What is Amazon CRaP is a very important consideration to any business or entity that sells products directly to Amazon as a 1P provider.
What is Amazon CRaP?
Depending on who you ask, you’re going to get very different answers. One answer might be an attempt to mock the quality of the products found on Amazon and the other; is a very important consideration to any business or entity that sells products directly to Amazon as a 1P provider.
Amazon CraP is an acronym that stands for Can’t Realize a Profit, and the term was first introduced by Amazon’s finance team that identifies products that are unprofitable in the eyes of Amazon.
But wait, isn’t everything sold for a profit on Amazon?
The short answer is yes, but the long answer depends on several factors to understand Vendor Central and the relationship between manufacturers, brands, and Amazon 1P services.
What is Amazon 1P?
Amazon 1P Services refers to the relationship between wholesale sellers and Amazon.
Products sold to Amazon 1P allow Amazon to directly place itself as a direct retailer of these products by purchasing large quantities of products and taking on most of the ancillary costs including marketing, packaging, and distribution of these products sold and fulfilled directly by Amazon.
What Does a 1P Relationship with Amazon Mean?
Having a 1P relationship with Amazon means that as a manufacturer, supplier, or distributor you become a direct supplier of wholesale products to Amazon for them to sell on their platform.
The Benefits of a 1P Relationship with Amazon
One of the best benefits for businesses in a 1P relationship with Amazon is the establishment of a routine of sales to fulfill through regular purchase orders. This process is a more hands-off approach to selling than Amazon’s different 3P selling options.
Advantages of 1P Relationship with Amazon with Vendor Central
Vendor Central is an invite-only platform where manufacturers, distributors, and suppliers sell products directly to Amazon.
In addition to providing manufacturers and distributors with monthly wholesale orders, providing products to Amazon in a 1P relationship also means that Amazon handles the product optimization, listing, promotion, and distribution of these products as well as the information contained in ASINS or Amazon Standard Identification Number for that product.
With the Amazon 1P program, businesses also receive additional marketing and advertising options available to further promote their products, and being in a 1P relationship with Amazon also allows your brand to benefit from a flat-free structure to be involved in the program which minimizes seller, referral and some other ancillary costs.
These benefits combine to provide businesses with a more flexible, hands-off, and potentially more cost-effective approach to selling their products on Amazon that requires less effort on behalf of the provider in terms of manpower, oversight, costs, and resources.
The Added Credibility of Becoming a 1P Provider to Amazon
Becoming a 1P seller to Amazon also gives your brand additional exposure, credibility, and trustworthiness as a brand by being sold and distributed through Amazon.
Being trusted by Amazon can correlate to increased value for your brand as a whole, which makes being a 1P partner with Amazon an attractive prospect for some businesses.
While becoming a 1P vendor is on an invitation-only basis, if your products draw the attention of Vendor Central account managers as a provider, it can lead to a win for your business.
How Do Businesses Benefit From Vendor Central?
Businesses that have been invited to sell on Vendor Central to sell their products to Amazon have a simpler process for making sales. In this relationship, suppliers and manufacturers have a more hands-off approach to realizing profits through Amazon.
When Amazon purchases wholesale and popular retail products from its 1P providers, they take on the storage, listing, and distribution costs associated with the purchase. This benefits the manufacturers and suppliers by making sales by receiving a purchase order and fulfilling it with Amazon paying the contracted rates.
While this arrangement benefits suppliers and manufacturers by providing sales, the volume that Amazon may buy can fluctuate, or even worse, products these businesses sell can become items that Amazon can’t realize a profit on and are labeled as CRaP by Amazon.
The Disadvantages of Selling Products to Amazon as a 1P Provider
With all the benefits of being a 1P seller listed above, it’s hard not to want to build your brand and your product visibility to become an Amazon 1P partner.
While being a 1P provider with access to Vendor Central has a lot of perks, the disadvantages of selling to Amazon as a 1P provider can give businesses both large and small a pause due to the policies, minimal, or lack of control over MAP (or Minimum Advertised Price) and the potential for chargebacks and other costs associated if you have problems maintaining Amazon-ordered products or fulfilling their delivery requirements.
Accurate Reporting & Inventory Control is a Must
Accurate inventory control, automating the ordering process and reducing lead, prep, packaging, and shipping times must be utilized to ensure there are no surprises or the inability to satisfy orders from Amazon.
When a supplier is unable to fulfill an order from Amazon, it runs the risk of incurring additional contracted costs and fees due to missed shipping and fulfillment targets.
If these problems continue or get worse, Amazon could drop you as a 1P provider altogether and if this happens and your business isn’t prepared for this possibility and
Reduced Profit Margins
Additionally, your profit margins will likely be lower by selling your products to Amazon at wholesale rather than directly retailing the products yourself, and finally, your business can become reliant on orders placed through Amazon and the increased brand promotion it brings.
