A private-label product is manufactured by a third party but marketed under the name of a particular retailer. Most retailers are not unfamiliar with the practice of private labeling. While many customers are unaware of its existence, it is a common occurrence in today’s retail world.
If you’ve ever been to Costco, you’re probably familiar with the Kirkland brand, which sells everything from clothing to food. Kirkland Signature is a private-label brand that accounts for around a quarter of Costco Wholesale’s revenue. Amazon also has private-label labels that you may not be aware of.
What is private labeling?
“Selling goods made by a company under the name of another company or corporation,” explained Sara Nesbitt, CEO of Coastal Carolina Soap Co., which has three private-label accounts. “It’s a fantastic way for a company to get its goods into people’s hands.” Private labeling helps businesses carrying these goods to advertise products they couldn’t make themselves and mark them with their logo.”
According to Rob Terenzi, co-founder of Vega Coffee, private labeling is “the practice of taking an ingredient or part supplied and manufactured by a secondary company and using it to support another brand’s product, sometimes without specific attribution.” The majority of private-label goods are less expensive.
How private labeling works
Individuals or brands sign agreements with private-label suppliers to market their goods under the manufacturer’s name with no attribution. The goods may be sold on their own or in conjunction with other items.
Vega Coffee, for example, is imported as an ingredient by ice cream producers and by other coffee brands for use in their marketing and packaging materials. Even if the brand isn’t well-known, it sees a rise in market volume, which helps it cut costs across consumer-facing product lines while still compensating farmers, according to Terenzi.
He went on to say that this is a win-win situation because the distributing company will benefit from Vega Coffee’s social effects. “In other words, while XYZ brand of coffee does not specifically mention Vega Coffee in their ads, they may state that their coffee benefits Latin American farmers, resulting in increased sales through their existing customer base.”
Private labeling is most effective for items that add value to other products, such as Vega Coffee’s ice cream maker.
Private labeling is a perfect way to get started selling a new product if you have no previous experience. Consumers would be more likely to buy your goods from a larger manufacturer than from a company that has never done business with you before, but your product must be able to sell itself without any special discounts or brand ads.
If you’re trying to create a brand, however, don’t depend on private labeling too heavily because you won’t be given credit for your work. Individuals interested in experimenting with production rather than starting a well-known and respected company should use this technique.
Private labeling has several benefits.
Private labeling for items manufactured and marketed by the organization that manufactures them has both advantages and disadvantages.
The following are some of the benefits of private labeling:
- Building a loyal customer base is the secret to long-term business success. Customers who like your goods would be faithful to you if you use private labeling to brand them. Customers become addicted to the brand as a result of restricted accessibility, making them feel as though they are one of a lucky few who own it, which increases consumer loyalty and sales.
- High-profit margins: Profit margins on private label labels are typically higher than those on resale products. The reason for this is that making your products is generally less costly than buying ready-made products, particularly if the product is well-made and well-marketed.
- Exclusiveness: With private labeling, you may set yourself apart from your rivals. One of the most appealing aspects of private labels is that you have exclusive rights to market the product. Since you are your customers’ only source for the commodity, good marketing will generate a demand for it, which will benefit you.
Private marking has several drawbacks.
Private marking has its drawbacks, just like anything else. The good news is that you can normally avoid the major pitfalls of private labeling by planning.
Any of the drawbacks may include:
- When you choose a company to make personalized goods for your private labeling, most manufacturers have a minimum order limit. Unfortunately, in many cases, the minimum order is far higher than what you would normally order.
- Some retailers make the mistake of buying a line of privately branded items without first determining whether or not their customers would enjoy them. This can result in a large amount of unsold (dead) inventory.
- Customer perception: Consumers are more likely to trust a brand they’ve used for a long time than a lesser-known private-label brand. As a result, before investing in private-label goods, do your research on consumer preferences.
You should research your target consumers before selecting a manufacturer so that you are familiar with their buying habits and can make the best proposal to potential private-label brands. Attend networking conventions, trade shows, and other similar events to improve the goods, meet new people, and assess the competition. You may also want to consider patenting the concept to keep anyone from making similar products.
Many businesses or individuals prefer Amazon when determining which private-label manufacturer to invest in. However, you should think of different manufacturers that specialize in your products. Take Vega Coffee, for example: rather than going after a wide market, it secured deals with ice cream manufacturers and other coffee brands.