Private labeling is a business model in which a manufacturer of products is responsible for creating physical goods and selling these unbranded products to resellers. The resellers, armed with an understanding of their target audience, rebrand these products to align with their own company's identity and sell them to the end consumer.
This manufacturer-reseller partnership is a practical, cost-effective solution that allows each party to concentrate on their areas of expertise. By enabling the manufacturer to focus on producing quality goods, and the reseller on marketing, branding, and customer relations, the private label model effectively splits the value chain. This division helps to mitigate risk and reduce the costs associated with owning the complete production-to-consumption process.
The beauty of private labeling lies in its simplicity. The manufacturer doesn't have to worry about building a consumer-facing brand or negotiating retail contracts. On the other hand, resellers can enter the market swiftly, equipped with ready-made, rebranded products, without the burden of manufacturing. This convenient relationship encourages a focus on core competencies and allows each business to thrive.
Private labeling has been a major factor in the fashion industry over the years. It’s a common practice where retailers create their own brands with similar styles of clothing at a competitive price point (usually to offer a similar style of shirt or dress but for a much cheaper cost.) The image below on the left is a Versace dress that retailed for $1,685, while Neiman Marcus offered a similar style for $130. While not exactly the same garment, you get my point.
Source: mybeaubaby
Due to the private label business model, many of the most successful manufacturers in this space are not well-known or recognizable to consumers. The resellers of these products instead get all of the brand recognition.
Here is a list of the products that you will see the most often in a private label capacity:
Did you notice a trend here?
Key characteristics of private label companies include:
Dollar Shave Club is a company that delivers razors and other grooming supplies but does not produce any of its own razors. Instead, they purchase their razors from a private-label manufacturer, then place their branding on them. This differs from other companies and competitors like Schick that instead manufacture and sell their own products rather than just the latter.
AmazonBasics is Amazon’s private label brand that offers a wide range of consumer goods. The brand focuses on providing high-quality products at an affordable price point. The product portfolio is diverse, ranging from kitchenware and home essentials and tech accessories to office supplies and beyond. Obviously, it wouldn’t be feasible for Amazon to run its own factories manufacturing such a wide array of products. Instead, they use private label manufacturers. What makes AmazonBasics stand out is its ability to leverage the vast user data available through Amazon’s platform, tailoring its offerings to meet the broadest consumer demand.
Kirkland Signature is Costco's private label brand named after Costco's home city, Kirkland, Washington. It includes a broad spectrum of products, including groceries and clothing. Despite being private-label, the quality of Kirkland Signature products is often considered comparable to national brands, while being offered at a lower price point. This private label example illustrates that just because a business doesn’t control their manufacturing doesn’t mean they don’t deliver their customers the highest quality.
ALSO READ: The Ultimate Guide to White Label Products & Solutions
Launching a new product can be intimidating.
You’ll have a ton of questions running through your mind like:
The list goes on, but one of the most common we hear often is this:
“How am I going to actually manufacture the product?”
In this guide, we’re going to cover two primary methods you can use:
White labeling and private labeling.
We’ll take a detailed look at both white labeling and private labeling strategies, including the key differences between the two and the pros and cons of each, then help you decide which path is best for you.
Let’s do it.
White label products are produced without any branding or company logos. These often generic products are then branded and sold by another company. Typically, white label manufacturer sell the same product to multiple companies.
For example, consider a manufacturer selling luggage bags as a white label product.
The manufacturer could sell this bag in large quantities to a large corporation, which then sells it to an end consumer like you and me under its brand name. However, the same manufacturer could also choose to create its own brand and sell it directly to the end consumer at a higher price point. Or the manufacturer could choose to sell the bag to multiple large corporations.
In any case, the product reaching the end consumer is largely identical, and the only differentiation is the branding and packaging of the product.
So, why do certain companies use white labeling?
White label products offer a multitude of benefits for businesses looking to expand their reach, de-risk their product launches, and more.
With a white label strategy, you don’t need to invest any capital or resources in research and development. You have a product ready to be sold and rely on your branding and marketing efforts to sell it.
When you purchase a white label product, you buy a product that has been tried and tested in the market. You buy your products from companies renowned for making a particular product while you stick to what you do best: selling.
Feeling pressure to introduce a new product into the market but unsure about what to sell? It may not be the best strategy, but white labeling can help by allowing you to choose from a wide variety of products to sell.
