Amazon has eCommerce’s most advanced strategies and algorithms to

ensure its profitability. While every product available on Amazon gets

ranked based on a number of shopper-related factors, the most important

metric a seller must consider is profitability; both Amazon’s and its own. The

slimmer the margin (or more negative, as the case may be) on any given

item, the less interested Amazon is in selling it. Amazon’s process for

measuring profitability is known as CRaP, or “Can’t Realize a Profit”.

What is Amazon’s CRaP List and How to Avoid ItBy Rob White, Account Executive at One Click Retail

In dealing with items that are approaching or

on the CRaP list, Amazon does one of two

things: 1) Redirect Customers to More Profitable Items

OR2) Use Less Profitable Items as Loss Leaders

For items approaching the CRaP list, a program (known as Pegasus)

places a widget at the top of the product’s detail page directing

shoppers to other products more profitable for Amazon, with headings

like “Lower priced items to consider” or “What do customers buy after

viewing this item?”

1) Redirect Customers to More Profitable Items

The most unprofitable items will eventually be discontinued, but for

many products on the CRaP list Amazon has a few strategies for turning

that loss into a gain:

EFP: Exclusively For Prime

Add-On Items

Subscribe & Save

2) Use Less Profitable Items as Loss Leaders

EFP: Exclusively For Prime

Amazon’s algorithms automatically add individual items to, or remove items from,

the EFP list based on weekly measurements of the item’s profitability. By making

marginally unprofitable items exclusive to members of Amazon Prime, some of the

loss is made up by membership fees, more frequent purchases, and larger single

orders. Because only Prime members have access to these products, EFP items

experience a 12% average decrease in sales. A similar (but voluntary) designation

for items is Prime Pantry, which can be set up by the manufacturer to improve the

profitability of low-price items.

Add-On Items

Low-profit items with a price point under $10 may be given Add-On

status, meaning only customers with a shopping cart over $25 may

purchase the item. This allows Amazon to make up for the loss by

spreading out the shipping cost among more items.

Subscribe & Save

Amazon’s Subscribe & Save promotion offers a 5% discount on

qualifying items when customers commit to purchasing the same

product on a recurring basis. This allows Amazon to save in two ways:

(1) by improving forecasting and lowering warehousing costs; and (2)

by adding more items to the box, spreading shipping costs across more

items. To help incentivize this behavior, Amazon offers a 15% discount

to customers with 5 or more subscriptions.

How do I Keep My Products from CRaPing Out?

To keep your products off of the CRaP list, there are 3

important things you can do:

Maintain a High Average Sales Price (ASP)

Offset the Product Cost

Lower Outbound Shipping Costs

Amazon uses an algorithm to set prices, and here are a few tactics you can use to keep your ASP high:

• Bundle items to increase the overall profitability while lowering the price per item.

• Set a Minimum Advertised Price (MAP) so, when the Amazon price is lower than the MAP, it will prevent

the price from being shown until the customer takes further action. Note – this is quite difficult to obtain

with Amazon and often results in multiple month stand-offs with the goliath retailer.

• Double check your listings to ensure that they are mapped to the correct items by Amazon’s pricing

algorithm.

• Produce custom eCommerce packs that cannot be matched. This isn’t simply a different unit count;

rather, a specialty pack with different flavors, items, etc. included.

1) Maintain a High Average Sales Price (ASP)

Amazon’s profitability metrics are based on many factors so it’s possible

for a product to remain profitable even if its cost is higher than its

selling price. How? You can offset the product cost by increasing your

budget in Buyer Merchandising, Amazon Marketing Services (AMS)

and/or Amazon Media Group (AMG). Accruals and other co-op

agreements obviously can also influence this.

2) Offset the Product Cost

Outbound shipping is one of Amazon’s biggest expenses. Remember – every dollar saved is one less dollar you

have to spend to get to profitability. Recommendations include:

• Provide ready-to-ship packaging and participate in Amazon’s frustration-free packaging when it makes financial sense. This

also lowers Amazon’s fulfillment center (FC) costs.

• Work with your In-Stock Manager (ISM) to ensure that your products are received and stocked correctly in the FC.

• Utilize Amazon’s mutually beneficial programs. Subscribe & Save lowers shipping fees by allowing Amazon to ship items

ahead of time at a slower shipping speed. The Vendor Flex program, where a section of your warehouse space is operated

as a miniature FC for your items, can reduce Amazon’s FC costs and increase the profitability of your items.

• Optimize your FC locations to fit closer to where customers are ordering can reduce “zones” of shipping – again, Amazon’s

largest P&L cost.

3) Lower Outbound Shipping Costs

Avoiding the CRaP list is an all-around win for you, Amazon and the

shopper: your product cost is high enough to make a profit, low enough

for Amazon to make a profit, and the retail price is in line with what the

shopper is willing to pay.

To get the latest and most accurate industry insights and reports, check out our weekly articles at

www.oneclickretail.com/insights, and follow us on Twitter and LinkedIn.

Final Thoughts

One Click Retail (OCR) is a market leader in eCommerce data measurement, sales analytics and search optimization for brand manufacturers in North America, Europe and Asia. Thanks to our proprietary sales calculations that are 98.5% accurate down to the SKU level, OCR’s accuracy is unrivaled in the marketplace. The OCR Product Suite provides 1st and 3rd party business intelligence across the 30 largest retailers such as Amazon, Walmart, Target, Staples and Home Depot. The world’s top brands, such as Procter & Gamble, Panasonic, Nestle, Hamilton Beach and HP, rely on OCR insights to drive sales and profitability across eCommerce.

Founded in 2013 by eCommerce experts from Amazon, Walmart, Target, Overstock and other leading retailers, OCR was acquired in 2016 by Ascential plc (LSE: ASCL.L), a UK-based international B2B media company with a focused portfolio of market-leading events and information services products.

To learn more about how OCR can provide your brand with the competitive edge in today’s ecommerce marketplace, visit www.oneclickretail.com.

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