If you own or manage a small business, especially one that serves consumers, you may be feeling the squeeze from large competitors such as Amazon. But you also have one big advantage--most Americans prefer to support small businesses over large ones. That preference can help you compete, unless you blow it. Too many small businesses are blowing it.

I thought about this recently after I bought a $4.99 tube of tinted lip balm at a local health food store. The lip balm was an impulse buy; I was really there to purchase herbal supplements that I could as easily have bought online. But, I believe in supporting both local businesses and small businesses, and so instead of spending a few minutes and a few clicks buying the supplements on Amazon, I took the trouble to visit this small store to buy them instead. Along with the lip balm.

When I got the lip balm home and opened it, even though it was properly sealed, I discovered it had completely dried out. It was stiff and tacky and quite impossible to apply to my lips or use in any way. I was annoyed--one reason I patronized this long-established store was that I trusted its owner to select quality products. But it was a small sum and I was busy so I let it go.

A few weeks later, I was back in the store for something else. I didn't have the lip balm or the receipt with me, but I mentioned the problem to the owner. I wasn't looking for a refund I said. But I was thinking that a smart small business owner would offer a regular customer an apology, and perhaps a small store credit to make up for it. I also thought she might open one of the other tubes she still had for sale to determine whether mine was the only bad one or whether they were all dried out.

She did none of these things. Instead, she told me she'd heard the same thing from a different customer. "I won't order them again," she said. "There are only a few left for sale." I left the store, thinking to myself that she had given me the perfect excuse. I could order my supplements on Amazon from the comfort of my smartphone and not feel guilty about the small local business I was abandoning in the process. Especially since, whenever I've called Amazon to report that an inexpensive item was defective, they've simply issued a refund without questioning me further or requiring me to send the item back. 

$4.99 or hundreds in future sales?

The $4.99 that store owner made by selling me the dried-out lip balm and then not volunteering a refund cost her a customer who typically spent well over $100 when I shopped there. Worse, she intended to keep doing it. I checked: There were still at least 10 of those tubes of lip balm sitting out waiting to be sold--presumably all of them were dried out. That means she could well be alienating another 10 customer besides me, or more, if she has more of the stuff in storage.

Selling defective products is never a good business strategy, and I hope that anyone reading this column would never intentionally do so. That's the easy, obvious part of this lesson. Here's the harder part. As a small business, you have an edge. Polling shows that at least 70 percent of Americans trust small businesses over large ones. But that advantage is very easy to lose.

Large businesses are well aware of this dynamic and the smart ones have upped their customer service game. After I bought a smartwatch with a malfunctioning heart rate monitor, an Amazon employee actually called the manufacturer with me on the line and spent half an hour on the phone while we tried to resolve the issue.

You can't compete with big businesses on price. You can't compete with them on convenience. If you can't fight back with stellar customer service and building close and loyal relationships with customers? Frankly, you're sunk.