testing its own online subscription program. Much like Amazon Prime at its launch, ShippingPass currently offers Walmart.com shoppers only one benefit—free, expedited shipping—but it's available for just $50 a year, which should help Walmart lock down its long-time audience of budget-conscious consumers.

It's a necessary step for Wal-Mart, and following a similar path would be a wise move for other retailers. After all, Amazon keeps growing every year.

Applying the lessons that Prime imparts—i.e., using a paid subscription program to support your corporate goals while offering customers free shipping (and perhaps other attractive benefits)—can help you protect your corner of the online retail industry.

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image of Tom Caporaso

Tom Caporaso is the CEO of Clarus Commerce, a provider of e-commerce and subscription commerce solutions. It powers FreeShipping.com, and it customizes and manages Return Saver, co-developed with FedEx, and 2-Day Shipping by MasterCard.

LinkedIn: Tom Caporaso