A white label strategy can work great for giant corporations and national brands that can purchase white label products, brand and package them, then sell them by means of their easily-recognizable brand name and sophisticated marketing strategies.
However, if you’re an SMB or Fortune 5000 company, you may want to consider these drawbacks before adopting a white label strategy.
When you rebrand and sell white label products, there’s a genuine possibility that your competitors might be selling the same product. And with nothing unique about your product compared to your competitors, it’s only a matter of time before they begin eating into your market share.
Your supplier of white label products may not have good quality control measures in place. Hence, customers might have different experiences every time they buy your product. Moreover, what do customers see every time they receive a poor quality product? Your precious brand logo.
With white label products, you can’t control or specify how your product needs to be manufactured. You can only control your product’s marketing, distribution, and sales.
For a business to have long-term viability, it is crucial to have differentiated products. You need to have trade secrets that only you know. And that is where private label products come in.
Private label products are products that a company produces to sell exclusively under its brand name.
While the company may still get the product manufactured by an external private label manufacturer, it controls product specifications, quality standards, and everything else.
Unlike a white label manufacturer selling the same generic items like luggage bags to multiple retailers, a company that develops luggage bags with unique specifications to be sold exclusively to the end consumer would be an example of its private label counterpart.In fact, roughly 21% of grocery, household, and health & beauty units sold across all income levels are private label.
Private labeling can bring plenty of benefits for brands. Even when working with a third-party manufacturer, you’re still able to maintain a lot of control over the overall process.
And there are more benefits beyond just the manufacturing process control:
Private label products are unique products in the market that only your brand can sell. This enables you to stand out from your competitors. Moreover, with greater control over production, you can ensure that your customers get a consistent experience every time they buy your product. Ultimately, this translates to increased brand loyalty.
You know your customers’ needs better than anyone else, right? After launching a product, it’s easier and quicker to make improvements on your products if you have control over production. Subsequently, you are in a better position to launch the next version of your product.
As we’ve already seen above, private label products are differentiated products that help you stand out from the competition. As a result, you can charge higher prices for your product, which in turn leads to higher margins.
Private labeling can produce significantly greater margins compared to traditional manufacturing where a retailer does all of the heavy lifting themselves.
In fact, retailers often see gross margins on private labels that are 25–30% higher than those on manufacturer brands, largely due to lower cost management efficiencies.
Difficulties may occur when using private labeling, even though it has many benefits. Brands can decide how they want their products to look and be branded, but there are problems that may come up.
These challenges can affect different parts of the private label process, so it’s important to think carefully and make plans to solve them.
Access is often a major challenge for product developers and entrepreneurs looking to create private label products. Finding reliable manufacturers who can produce high-quality products that meet your specifications can be time-consuming and costly.
Platforms like Gembah can help though. Entrepreneurs can gain access to a vast network of vetted manufacturers who specialize in private label production. This can streamline the product development process and ensure that the final product meets the desired quality standards.
The other primary challenge with private labeling is truly understanding what the target market you’re planning to chase is looking for. This means looking at what they like, what they need, and how they like to buy things.
Far too often this step gets skipped and brands sink a ton of capital into private label products that never had a shot at succeeding in the first place.
If you’re developing products on behalf of a massive corporation or with a globally-known brand name to lean on, white labeling may be best.
For the overwhelming majority of brands that want to produce high-quality products, our advice is this:
Private label manufacturing is best.
If you want to retain a competitive advantage, build a long-term brand, and hit your business goals—selling products manufactured by private label brands is the way to go. Even more so if you plan to manufacture your products too in the future.
This edge is validated by consumer spending as well.As of mid-2023, private label products accounted for 17.8% of total CPG spending, with household products even higher at 19.4%.
So what stops a business from building private label products?
And how can you get started?
Developing a private label product from scratch can be pretty daunting. You might not be experienced in market research to figure out your target audience or you may face difficulties in hiring the right people to get your product design ready.
Gembah is the first global marketplace for product development that empowers SMBs and Fortune 5000 companies to bring their product vision to reality.
Gembah makes creating a private label product easier for you by:
Explore the Gembah marketplace now to find a wide range of private label manufacturers for all types of products—from physical products like personal care products and more.
Get started with Gembah today.