Have you ever been in one of those business meetings where someone is using acronym after acronym and it leaves you scratching your head in confusion? Trust me, we have all been there!
Recently, you may have heard an acronym that sounds like it is more closely associated with potty mouthed fourth graders than the CPG industry. Despite questioning yourself, you indeed heard it correct: “CRaP” is now part of the business lexicon, and we can thank Amazon for that.
What is CRaP?
“CRaP” is an acronym that stands for “Can’t Realize a Profit.” It was created by Amazon’s finance team to describe items that are structurally unprofitable for the company to sell on its marketplace. Recently, the CRaP list has become a battleground for Amazon and the CPG brands it has wooed for years.
By nature, CPG products, especially consumables, are one of the biggest categories at risk for ending up on Amazon’s naughty list. This is due to their low per-unit prices and associated hefty shipping costs, which create a low to nonexistent margin environment. Though Amazon needs to carry these products to compete with Walmart, the internet retailer has recently started sending warning letters to vendors and even removing CRaP item listings from the platform.
"CPG products are one of the biggest categories at risk for ending up on Amazon’s naughty list."
How does CRaP happen?
According to a famous Forrest Gump quote, “CRaP happens” …or something like that. If we are being serious, though, it does happen, even to the most established CPG brands. This is because Amazon looks at profitability at the product level, which is different than most physical retail channels that consider profitability at the brand level. That small adjustment to accounting can cause huge problems for even your best-selling products.
Considering this dynamic, here are some reasons a product could land on the Amazon CRaP list:
- Lack of price integrity across digital channels: If your product is available for cheaper on another site, Amazon’s pricing algorithm will find that price and match it. With some CPG products, even having a price-matched variance of a dollar could throw your product onto the CRaP list.
- Too much inventory: Amazon’s ordering system could cause a certain item to be overstocked due to an increase in demand. If that overstocked situation turns lengthy, Amazon will likely decrease price to encourage purchases, which could land the item on the CRaP List. This can also happen when the minimum order quantity for a particular product is too high compared to its sales velocity on Amazon.
- Retail pricing and shipping economics: More often than not, this is what gets CPG products into trouble on Amazon. The price economics on traditional pack sizes are usually off if they are not optimized for a digital environment.
These issues are compounded when CPG brands don’t fully understand what causes CRaP situations or when there is a lack of this communication across departments. A great example of this is when the marketing team is spending internally or externally on demand drivers that increase traffic and sales to a product listing that is on the CRaP list. That scenario is like throwing gasoline on a fire and creates harsh impacts to your business.
"Amazon looks at profitability at the product level, which is different than most physical retail channels that consider profitability at the brand level."
Impacts of CRaP
Amazon doesn’t want to lose your top-selling CPG products, but they also don’t want to sell your CRaP. Because Amazon is now more focused on profitable expansion, they are only interested in supporting and building their retail merchandising strategy around profitable products. At the very least, getting on Amazon’s CRaP list will cause your business a great deal of headaches from the needed adjustments. Alternatively, the most drastic impact is that Amazon could completely stop ordering your CRaP product, leaving you without a viable revenue stream.
Other impacts in between those boundaries include:
- AMS campaigns for the product will be marked as “ineligible” for advertising
- Amazon will stop giving away free advertising and placing the product on personalized “Recommended Products” feeds
- Subscribe + Save program will not be available for the product
"The most drastic impact is that Amazon could completely stop ordering your CRaP product."
How to avoid the CRaP list
The main goal of a CPG brand should be to proactively stay off the CRaP list. If warnings are sent by Amazon, they should be taken with the utmost seriousness. Here are a few best practices to stay in the good graces of Amazon:
- Police your minimum advertised price (MAP): This is usually easier said than done in the CPG industry, but controlling MAP allows brands to ensure none of their products can be reduced beyond adequate profitability levels. Brands need to look at this both on and off platform. The problems on platform are caused by rogue 3P sellers that drive pricing down, which causes Amazon to match. Similarly, Amazon’s pricing algorithm will match prices found on other platforms, which can also create issues.
- Create digitally-optimized offerings: One of the most common mistakes CPG brands make is that they believe physical retail success can be directly and easily translated into online success. This misunderstanding leads to brands selling the exact same pack sizes and product configurations online as they do offline. Often, this results in major problems in relation to both margin and customer experience due to a lack of consideration for consumers’ online buying habits. A re-examination of your e-commerce offerings is a key strategy to consider.
Getting off the CRaP list
Sometimes even the most digitally-savvy CPG brands find themselves on the Amazon CRaP list with a product variant or two. If that happens, it’s important to first thoroughly communicate with Amazon your plans to correct the issue. Here are a few best practices to get your products off the CRaP List:
- Consider Prime Pantry: Understand if the product is eligible for Prime Pantry. Prime Pantry is a service that lets Prime members to fill and ship a large box of groceries and household products in everyday pack sizes. This allows Amazon to spread the shipping costs across many lower margin but faster moving products.
- Bundle offerings: If you aren’t allowed to shift your items to Prime Pantry, you can create your own bundles to help spread the shipping costs. This could be something like a multipack of the same product or a variety pack of different flavors or other variants.
Stay tuned for my next blog post to learn more advanced strategies for staying off the CRaP list and being profitable on Amazon.
Joshua Schall, MBA has an 11-year background in the emerging and intersecting CPG/FMCG categories of functional food and beverage and nutritional products.
He currently is the owner of J. Schall Consulting, an Austin, TX-based boutique management consulting company that focuses on digital growth strategies for CPG/FMCG brands that range from pre-launch to portfolio companies with $500M in yearly revenue.
Joshua enjoys an active healthy lifestyle but still finds himself spending way too much time scanning social media and digital grocery aisles for new consumable brands.