Private Labeling
Private Labeling
Starting a business is hard work, from opening an office and hiring workers to setting up a production line to make products for your brand. But what if you could contract out this last step to a company that already has a production line? This is where a private label line can help. If you decide to be a private label seller, you can offer products that are unique to your business but made by a third-party manufacturer. This also can free you up to focus on selling, marketing, and finding the right people to help your new business thrive.
What is a private label?
The term “private label” describes products sold under a retailer’s own brand but made by a third party called a private label manufacturer. In other words, the company branding and selling the product is different from the company that makes the product. You may recognize the brand names of many private-label goods. But the average consumer probably doesn’t know the names of the private label producers that make these goods. That’s because these producers don’t sell directly to consumers. They only sell to retailers, who then offer private-label products to the public under their own brand names.
A private label offering can be like its competitors, but the exact manufacturing formula must be different. If you see a private-label business offering a particular type of chocolate chip cookie, you can assume the exact recipe won’t be found under any other label. The same would be true for private brands selling electronics, jewelry, clothing, pet foods, beverages, etc.
How does private labeling work?
The private label business involves two types of companies: private label manufacturers, which make a product, and private label sellers, which brand and sell private label products to retail customers. A reliable private label manufacturer will ensure product quality and keep production costs under control. A savvy private label seller will build strong brand equity with consumers, effectively advertise, and set up a profitable pricing model.
Private-label goods should not be confused with white-label goods. White labeling also involves a third-party manufacturer making a product on behalf of a retailer. However, white-label products are not custom designed for one seller. A white-label manufacturer makes large amounts of a generic product and then sells to individual retailers, each of which sells to consumers under their own brand name. This means that any number of companies can sell the same white-label product under different names.
What are the benefits of private labeling?
The private label business model offers advantages to both manufacturers and retailers. These benefits involve everything from profit margins to quality control.
- A unique value proposition. Private labelers get to design and sell products that are distinct from established brands, store brands, or other private label brands. As a private label entrepreneur, this means that you can pursue novel product ideas without regard to what the rest of the market is doing.
- Customized quality control. By establishing a direct relationship with their manufacturer, private label owners get an open line of communication and the ability to demand premium quality.
- Customized pricing control. Private label sellers and producers can tweak manufacturing costs and price points on their various product lines. They can experiment with different price formulas to maximize profit margins.
- Customized marketing control. As a private label retailer, you can choose the marketing campaigns used to promote your branded products. You don’t have to adhere to the sometimes stiff, outdated campaigns run by national brands.
- Nimble changes. It can take months or years for an established brand to change its product formula, pricing, or marketing strategy. Private label sellers can pivot a lot faster. They can quickly respond to negative reviews or low sales and adjust to make the best product for the best price.