A private label is a business model where products are manufactured exclusively for a retailer by a producer. The products are then marketed and sold under the brand name of the retailer. The retailer selling the product to the end consumer is called the private label seller while the producer is called the private label manufacturer.
Private label products dominate many industries today and help businesses outsource their production to other companies so they can focus on sales, marketing, and growth. So, if you are wondering whether you should try out private labeling, in the rest of this piece, you’ll find out how it works, its advantages and disadvantages, and pointers to get started.
- Private label products are giving better and cheaper alternatives to popular brands
- In a private label, the products are sold under the retailer’s brand name
- Private label sales are already accounting for more than 50% of total retail sales in certain regions
- Private labeling and white labeling are quite similar, only that in private labeling, the retailer enjoys exclusivity and can control the product specs
- To start a private label business, you’ll need to decide on the products you want to sell, find a reliable manufacturer, and market your products
What Is a Private Brand?
A private brand is a product manufactured and supplied by a third-party producer and then sold under the brand name of the retailer buying the product. Private brands or private label products compete directly with other popular ‘name brands’ or ‘national brands’.
Private branded products have been growing in popularity in recent years. As a result of the economic downturn and inflation, customers are looking for cheaper, but equally-quality alternatives to popular brand names. And that’s exactly where private branding comes in. By selling products rebranded in their names, retailers and stores can easily make more profit, plus their customers already trust them.
One major reason why retailers are diving into private branding is the potential for increased profits. Private branding also gives the retailers control over the whole supply chain allowing them to tweak the products and adapt more quickly to consumer behavior.
How does private labeling work?
Private labeling is the process of selling products branded in the retailer’s name. By investing in private labeling, companies and retailers can have their own branded products without needing to invest in a manufacturing facility and build even more customer loyalty.
Here’s how it works:
- Company A, a retailer, reaches out to company B, a manufacturer to produce products according to specifications provided by company A.
- After production, the products are then packaged and sold under company A’s name.
- The private label manufacturer may produce exclusively for a single retailer, or more commonly, for several different private label brands, and the products for each brand may be similar to that of other brands or completely unique as specified by each individual retailer.
Why private labeling?
For the private label sellers, private labeling:
- Helps brands market products under their brand names without having to bear the burden of production.
- Allows brands total control over the product specs and not just generic products sold by the brand.
Private labeling is how businesses and retail chains are responding to their customers seeking cheaper, yet still high quality product alternatives to popular national brands. By providing private label products, these businesses can bank on the trust they have already built with their customers and achieve higher profit margins than they would have made selling popular brand products.
Private branding statistics
- In the U.S, $ 199 billion worth of private branded products were sold in 2021, $2 billion more than the previous year.
- Globally, the private label market was worth 19.4% of the entire retail market in 2022 and those figures can vary greatly by region with areas like the U.K and Switzerland having up to 44% and 52% respectively.
Advantages and Disadvantages of a Private Brand
Advantages of private branding
Private branding continues to grow in popularity thanks to the benefits it offers to both manufacturers and sellers. Some of them include:
- Helps brands sell unique products: One of the best things about private branding is retailers can specify the exact specs of the product to the manufacturer. This allows these brands to sell completely unique products that are different from what’s already available and stand out to customers.
- Enables premium quality control: Private branding gives retailers complete control of the supply chain. Unlike popular brand items that are bought and resold as-is, the sellers can closely monitor the quality of the products and ensure they meet set standards.
- Higher profit margins: Another appeal of private labeling is that it allows brands to earn more profit as they also control production costs and don’t have to ‘share’ with the popular name brands.
- Quicker product tweaks to customer demand: With a private label arrangement, brands can quickly make adjustments and tweaks to their product lines based on what customers are saying. Products from popular name brands are often more rigid and take more time to get upgrades.
- Helps build brand loyalty: Because the products are in the retailer’s brand name, the seller can build brand loyalty with satisfied customers. Customers identify with brand names of the products they like. Private labeling allows retailers to enjoy customer loyalty that had been reserved for national brands.
Disadvantages of private branding
- Competition is tough: As a private label business, you are now in the big leagues and you are competing directly with the popular, national brands who already have a huge customer base, and that isn’t easy.
- You bear the full brunt of customer dissatisfaction: Having products in your name is great but if customers are dissatisfied with your products, you also bear the full brunt of negative reviews. You are in full control of your brand reputation and have to double down on meeting customer expectations.
White Label vs Private Label
If you have been researching private labeling for a while, chances are you have also heard about white label and may be wondering what the difference is. The main difference between private labeling and white labeling is exclusivity.
