Private Labeling 101: What It Is and How It Works
Small Business Growth
7 min
Manufacturing and Inventory Management Software
Launching a business is challenging, and one of the biggest hurdles many entrepreneurs face is developing a product line. Creating a new product can be time-consuming and expensive from ideation to production. However, there is an alternative option that can help entrepreneurs circumvent this challenge: private labeling.
Private labeling allows you to create a unique product line for your business without manufacturing the products yourself. Private labeling involves partnering with a third-party manufacturer who produces products under your brand name. This arrangement allows you to focus on marketing, sales, and other aspects of growing your business while leaving the production to someone else.
In this guide, we'll take a closer look at private labeling, including what it is, how it works, and why it's become such a popular option for businesses of all sizes. Whether you're an established business looking to expand your product offerings or a new entrepreneur starting your first venture, understanding the basics of private labeling can help you create a successful business strategy and achieve your goals.
Private labeling is when a retailer sells products under its brand name, but a third-party company manufactures them. Examples of private-label brands that you may have encountered include President's Choice (Loblaws), President's Choice Organics (Loblaws), and PC Black Label (Loblaws). When shopping for these products, the average consumer may not be aware of the names of the private label manufacturers who produce them, as they do not sell directly to consumers. Instead, they sell to retailers offering the products to the public under their brand names.
Private label products are often comparable in quality to their branded counterparts and can be more affordable. These products can help retailers stand out from their competitors and attract customers with unique offerings. Private labeling is common across various industries, including food and beverages, personal care, clothing, and electronics. For instance, in the coffee industry, private label brands such as Starbucks Reserve, Folgers Gourmet Selections, and Dunkin' Donuts Bakery Series are popular examples of private labeling. The products made by these brands may be similar to those offered by their competitors, but the specific manufacturing process is unique to each private label. In other words, private label products are customized to meet the retailer's specifications while being produced by a third party.
Private labeling is a business model that involves two key players: private label manufacturers, who produce a product, and private label sellers, who market and sell the product under their own brand name. A reputable private label manufacturer will prioritize the quality of their products and ensure cost-effectiveness. In contrast, a knowledgeable private label seller will focus on developing a strong brand identity, implementing effective marketing strategies, and pricing the product for maximum profitability.
Private labeling should not be confused with white labeling. White labeling also involves a third-party manufacturer creating products that are not customized for one particular seller. Instead, the manufacturer creates a generic product and then sells it to various retailers, each selling it under their brand name. This means multiple companies can sell the same white label product under different names. An example of white label products would be unbranded or generic items sold under different brand names, such as bottled water, generic medicines, or office supplies.
The private label business model is beneficial for both manufacturers and retailers. It offers a range of advantages that extend beyond just increased profit margins and quality control. From cost savings to greater control over the brand, private labeling is a model that allows businesses to enjoy several benefits.
Private labeling allows businesses to ensure the quality of their products. Since private label products are made to the retailer's specifications, businesses can control the ingredients, production process, and packaging to guarantee high-quality products that meet their brand's standards.
Private label products help retailers build brand loyalty by offering unique products that cannot be found elsewhere. By creating their own products, businesses can offer something different to their customers, helping them stand out from competitors and attract customers looking for something new and unique.
Further Reading: The Link between Inventory Control, Supply Chains and Improved Customer Service
Private labeling can provide businesses with a cost-effective way to offer high-quality products. Since retailers don't have to develop and manufacture their own products, they can save on production costs and pass on those savings to their customers.
Private labeling allows businesses to have greater control over their branding. Since they are creating their own products, they can develop their own unique branding and design, making their products instantly recognizable to customers. This control can help businesses build their brand identity and distinguish themselves from competitors.
Further Reading: Manufacturing Branding: Why it Matters and How to Do it Right
Private labeling can be a lucrative business model. Since businesses create their own products, they can establish their own pricing model, ensuring maximum profitability. Retailers can also save on marketing costs since private label products are marketed under their own brand name.
Private labeling provides businesses with flexibility in terms of product development. Retailers can choose to create products that are completely unique or modify existing products to meet their specific needs. This flexibility allows businesses to be agile and quickly respond to market changes.
Private labeling allows businesses to have greater control over their inventory. Since they are creating their own products, they can adjust production to meet their specific inventory needs, ensuring they have the right amount of product to meet customer demand.
Further Reading: Inventory Control Needs Your Attention – 10 Great Ways Can Improve Inventory Control
Private labeling has become a widespread business model that many industries utilize to offer unique products under their brand name. In fact, private label products are found in a variety of categories in both online and brick-and-mortar stores. Let's take a look at some examples of private label manufacturers and product categories:
Beauty and Personal Care Products: A wide range of personal care products, such as shampoos, soaps, body lotions, and make-up items, are made by private label manufacturers. These products are sold by various retailers under their brand name.
Food and Beverages: From frozen foods and snacks to energy drinks and protein powders, private label manufacturers produce a variety of food and beverage products. Many grocery stores have their own private label products, such as Walmart's Great Value line and Costco's Kirkland brand.
Home Goods: Private label manufacturers also make products like towels, bedding, cookware, and other household items. Retailers like Target, Bed Bath & Beyond, and Wayfair offer these private label products.
Electronics: Many third-party accessories like phone cases, chargers, and headphones are made by private label manufacturers and sold under different brand names.
Apparel and Accessories: Online clothing retailers use private label manufacturers to produce their apparel, shoes, handbags, and other accessories. Private label manufacturers can print custom designs on apparel and offer custom tailoring and leatherworking.
Pet Food and Supplies: Pet stores, both online and offline, sell private label pet food and supplies that are produced by private label manufacturers. Brands like Purina and Royal Canin have their own private label products.
Smart Backpacks: Private label manufacturers make smart backpacks with features like charging ports and built-in loudspeakers. You can partner with a private label manufacturer to create a customized smart backpack for your customers.
Private label products are typically manufactured in large quantities, and this model allows for greater control over production and branding. Private labeling also enables businesses to offer unique products not found anywhere else, increasing customer loyalty and driving sales.
Private labeling is a business model in which a company sells products under its own brand name while outsourcing the production of those products to a third-party manufacturer. The products are often similar to established brands but have unique packaging and branding.
Many private label manufacturers and suppliers are available, and finding the right one can depend on the specific product and industry. Finding a private label manufacturer includes searching online directories, attending trade shows and industry events, and networking with other business owners in the same industry.
When choosing a private label manufacturer, consider factors such as their manufacturing capabilities, production capacity, quality control processes, pricing, and lead times. It's also important to ask for samples and references and to review their manufacturing facilities and certifications.
Yes, private label products can be customized to meet a retailer's or business's specific needs and preferences. This can include the design and packaging of the product, as well as the ingredients, materials, and manufacturing process used to produce the product.
Yes, private label products can compete with established brands. Private label products often offer similar quality and functionality to established brands but at a lower price. Private label brands can also offer unique product features or designs not found in established brands, which can help them stand out in the market.
Private labeling can benefit small businesses by allowing them to enter the market with a unique product that is not available from established brands. This can help small businesses build brand equity and customer loyalty while offering higher profit margins than reselling established brand products. Private labeling also allows small businesses to have greater control over product quality, marketing, and branding.