Five ways to ensure your brand’s products remain profitable on Amazon

It’s undeniable that COVID-19 has significantly impacted the retail industry in nearly all ways, especially when it comes to e-commerce.

The pandemic has created an unprecedented shift to online shopping, meaning businesses of all sizes have increasingly turned to online selling as the virus keeps consumers at home on their devices. Amazon is where many of these vendors end up. To be successful, they must educate themselves about what is and isn’t profitable on the world's largest online retailer.

An important concept all Amazon vendors should be aware of is the Amazon CRaP list. CRaP (Can’t Realize a Profit) refers to products that are structurally unprofitable on the Amazon marketplace. But Amazon doesn’t alert vendors when an item is marked as CRaP – the impact is observable in sell-through.

Until resolved, items marked as CRaP by Amazon will be removed from free Amazon advertising, unable to use Amazon Marketing and exempt from Subscribe & Save. In some cases, Amazon will even stop ordering the product or remove the listing from their marketplace altogether, preventing sales and affecting profits. So – what causes CRaP, and how can CRaP status be prevented?

Causes of CRaP

While most retailers review profitability at the brand level, Amazon reviews it at the product level. This means that a brand may be profitable on Amazon overall, but some of its items may be considered CRaP by Amazon’s standards for one or more of the following reasons:

• Pricing inconsistencies across e-commerce retailers: Amazon will price match products that are offered at lower prices on other online retailers. This often happens due to other retailers’ promotional activities, or because of retailers that spend less on product fulfillment, which translates to lower prices on their websites.
• Too much inventory: Unexpected increases in consumer demand can trigger a larger than normal order from Amazon. However, if this inventory doesn’t sell quickly enough, Amazon will automatically decrease the price to encourage sales.
• Miscalculated case pack sizes: Traditional case pack sizes aren’t usually optimized for an e-commerce environment. This leads to CRaP status due to a disproportionately low price relative to shipping costs.
• Short expiration periods: When it comes to perishable items, Amazon will dispose of excess product rather than sell it to consumers if demand is too low. If brands do not factor in transportation time and fail to focus on selling through the product, they may find themselves in challenging inventory positions due to high disposal rates.
• High levels of customer returns: Amazon builds return costs into allowances, so if returns are high, Amazon may need more funding from vendors to keep from marking products as CRaP. Returns can be driven by factors such as poor packaging, confusing or misleading information on detail pages, and more.
• Heavy, bulky items: Heavy, large, or oddly-shaped items like certain appliances or pieces of furniture may cost more to ship than margins allow.

It’s important for vendors to quickly uncover the causes of their CRaP status to resolve any issues and get operations back on track.

Avoiding CRaP status

There are several proactive steps vendors can take to prevent their items from being marked as CRaP. By leveraging the following strategies, vendors can ensure that their products remain profitable on Amazon and stay off the CRaP list:

• Enforce minimum advertised prices (MAPs): MAPs allow brands to ensure none of their products are reduced below an unprofitable price.
• Effectively manage margins: When negotiating with Amazon it’s important to find a balance that is fair to both parties, but make sure to keep some margin in the back pocket for future adjustments. This will help not only with CRaP issues, but also with annual vendor negotiations and running promotions.
• Optimize SKUs for e-commerce: Retail profitability does not directly translate to e-commerce profitability. Additional fulfillment costs should be considered, and case pack sizes should be adjusted accordingly to ensure e-commerce success.
• Create bundles: Offering variety packs or multipacks of the same product help to spread shipping costs across more units.
• Consider a hybrid selling strategy: Should items be removed from Amazon due to unresolvable CRaP status, consider selling through other methods, such as direct fulfillment.

To keep your e-commerce business running at full speed, it’s crucial to act as quickly as possible if a product is marked as CRaP by Amazon. Once the root cause and the scope of the problem is fully understood, focus should be placed on resolution at scale, as well as on proactively implementing guardrails to prevent other products in your catalog from being placed on the dreaded Amazon CRaP list.

Jamaal Hackett-Cook is senior e-commerce strategist at Ideoclick.