This being said, the smallest falter in profitability can also potentially lead Amazon to label your products as Amazon CRaP which, if it occurs without warning and goes unnoticed; can interrupt profitability.
If this happens to your primary products, it has the potential to severely hinder your operations and income.
Why is a Product Being Labeled Amazon CRaP?
For a product to be labeled as CRaP (Can’t Realize a Profit) in the eyes of Amazon, several factors combine to lead Amazon to come to this determination. These include:
- Heavy bulk items
- Product package sizes or too expensive to ship
- Products with high minimum order quantities
- Products with a high volume of returns or recalls
- Short-term expiration dates
- Slow restocking capability by a vendor
- Amazon identifies that the low cost of an item plus the costs associated with the storage, marketing, and shipping of an item or a class of items has low-profit margins
- Large price variations in price across e-commerce platforms
Heavy Bulk Items & Products too Expensive to Ship Are More Likely to be Amazon CRaP
Heavy and bulk items are often identified by Amazon as products that are more susceptible to being placed on Amazon’s CRaP list due to the increased costs associated with storage and shipping costs.
When Amazon identifies that the costs associated with products lead to a reduced profit margin, or worse these items cost Amazon money to sell, these products will no longer be purchased and sold through Vendor Central.
Additionally, low-cost items valued between one and ten dollars also have the potential to be CRaPped by Amazon.
Looking at these examples, 1P providers to Amazon need to have a balance with their wholesale product offerings while also attempting to anticipate the problems each poses.
Products With High Minimum Order Quantities
Taking the storage and cost to ship heavy and bulk products into consideration, it’s easy to see why Amazon wants to optimize everything in its best interest to maximize its ROI or return on investment.
Products that have a high minimum order amount that has a lower sales volume can also be at risk of CRaP status.
As a supplier of products to Amazon in a 1P relationship, your goals should often coincide with that of Amazon. While having larger order minimums helps you sell a larger amount of your product units at once, this may not always align with how popular and how fast your products will sell on Amazon.
Modifying Your Product Package Sizes & Creating Variety Packs
A potential solution to avoid some and even all of the above scenarios is having your organization collaborate with a fulfillment service that can break your cased and palletized products to create custom variety packs to not only increase product appeal but maximize profit potential by creating a more attractive product offering.
Amazon CRaP Products That Have a High Volume of Returns
If a product has an increasingly higher percentage of returns, especially due to damage resulting from poor packaging or quality, it will bring unwanted attention to Amazon.
With a strong concern for customer satisfaction, if your products continually have a high rate of returns due to damage, wrong items, or poor product packaging and you offer no solution or remedy to address these issues, your products will likely be on the way to being labeled as CRaP by Amazon.
Recalls & Product Defects
While no manufacturer or distributor wants their products to arrive to their customers damaged or not as described, product manufacturers whose products continually get recalled or have unsafe product defects can quickly be faced with Chargebacks, which leads to Amazon denoting those products as CRaP.
Products With Short-Term Expiration Dates
While food items are the first types of products commonly identified as the types of products with short shelf life, many different classes of consumer packaged goods have been used by expiration dates.
If disposal rates increase due to decreased demand for products with short shelf life, brands can find that unless they streamline the process that not only includes manufacturing and shipping time but the actual processing time taken when your products get received by Amazon.
Businesses must anticipate Amazon may take up to a week to receive and process your shipments to them. It can take up to a week for your shipments to be unpacked, and ASIN numbers, product data, and images created for their corresponding listings.
Taking all of these factors into account can help you better streamline the process of fulfilling Amazon’s orders on your short-shelf life products and help them avoid CRaP status.
Slow Restocking Capability by a Vendor
When products are purchased 1P through Vendor Central from manufacturers, suppliers, and distributors that sell very well, naturally Amazon would put in another purchase order with the corresponding company to get more of the product to sell.
If a sudden increase in demand creates the need to order more products from a vendor and it’s not received by Amazon in an appropriate amount of time, it can lead to CRaP status or Amazon may decrease the cost of the product to sell the remainder of the inventory.
Large Price Variations in Price Across E-commerce Platforms
It’s important to remember that unless you have the fully-licensed products that you manufacture and distribute and have brand protections in place on Amazon the products you sell could be competing with other sellers on Amazon as well as other major e-commerce platforms like Walmart and Target.
When a product is sold to Amazon through Vendor Central begins experiencing price fluctuations that lead to the sale price of the product being lower.
Amazon then will lower the price of their corresponding product to either match it or ensure their price is the lowest price across retailers.
