Ever heard your vendor manager talk about your product being CRAP’ed? You may want to listen up.
CRaP stands for ‘Cannot Realize any Profit’ and refers to products that are structurally unprofitable for Amazon.
Low per-unit prices and high variable cost structures often result in unprofitable margins that lead to CRAP status.
Once an item is CRAP’ed, Amazon will no longer place orders for that product, meaning brands lose sales and rankings on the marketplace.
When this happens, vendor managers will get in touch to renegotiate costs. Until the issue is resolved, vendors cannot run ad campaigns or promotions for the product in question.
This article will cover:
What causes Amazon to CRaP?
Unlike other retailers, Amazon does not consider the health of the overall account in its CRAP decisions. Instead, each product must stand on its own margin.
So even if your average weighted margins are healthy at the account level, individual products in your portfolio may be affected by CRAP for the following reasons:
1. Price matching
If other retailers sell your products at a lower price, Amazon will match it. This can happen due to promotions or bulk discounts your teams have given to other retail customers.
2. Uncompetitive terms or cost prices
Amazon expects products to be profitable from the day you list them on their marketplace. If your terms or cost prices lead to unprofitable margins, Amazon will CRaP the listing.
3. Small pack sizes
Amazon moved much of its Pantry and Prime Now selection into its main Core channel. This led to the onboarding of thousands of single-unit items.
For example, selling chocolate bars for under 1 GBP/EUR comes at high shipping costs for Amazon. If these products don’t drive significant value for Amazon in their customer lifecycle, they’re likely to be CRAP’ed.
4. Heavy/bulky items
Heavy and large items drive up shipping costs, making it harder for vendors and Amazon to sell these products profitably.
5. High customer returns
One of the more hidden causes of CRaP is high customer returns. If the cost of customer returns is higher than the damage allowance Amazon has agreed with the vendor, products are more likely to become CRaP’ed.
6. Overstocked products
When a product’s inventory is classified as an overstock risk, Amazon lowers the price to reduce inventory in its fulfilment centres.
These markdowns negatively impact the front-end margin of your products and create structural profitability issues that can lead to CRaP.
How to avoid CRaP?
Brands affected by Amazon CRaP have a wide range of options to get their products back into an active selling state.
However, it’s best to proactively drive the below initiatives to prevent a product from being classified as CRaP in the first place.
Once a product is on the CRaP list, it’s significantly more expensive for vendors to reactivate it.
1. Enforce your MAP/SDA policies
Vendors selling to multiple retailers must enforce their MAP policies to ensure that their products are not sold below an unprofitable price point.
Outside the US, enforcing MAP can be difficult or even illegal.
However, brands can explore the possibility of entering into selective distribution agreements (SDA) to maintain greater control over the resale price of their products.
2. Review cost prices and terms with Amazon
Your vendor manager is likely to request cost improvements for delisted items. These can either be granted as cost price decreases or back-margin funding to Amazon.
Although you should never grant cost improvements without addressing the root cause of your item’s delisting, it may make sense to enter into a temporary agreement with Amazon until a better solution is in place.
3. Optimize your packaging
Many brands simply list their offline retail products on Amazon. However, ecommerce requires vendors to adapt packaging to consume a minimum of material and empty space, as shipping costs increase with additional weight and length.
To reduce variable costs to a minimum, brands should aim to Ship Items in their Own Container (SIOC). Amazon has outlined clear rules and guidelines that vendors need to meet to get certified.
4. Improve your supply chain
Vendors exposed to high handling and shipping costs should explore logistical initiatives with Amazon.
Vendor managers offer a wide range of options, from consolidated truckload orders or inbound programmes to solutions that eliminate the delivery to Amazon warehouses altogether (Direct Fulfilment or VendorFlex).
Assessing these initiatives can lead to lower variable cost structures that benefit Amazon’s bottom line, putting fewer products at risk of being CRAP’ed.
5. Create bundles
Explore the opportunity of bundling products that are unprofitable to sell individually on Amazon. This ensures that you can charge a higher selling price and lowers the variable cost structures for handling and shipping the product to end customers.
6. Understand the reasons for customer returns
If customer returns are cutting into Amazon’s profit margin, your priority is to understand their root cause.
Typical reasons for customer returns are goods received damaged or incorrect information on the product detail page.
Ensure that your packaging allows your products to reach customers safely and that the information on your detail pages does not irritate them.
7. Avoid placing large orders via born-to-run
It can be tempting for account managers to request bulk orders via born-to-run to reach their quarterly sales targets.
But if the resulting inventory position leads to overstocks, this tactic quickly backfires.
Instead, manage your inventory so that Amazon doesn’t take markdowns that cause your newly launched products to be CRaP’ed.
8. Consider a hybrid selling strategy
Should your listing get removed by Amazon due to an unresolvable CRAP status, consider selling the items via alternative fulfilment models.
You could either start a Direct Fulfillment model in Vendor Central or open a Seller Central account as a backup.
The difference between ROO vs. CRaP
Brands in consumer goods categories will often hear their Amazon vendor manager talk about ROO instead of CRaP.
That’s because they often have their products enrolled for Subscribe and Save.
Amazon is all about creating a good customer experience. So it fits that Amazon doesn’t want to CRaP products that customers expect to get delivered regularly.
Structurally unprofitable SnS products are therefore ROO’d instead of CRAP’ed. This means that existing SnS customers will continue to receive their product deliveries, while Amazon will not allow new customers to order or purchase the affected product.
When your products are subject to CRaP actions, it is important to act fast to limit the impact on your sales and Amazon rankings.
Focus on identifying the root cause first. Then take decisive action and optimise your margins with the options discussed in this article.
Increasing funding for the affected products should only be a short-term fix. Make sure you work with your teams on a long-term solution to removing your items from the CRAP list.
Want to better manage your Amazon margins?
If you need help to stay off Amazon’s CRaP list, get in touch. I offer tailored advice to help you assess and improve your portfolio margins.