In a private label business model, the manufacturer usually offers products specified in detail by the reseller, making them unique. In some private label contracts too, the manufacturer is bound to produce exclusively for a particular retailer.
In the white label business model, on the other hand, a manufacturer produces very similar or sometimes identical products and then sells them to a network of retailers who then rebrand them in their company name.
The Key Difference
The products in a private label are made unique for the seller while those in a white label business are oftentimes identical with those produced for other retailers by the said manufacturer. In a white label business, the retailer also has less control over the supply chain as the manufacturer decides most of the product specs.
White labeling has grown into one of the most popular business models today. What are some popular white label products?
- Mobile accessories and gadgets
- Relaxation products (e.g massage guns)
- Utility bags
- Bulbs and LEDs
- Stationery and mugs
- Sunglasses and shades
- Electronic equipment
- Fitness gear
Private Label Brands Examples
So who are some of the most successful private label brands in the world and how much of the total market share do their sales account for? Let’s see some of them:
- AmazonBasics (Amazon private label):
- Stone & Beam (by Amazon)
- Trader Joe’s
- Kirkland Signature (by CostCo)
- Sam’s Club
- Walmart (owns several private label brands)
Exact statistics on the market share of these private label brands are hard to find but these are some of the top private label brands in the world and offer a range of products including electronics, household equipment, cosmetics, groceries, etc.
What are private-label products? Definition & Examples
‘Private brand’ and ‘private label products’ are two terms often used interchangeably and mean the same thing. However, the term ‘private brand’ may also be used to describe retailers creating a ‘unique brand’ through the products they market i.e: a defining identity that separates them from the rest.
To avoid confusion, private label product is used more often and describes the actual products manufactured by a third-party producer for a particular retailer and then sold to the customer under the name of the said retailer. Excellent candidates for private label products are usually products that customers don’t mind switching because there is no significant difference in quality.
So, what are some popular private label categories? Some of them are:
- Food boxes and groceries
- Personal care and grooming products
- Pet care products
- Fashion items and accessories
- Smart accessories and gadgets
At the same time, the retailers have a direct influence on how private label products are produced. So, compared to the popular brands, private label products come with markedly more experimental and trending designs and give customers more variety. And what’s more, they can be just as quality as the popular brand products, which is why customers are finding private label products appealing.
Choosing a Product to Private Label
Now that you understand what private labeling is, how do you choose a product to private label? What are some important factors you should consider to ensure you make profit and retain customers for as long as possible? Let’s take a brief look at some of them:
1. Is it cost-effective?
The first factor you should consider is how profitable it will be to sell the product. While you don’t have to bother with the technical side of production, you will pay for the products manufactured by the producer, which will include the production costs. How much margin can you charge to ensure you earn a decent profit without the retail prices being too high and scaring customers away?
Any private label product you are selling should be cheap to produce and at the same be reasonably priced at retail.
2. Will shoppers make repeat purchases?
Products that are consumable or require the customer to make repeat purchases (e.g sunk money consumables) are excellent candidates for private label products and in fact, any business that wants to make money consistently. Some great examples are food items and personal care products. Selling products that need to be replenished is the easiest way to build customer loyalty.
3. Is there enough demand for the product?
Consider if there is a current demand for the product and whether the product will continue to be in demand for the foreseeable future. Some items like food items will always be in demand, however, there are also trending or seasonal products you can explore. E.g: face masks, hand sanitizers and toiletries were in high demand during the Covid-19 pandemic. Grooming brushes for pets are in high demand during spring and fall when their fur sheds.
4. Are you excited about the product?
Finally, it is important to self-reflect and decide if you have the passion to keep striving to grow your business even during challenging times. As a private label business, you’d be competing with other popular brands and also other private labels and it can be hard to stand out. Having special expertise or passion in a product niche can help you market your products better to your audience and give you the drive to keep pushing.
Where to Find Private Label Manufacturers
To become a private label seller or retailer, you’d need a reliable private label manufacturer or supplier to produce the products according to your specifications.
Wondering where to find a list of reputable manufacturers to consider? You can use:
Google is the no. 1 search engine in the world and all you need is a simple text search to find directories and recommendations on the best private label manufacturers. Google is also far more powerful than many people realize. With some search operators, you can filter your queries to provide very specific results. E.g finding private label manufacturers in a particular region, etc.
Helpful read: Localize Google search results
2. Source Local Suppliers
If you plan to run your business within a particular region or country, you can find manufacturers and suppliers locally. Also, not all private label brands make completely unique products. You can choose to just rebrand already existing products (similar to white labeling), especially for products with little competition and in high demand. You can find local suppliers in trade shows, marketing events, exhibitions etc.
