What Are Private Label Products? (A Layman’s Guide)
Updated: Aug 24, 2022
Private labelling can be an excellent opportunity for increased profits, lower costs and competitive gains. With private label products being sold in so many different industries from cosmetics to household goods, it is an every growing business model with big potential for companies that join.
Private labels are anything but "generic" and can be an excellent way to compete with well-known brand name products. Private labelling is common in the retail world both online and off, just look at a typical supermarket shelf with own-store brands or at Amazon Basics. It has been shown that private labelling produces positive returns on investment when you sell compelling products at competitive prices.
What Are Private Label Products And How Does It Work
Private label products can be any physical good that a retailer gets completely manufactured by another company that specialises in that product. The retailer specifies the composition and features, as well as the final packaging of that product. It is then wholly owned and sold by that retailer, using their own brand name and marketing strategy. As far as typical end-consumers are concerned, these products are the company’s ‘own brand’ products or even manufactured by their very own factories!
Private labelling is a great way to get access to manufacturing and production expertise in complex industries. It lets another company do all the work of sourcing, factory production and assembling, shipping and supply chain management.
There's a whole line of private-label brands that includes items such as clothes and food at your local Costco warehouse store. For instance, the Kirkland brand is made up about one-quarter of all sales for this company. Amazon has private-label brands stretching over multiple product lines with Amazon Basics being its most dominant one.
Benefits of Private-Label Products for Manufacturers
So, what’s the benefit of private-label products for factory manufacturers or suppliers? Private-label goods allow manufacturers to expand their reach and sales potential of their mass-produced items. For example, Kraft has sold Planters Peanuts products under both its own brand name as well as private labels for sale in larger retailers like Walmart. A manufacturer may specialise or sell only one part or feature that enhances or completes a branded product that features multiple components that as a whole makes it unique in the marketplace.
Manufacturing private label products are a great way to get products in front of consumers without all the hassle and expense that comes with brand creation, marketing and customer service. Eliminating these processes can save time and money on costly actions and instead focus on designing and developing higher quality products
Advantages Of Private Label Products To Brands
1. Full Product Exclusive Ownership
Private labelling allows you to set yourself apart from the competition by offering your customers a product with unique or attractive features that they can't find anywhere else with your brand. You have exclusive rights for selling this specific good or service within an industry. With great marketing, a demand can be created that only you can satisfy.
2. Brand Loyalty to You
Branding through private labelling is a great way to build loyalty from customers who like your products and not to the factory manufacturer. With unique and high-quality products and limited accessibility, they feel as though their favorite brands are an exclusive niche that few own, which ultimately increases sales and extends brand lifespan in today's market environment where competition seems limitless!
3. Pricing Controls
Private labelling is an ideal way for retailers to create their own products and still oversee the entire supply chain. They can set production costs in such a way that ensures profitability from the beginning until the end, while also ensuring quality products with optimum margins of healthy profits at every stage. Private-label products can also demand a higher price compared to generic white-label off-the-shelf items.
Related Article: How To Find The Best Private Label Manufacturers For Your Brand
4. Production Controls
The retailer is in charge of defining the product's features, measurements and specifications. They can require their manufacturers to create private label products with exacting standards for materials or parts like color schemes and shapes. This way they know exactly what will be just delivered correctly for the brand, marketing strategies and to a customer’s satisfaction when it comes time to sell them on shelves!
5. Market Agility
Private label products allow retailers to be agile and swift – they are closer to the end-consumer compared to a manufacturing plant. They can tell a manufacturer if there are changes needed on their end eg. new or demanded features, upgrades etc.
Related Article: 10 Benefits of Private Labelling for Your Brand
Disadvantages Of Private Label Products
Private labelling is not without its drawbacks. However, if you plan accordingly and work with the right company to get started then it's possible to mitigate most of its drawbacks.
1. Building Brands is Difficult
The idea of branding your products is a great one in theory, but it can be difficult to build loyal customers when you're competing with established names on an already crowded market.
There are many reasons for this struggle including the fact that private label lines often compete head-to-head against popular brands, with a loyal following, within their niche or because consumers don't know or care who produces certain goods.
Private labels compete against other brands on shelves, while nationally-branded items may get priority placement. Maintaining the identity of a brand can be challenging when working with numerous distributors and multiple retailers who all want different things out there at once.
2. Dead or Defunct Inventory
When ordering private-label products, retailers should always make sure that their customers will love the result. This way you avoid wasting money on dead inventory! Also, some manufacturers may try to pass off older-generation, lower quality products, end of line production as promising merchandise that is easily saleable.
3. Minimum Order Quantities
The minimum order for private labelled products can be much larger than what you would otherwise require. This happens because manufacturers have a basic requirement of minimum units when producing customized orders for cost reasons, but many times this number ends up being higher due to variables like how complex or unique your design is as special tooling may be needed.
Private labelling is a powerful way to bring your own products and branding into the market. It allows you to control production, pricing, distribution channels as well as marketing language that can be tailored specifically for your customers. Niche retailers may be able to compete against big brand names on their shelves. It may sound daunting but with expert guidance, the benefits for the private-label retailer are there for the taking.
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