Tackling a tough market with big competitors

general advice/input requested

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I'm opening a niche online bookstore (it's niche both geographically and the type of product). Clearly I am going to be competing with amazon. Within the niche, amazon and a few others are very aggressive.

My plans are to do grassroots advertising as well as some targetted banner advertising at sites where potential customers visit. In addition, I plan on having an affiliate program. (I am knowledgeable within the niche.)

I'd like your advice and thoughts on two things: the affiliate program, and how to tackle a monster competitor within a niche market.

1) For the affiliate program I'm considering about 4-5% on all sales within a time period, no tiers. I'm also considering increasing this to say 6 or 7% if the affiliate takes their cut back as a coupon at the store instead of cash. Comments?

2) Any general comments on how to tackle such a market? Is pricing the only thing? I know it's a big thing, but if amazon discounts say 20%, what could I offer at a 15% discount and still get business?

[Travel]

As a bookstore affiliate- I have to say I am a book fiend and work with *one program* in large part because of their increased comission if you use it to purchase books.