3. Online Marketplaces
Another very effective way to find private label manufacturers is on online marketplaces. On these dedicated websites and platforms, private label manufacturers connect with retailers and suppliers and sell their products in bulk. Some of the most popular online marketplaces where you can find a private label manufacturer include: Ebay, Alibaba, and Amazon. You can also find online communities and forums dedicated to private labeling on platforms like Reddit and SaleHoo.
Choosing Private Label Manufacturers
Now, you have a list of private label manufacturers you are considering. So how do you choose between them?
1. Reliable Delivery Times
You want to make sure that the private label manufacturer you are considering is known for always being on schedule and delivering products on time. Many online directories and forums will have customer feedback where you can see what others are saying about these manufacturers.
You don’t want to go for a company that will make you miss out on sales because you couldn’t deliver. Instead of committing fully at once, you can test them out with smaller orders and build up gradually while monitoring their delivery times.
2. Affordable Pricing
You still have to pay for the production of any products you’ll be private labeling. You want a manufacturer that offers affordable prices for production without compromising on quality. Your profit potential is directly tied to cost per unit and the lower it is the better.
If you are settling for a cheaper manufacturer, find out what makes their process more affordable – Do they have more efficient machines? Do they have a cheaper source of raw materials?
3. Product Quality & Low Defect Rate
As an extension of the last point, your brand reputation is directly on the line with private labeling and you are responsible for ensuring supreme product quality for your customers. Your manufacturer must be known for making products of the highest quality and with the lowest defect rates.
This way bad products don’t end up reaching customers and you don’t lose money having to send defective products back to the production line. Always test the quality of each product batch, sampling random specimens across your inventory.
4. Product Specialization
The more specialized a manufacturer is in a particular industry, the more quality the products usually are. If you want to sell private label products in a particular niche, you should also source for manufacturers who make products specifically in that niche and not generalists. You will get much better results as the manufacturer has a deep understanding and can even make suggestions on how to improve the design you have in mind.
Benefits of Selling Private Label Products
Higher Profit Margins
Sellers have complete control over the supply chain, giving them more price flexibility. With a private label product, the seller is selling something unique (that they may not find in any other store) and can set prices for maximum profitability.
Exclusivity Breeds Loyalty
With many private label contracts, the manufacturer is bound to produce products exclusively for the seller. Over time, this breeds brand loyalty and the manufacturer will gain deep knowledge about the brand, and their ideals, and be able to meet the seller’s requirements every time.
Valuable Opportunity to Build a Brand
Private label products give sellers the opportunity to build a brand in their name and not only for the popular brands they also sell. Customers will be able to identify with the retailer’s brand thanks to their products and if they are satisfied, will continue to buy.
Increased Marketing Potential
Selling private label products gives sellers far more marketing potential and control over the way to advertise their products. Name brands often have lagging marketing methods that they stick to. With a private label product, however, the retailers can be more agile and use trending strategies to market their own products.
Risks of Selling Private Label Products
Selling private label products also has its drawbacks. Some of them are:
Subpar Quality Products Can Damage Your Brand’s Reputation
Selling a private label product under your brand name places your reputation in the line of fire. If your manufacturer produces a subpar product and you miss it, that can give customers a negative impression of your brand as cheap. That’s why quality control systems are very important.
Private Label Products Carry Additional Liability
In some regions, private label products face more scrutiny than established and well-known brands. You should be prepared for this and research the regulatory side of things for your region before you dive in.
Legal Issues May Arise
Patency issues and regulatory issues are quite common in the private label landscape where a brand may claim that another is copying its products. Also, if your manufacturer violates particular regulations, this will affect your own business.
Manufacturer Reliability Varies
While you can specify to your manufacturers how you want the products to be made, they may still deviate and source materials through illegal means. The main point is, not all manufacturers are reliable so you should take special care before you commit.
Private labeling has been growing in popularity and with private label products already being sold more than popular brands in some regions, it’s easy to understand why. Inflation and the economic downturn are changing customer behavior and people are looking for cheaper, yet high-quality product alternatives.
Private labeling helps businesses create a brand, sell unique products, earn more profit, and adapt more quickly to customer demand.
To get started you’d have to choose the right product, find a reliable manufacturer, and do your research so you are prepared to tackle the drawbacks.
In the end, with all the information we have shared, you can build a profitable private label business and start taking credit for your awesome products.
Next Steps: What now?
- Do market research to find products in demand
- Decide on the products you want to private label
- Register your business with relevant authorities
- Buy a domain name
- Choose a hosting provider
- Build your brand website with a website builder
- Fill relevant pages
- Set up your payment methods
- Research and find a reliable manufacturer
- Test a small product batch and increase gradually
- Market your products