Private labeling is an increasingly popular practice for retailers across all sectors. Big name retailers, online retailers and niche retailers all utilize private labeling as a means of producing their own brands inexpensively. When private labeling is done right, it brings enormous benefits to both the manufacturers of the products and the retailers who sell them.
Private labeling has made it relatively easy for aspiring entrepreneurs to found businesses and for small and medium sized businesses to expand their ranges by taking advantage of private label brands. Regardless of the sector you operate a business in, if you are a retailer, this guide is for you. You might not have considered private labeling before, but it can be a potentially transformative approach.
Here’s how you can start your own private label brand from scratch. We will also take a look at what you need to consider before deciding to start your own private label brand. If you manage to pull it off, private labeling should be a very profitable venture for you.
What is Private Labeling?
Private labeling is the practice of selling products that are manufactured by a third-party but sold exclusively under the business’s own brand. This allows private label manufacturers to secure reliable long-term customers and for retailers to gain relatively cheap access to products which they can sell as their own.
Who Uses Private Labeling?
Private labeling is used by large retailers such as Costco and Target, budget retailers like Aldi, and it is even becoming common in more niche markets. Basically, private labeling has become more popular in all sectors. It is that rarest of things that produces advantages for manufacturers, retailers and consumers alike.
Many customers are unaware of what private labeling is or how it works, even though they are almost certainly buying products that have been produced under a private label deal, so ubiquitous has the practice become.
For an example, European budget supermarket chains such as Aldi have grown in popularity in the United States in recent years. These retailers are built upon the use of private labeling deals. While few of their products are branded as Aldi, all of them display the Aldi logo somewhere and all are produced for Aldi under private label, or white label, deals.
Why You Should Use Private Labeling
Private labeling gives you a great deal of control over the final product. Because you are the sole retailer of the product, you are able to control the manufacturing process. Whether this means having a say in the ingredients used in edible products or the quality of components inside generic electronics, you are able to ensure that the product you sell under your own brand is one you are proud to sell.
Customers develop loyalties towards brands, not products. If you are able to launch your own private label brand successfully, it will generate brand loyalty for your business. This will lead to more repeat customers and will allow you to benefit from the work of established manufacturers of quality goods. You will be able to set the price for these products while allowing manufacturers to handle the production for you.
It is possible to launch a private label brand to be sold exclusively online. Platforms like Amazon have made this easy for entrepreneurs to do. Anyone already running a successful Amazon-based business can utilize private labeling as a relatively inexpensive way of expanding or improving the range of products that they offer.
Building Customer Loyalty
Private label products are inexpensive, and therefore appeal to customers. However, they are still of a high quality, often capable of rivalling what larger retailers offer. Most of us buy private label products as consumers, even though we are often unaware of it. A private label brand is a great way of setting your business apart from the competition, and starting one is easier than you might think.
As with any business decision, you will need to consider the costs of launching your own private label brand before you can think about actually doing it. Going down the private labeling route is often more expensive than reselling branded products or drop-shipping. However, the start-up costs are lower and the return on investment is often better, resulting in greater success in the long-run.
Naturally, you will have to cover the costs of manufacturing. In some cases, manufacturing is handled entirely by the manufacturer and you simply pay them for the product they produce with the costs of manufacture being reflected in the price. However, if you commission a manufacturer to produce a private label product for you, then you will often need to somewhat directly cover the manufacturing costs.
Some factories will charge you a rebranding fee to put your business’s logo on generic products. While you won’t always have to pay this fee, it is common enough that you should factor it in to your cost planning.
You will also need to budget for the usual costs of launching a brand. This includes the development, market research and the costs of the actual launch. All of these need to be accounted for when you are planning your overall budget.
Decide What Product You Want to Sell
For some businesses, there won’t be much to consider here. If you only sell one product or one type of product, then don’t force yourself to diversify. Of course, if you think that your business will benefit from expanding its product range, then by all means investigate potential new products to commission the manufacture of.
The more care and planning that goes into the decision about what you are selling, the easier you will find it to develop and market the brand. If you are going to be adding to your existing product line, consider how you can set this brand apart from any others you produce while still keeping it familiar and recognizable to your existing customer base.
If you do not yet have a specific product in mind but want to use private labeling to induce a significant sales boost, then you should consider high-ranking, high-margin and high-volume items first and foremost.
Starting your own private label brand is a great way of adding to your existing product range. When compared to launching a brand in-house, investing in the necessary manufacturing infrastructure and taking responsibility for day-to-day operations, using white label or private label deals can be a much simpler process. For small and medium-sized businesses, striking a deal with a manufacturer who is already producing a product is a great way of keeping the costs of a private label deal down.
Private labeling could transform your business. No matter what sector you operate in, you should consider whether launching a private label brand could be of value to your business.