This can lead to the product or product class being triggered as a CRaP item due to the updated sales margins on sold products being reduced due to competitive pricing.
Profitability on Products
Like any business, Amazon wants the best return on its investment in the products it buys. Amazon algorithms give enormous amounts of data on every product to help Amazon determine which products will make a healthy return on their investment but also considers trends, needs, page views, and even their competitors to shape the procurement process and products they feature on their market.
At any given moment Amazon’s needs can change and the above examples give an idea of the balance manufacturers and distributors must balance when providing products 1P through Vendor Central.
What Happens When a Product is Labeled as CraP?
Having any of your products labeled CRaP is a major issue for online distributors and retailers especially when the top product offerings are affected.
When a product or product class has been identified as a product that Can’t Realize a Profit, several things happen.
The Inability to Promote CRaP products
When a product is labeled as CRaP by Amazon means that your products become ineligible for promotion. The ability to have your product promoted through AMS (Amazon Marketing Services) gets disabled and loses all free advertising on suggested and personalized advertising feeds. Products also become ineligible on Amazon’s Subscribe and Save Program.
While Amazon has a mission to sell its products and assist other brands and businesses to sell their products, like every company they don’t want to lose money, especially on items with low or negative returns on investment.
Even worse, if you have a product that’s been labeled as CRaP, that same product can still be sold on the platform, albeit by 3rd party sellers but Amazon will not purchase that item for sale and fulfillment.
Getting your products CRaPped by Amazon also can have an impact on the negotiations between your organization and Amazon and even lead to Amazon no longer purchasing your products.
Playing the Margins
Every business wants to be involved in selling large quantities of their products; however, when products are sold at wholesale prices rather than retail, the profit margins on those bulk sales will be significantly lower.
If your business is the only manufacturer or distributor of a product it is possible to uphold MAP pricing guidelines with the additional commitment to monitoring resellers and authorized sellers to ensure they are meeting established listing practices.
Unfortunately, when a better price is given to customers on one platform, other e-commerce platforms generally will follow suit. This type of downward price spiral is one of the direct causes that lead Amazon to stop purchasing items from its 1P providers.
What Can You Do to Prevent Your Products from Being Labeled as Crap
- When an organization signs up with Vendor Central, an important thing to remember is that Amazon doesn’t have to honor MAP pricing arrangements if there are multiple suppliers for a product and while Amazon will always want the lowest price, there are many things to consider when deciding whether a 1P relationship will benefit your business.
- Optimize your product packaging into value packs or bundles to maximize profits.
- Review your distribution and fulfillment methods to ensure your products are quickly available to list and sell by Amazon with minimal repacking efforts.
- Consider Amazon’s Prime Pantry and find out if your product is eligible. Prime Pantry allows Prime members to bundle product purchases on household products, groceries, and other Prime-fulfillment products for members.
- Negotiate rates with Amazon that are fair but also give your business enough of a profit margin to allow for any unforeseen changes or problems that may develop in the future.
- If your products have been labeled as CRaP, consider whether selling them 3P would be a profitable option
- Evaluate a CPG provider that can procure, package, market, and distribute your products from one location, saving time and money by fulfilling orders for Amazon D2C.
What to do if Your Products are Labeled CRaP by Amazon
If you’ve experienced a product or worse multiple product ASINs labeled as CRaP by Amazon, quick action is needed to ensure your business and your ROI isn’t affected.
While products such as soda and snacks may be at risk of CRaP status, low cost-high weight products of any type are susceptible to CRaP status.
When you’ve identified the product and the causes that have led to CRaP status, the problems may lie directly in your distribution and fulfillment supply chain.
Proactive Steps You Can Take
As we’ve mentioned, it can take Amazon up to a week to process a 1P delivery, which means your products and more importantly perishable products that are slowly reaching their expiration date as soon as they’re created, need to wait even longer before even being listed to sell.
In anticipation of growing concerns with perishable products and some other common household goods items, Amazon is doing more to enforce better ROI on low-cost items by beginning to recommend, but may soon force manufacturers and distributors to better package their items and create value/bundle packs that offer a better cost-weight ratio.
Amazon 1P & 3P Products, Pricing & Processes
Amazon’s goal is to reduce the time it spends repackaging items to ship. Working with a distribution service that creates a bundle/value pack using its SOIC or Ship in Own Container directly from a distributor can save on costs and TTS or Time to Ship.
Ensuring your core operations and processes from procurement & packaging to marketing and fulfillment are efficient; allows your products and business to avoid CRaP status and potentially lose your return on investment.
If your business is a 1P provider to Amazon and your business needs help to optimize your products, distribution, and fulfillment capabilities, contact us today for a free demonstration, brand analysis, and how we can help you sell more, and earn more from your online sales.