Amazon's CRaP policy is a topic that is becoming increasingly important for brands. To help understand the topic in more detail, we're interviewing Andrea Leigh. Andrea is a fantastic resource and provides consulting for businesses to help them fully develop their Amazon strategy.
To help legibility, all questions are in italics followed by Andrea's answer.
You were at Amazon for quite a while. I'm curious why you left?
Amazon was an incredible, amazing company to work for, and I truly loved it. I learned an enormous amount in my ten years there about e-commerce, running a business, launching categories, negotiating, hiring and developing teams, and most critically, the importance of a strong customer focus.
What I enjoyed most at Amazon was working with brands - learning from them and also educating them on how to be successful on our platform. As my role grew, I spent less and less time doing the things I loved. After ten years at Amazon, I was ready to start my own business, working directly with brands again, learning and providing education and training as well as customized solutions to help brands meet their goals.
You've talked about Amazon's CrAP before. Just briefly what is it? Is this a relatively new thing?
CRaP is Amazon's term for Can't Realize any Profit. The term was coined internally, but seems now to have become industry language. It's not new, but their emphasis on it is definitely increasing. This is Amazon's designation for products that are unprofitable for them. Item-level economics are critical at Amazon, unlike brick & mortar where customers are typically filling up a basket that allows unprofitable items to be balanced out with profitable ones.
CRaP hurts your brand's growth and profit. Amazon doesn't want to grow the sales of those products (which makes sense), so it's harder to market them. It also makes negotiating with Amazon tough, because they typically want the brand to cover their losses. If the problem is really bad, Amazon will stop ordering the items.
Some CRaP issues can be solved, for example, by tightening up a supply chain, reducing damage rates, or controlling distribution. However, a lot of CRaP doesn't really have a clear solution - for example, large, heavy items that are expensive to ship but have a low retail price - and we need to get creative to find solutions.
So how does a vendor know if an item is on the CRaP list?
Usually Amazon has changed the product replenishment code to either OS (off season) or OB (obsolete). They can also ask their Amazon Vendor Manager.
What does MAP have to do with CRaP?
MAP (minimum advertised price) can sometimes be a solution for CRaP, if a vendor implements it successfully (i.e., all parties they sell to abide by the agreement). However, it's important to keep in mind that this typically raises prices for customers, which can have some impact on sales growth.
You've also recommended using a dual FBA account for certain items. Is this strategy common? What does Amazon think of this approach?
Some brands are transitioning their CRaP to third party sellers or creating their own FBA accounts. We've seen mixed results with this, depending on what the brand is trying to accomplish. Amazon is getting stricter about third parties having to match external competitors, too. The hybrid approach is somewhat controversial internally at Amazon, so it is important to proceed with caution. If Amazon refuses to carry your items, FBA is a clear option. If Amazon still wants to carry them (even if they are CRaP), it can be a more difficult negotiation.
It's important to keep in mind that putting CRaP in FBA and raising prices might mean you won't win the buy box, and you'll lose sales. If you have a lot of CRaP, I suggest taking a look at Amazon's Pantry program (for consumables), thinking hard about distribution channels and/or MAP policies, or getting creative about product design to reduce weight.
What do you think is the future of brands on Amazon?
This seems to be the question on everyone's minds. Fast forward some time, and I think their retail platform will be reserved for an elite few retail brands that pay a significant amount to sell there. Many brands are evolving to FBA to remove themselves from the Amazon negotiation. Since Amazon now allows Prime-eligibility to merchants who can ship super-fast from their own warehouses, some brands are transitioning to models where they handle their own fulfillment as a third party seller.
I think their Pantry program, Prime Now, and pick up points are going to expand significantly, as these are likely more economical ways for Amazon to make CRaP items available to customers, due to typically having more items in the basket and shipping costs spread over more items.
I think brands are also going to see some technology advancements in the brick & mortar space, as the click & collect model (buy online, drive by and pick up) takes hold.
About Andrea K. Leigh
Andrea K. Leigh is an expert in e-commerce growth initiatives, focusing on maximizing core business inputs to drive long-term, sustainable growth: pricing, merchandising and marketing, assortment strategy, supply chain, and customer shopping experience.
Ms. Leigh spent 10 years at Amazon.com in Seattle, Washington, most recently as a GM/Category Leader for the Canadian division, leading the launches of over 10 product categories and growing Amazon.ca to the largest e-commerce retailer in Canada.
She can be reached at email@example.com
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