Should your store or brand offer its own labeled products to better compete with larger brands? This is called private labeling.
Private labeling can include selling products under your company’s name or adding new products to its current lineup. It’s essentially outsourcing manufacturing, sourcing, importing, shipping, and other logistics to another company, gaining access to their supply chain without having to build your own networks.
The private label market share has reached nearly 25% of unit sales in the U.S. and is expanding faster than national brands, according to the Private Label Manufacturers Association (PLMA). It gives chains a way to set themselves apart from the competition and offer customers more choice while taking hassle out of product development, making it appealing to many brands.
Read on to learn more about private labeling, tips for selling private labeled items, and how to choose a private label manufacturer.
What Is Private Labeling?
One out of every five food or non-food grocery product sold across U.S. carries a retailer’s own brand and was supplied by a private label manufacturer. Store brands carry the retailer’s name or name of private brands, including carrying the chain’s own proper name or a variety of brand names created exclusively by the retailer for its stores.
Private labeling allows brands to outsource product sourcing and manufacturing to a third party but applying their brand to the packaging when it’s time to sell the product. Sometimes the store belongs to a wholesale buying group that owns the label but makes it available to members of the group, referred to as controlled labels. It can also describe the practice of taking an ingredient or component supplied and produced by a secondary company and using it to benefit another brand’s product.
Private labeling manufacturers can be small, large, operated by a wholesaler’s own manufacturing facilities, or regional. There are several options based on your needs.
Examples of Private Labeling
Consumers more aware of and knowledgeable about the true value of products they buy, more often reaching for store brands under the assumption that “off brand” or privately labeled products are not as quality. However, there are a number of well-known private label brands such as:
- Costco – Kirkland (accounts for 25% of Costco Wholesale’s sales)
- Home Depot – Hampton Bay
- Lowe’s – Kobalt
- Walmart – Great Value, Equate
- Amazon – Amazon Basics, Amazon Essentials
How Does Private Labeling Work?
Private labeling allows businesses to carry products they have no way of manufacturing themselves and apply their own unique brand.
There are primarily two ways private labeling works:
- A chain store seeks out store brand manufacturers delivering high quality products and services, including ingredients, supply chain, packaging, labeling, and final product.
- Private-label manufacturers secure deals with individuals or brands to sell the products under the manufacturer’s name with no attribution, either independently or in support of other products.
This works best for products that can improve the value of other products. It also gives sellers control over:
- Production (including materials, ingredients, quality, production rate)
- Pricing (you determine your pricing strategy and optimizations)
- Adaptability (can move quickly in response to market)
Advantages Of Private Labeling
There are several advantages of private labeling including:
- It’s generally cheaper to make your own products than it is to purchase premade products, so private labeling usually has higher profit margins (compared to resale products).
- Sellers don’t have to spend as much on marketing expenses to drive sales or maintain consumer position.
- The public’s perception of the brand’s position in the market often increases, improving brand equity. The loyal customer base allows for feelings of “exclusivity.”
- Great way to start selling a new product if you have no prior experience. Consumers are more likely to purchase your merchandise through larger manufacturers than through a business that has no prior transactions.
- Sellers could operate as a wholesaler for their brand and offer limited access to other retailers that would pay premium acquisition costs to carry your brand.
- Allows sellers to separate themselves from competitors.
- Provides exclusive rights to sell a product.
- You’re helping consumers save money, which attracts them to your products. It’s estimated that U.S. consumers save more than $40 billion a year on grocery and household products (using average cost-per-unit in a store-wide price comparison between store and national brands).
Disadvantages Of Private Labeling
On the other hand, there are some disadvantages of private labeling as well:
- Products must be able to sell themselves without special promotions or brand advertising.
- Most manufacturers have minimum order requirements to produce products for your private labeling, and it’s often larger than what brands would typically order.
- It can lead to a surplus of dead inventory if you order a line of privately labeled products without knowing if consumers will buy.
- Can initially be difficult to get consumers to change their brand loyalty, especially because some private label companies still have the reputation for being cheap or low quality.
- Sellers are 100% dependent on a third-party manufacturer, which is why it’s critical to find a reputable and reliable one.
Tips For Selling Private Label Products
If you’re considering creating and selling private label products, the first thing you’ll want to do is product research. Analyze similar products and their pricing, sales, ratings, and listing quality scores.
Then, find a supplier that will manufacture that product. Work with them to order samples and perfect your product, then place your order and arrange to ship it to a fulfillment center.
After you have a product produced, you’ll want to create your listing. You can do this on sites like Amazon, your own website, or other online stores (like Shopify). This is a very important step because how you position your product plays a large role in how it will sell. You’ll want to be sure to have:
- High-quality product and brand photography
- Solid pricing strategies
- Compelling advertising, description copy, and other creative aspects
When creating your listings, they should include important product keywords to ensure they show up in search engines. High-quality images, infographics, videos, and other types of visuals can also help with search engine optimization, helping your product become more visible.
When you’re ready, launch your product. If you’re selling independently, you may want to develop an advertising strategy to drive consumers to your product. As you sell your product, you’ll make a profit. Then, continue producing your product and even branch into new products.
How To Choose the Right Private Label Manufacturer
Before you can choose the right private label manufacturer for you, start by researching your target audience to know as much as possible about their preferences, purchasing patterns, and other relevant information. You may also want to consider patenting your idea to prevent competitors from creating the same or similar products.
Next, attend networking events, trade shows, and expositions to improve your products and investigate competition as well as private label manufacturer options.
A popular choice of manufacturers is Amazon, but there are also manufactures specific to certain products. Examples include:
- Worldwide brands
Choose the one that offers the best quality product at a reasonable price, has quality customer service, and is reliable.
Top Private Label Products to Sell
According to Shopify, here are some top categories with the highest number of searches per month on Google. You may want to consider creating your own of one of these products to privately label:
- Apparel and accessories: Women’s tank tops, hiking boots, jeans and yoga pants; men’s dress shoes and workout shorts; backpacks
- Skin care and cosmetics: Natural face cleaner; exfoliating toner; hyaluronic acid; eye cream; moisturizer; sunscreen
- Foods: Breakfast foods; pasta; soup; cakes and pies; candy/chocolate; gluten-free; condiments
- Hair care: Shampoo; conditioner; hair oils and serums; dry shampoo; hairspray
If you are interested in private labeling for your retail and/or eCommerce business, contact QL2. Our revolutionary software products provide world class solutions for product matching and identifying pricing gaps for every product in every market in which you compete. Schedule a demo today.