Designing and manufacturing your own products and selling them on your eCommerce website is an adventure in and of itself. Once you have a minimum viable product (MVP), an eCommerce SEO strategy and eCommerce PPC can get you initial traffic that leads to sales.
But what if you didn’t need to spend time producing your own goods? Is there a way to be profitable without creating new products? There is, and it’s called private labeling. Private labeling is when one business sells goods to another business that markets and sells them under different branding.
Learning what private labeling is and how to leverage it is an important step in discovering how to become a wholesaler, how to run a dropshipping business, or starting an eCommerce business. Read the essentials of private labeling and how it’s used below.
Private Label Definition: What Does Private Label Mean?
Private labeling is when a supplier or manufacturer produces goods that are retailed, packaged, and sold exclusively by a third party. This means that the first company profits by selling goods to third parties, and the third party profits by selling to consumers. Private labeling is used widely in today's eCommerce landscape, including for private label dropshipping.
White Label vs. Private Label
Note that private labeling is different from white labeling. Private labeling is when a product line is sold exclusively through one retailer, like AmazonBasics. White labeling is the process of selling a generic product to multiple retailers, who brand and price the product for their target market.
Benefits of Private Label
The private label process is useful for a variety of reasons. One, it allows companies strong in manufacturing capability to maximize their profits. They don’t need to worry about heavy marketing and retailing when they can sell products to companies that are skilled in these areas.
Two, it provides companies that don’t yet have work in process inventory or finished goods inventory products to sell. When you don’t need to produce the goods yourself, you can commit more time to your eCommerce marketing strategy and reading how to increase eCommerce sales. It also makes questions like, “Is dropshipping worth it?” much easier to answer, because there’s less work to do on your part.
This principle benefits parties throughout the supply chain, as well. Wholesalers profit when their products reach B2B (see B2B meaning) and direct to consumer companies, often through an online marketplace. This means wholesale marketing strategies and growing wholesale sales are of primary focus for these companies.
Three, it makes concerns like wholesale vs. retail price easier to resolve. When a third party buys goods from a supplier, often through a wholesale purchase agreement, they don’t have complicated costs to cover in pricing. They simply need to include the expense of acquiring the product--which is part of the cost of goods sold--and add a margin (see markup vs margin).
Private labeling is common in industries of all kinds, from food and electronics to information products and clothing. It’s a practice that allows businesses of any size and scope to retain their key competitive advantages.
Most wholesalers are happy to sell raw materials inventory that a third party later sells as merchandise inventory, by way of private labeling. It gives businesses all throughout the supply chain an opportunity to sustainably grow profit and maintain a high fill rate.
When a customer purchases a privately labeled product, unless they’ve done extensive research, they won’t be aware of this. Generally, private labeling doesn’t affect customers at all. If anything, private labeling allows retailers to spend more time on eCommerce marketing and branding--the main vehicle for generating consumer interest.
What Is a Private Label Brand?
A private label brand is a business devoted to creating products that third parties can sell as their own. They don’t market, brand, or retail any of their own goods. They are focused solely on manufacturing products that are sold to other companies, who sell them to other businesses or consumers.
Private label brands also support kitting, which is the process of packaging related products in the same box. This gives a third party increased flexibility in what kinds of products they sell and in what ways.
Private label companies are typically not in close contact with people other than the businesses working with them, or individuals who love industry research and reading eCommerce books. This is to everyone’s benefit, as it reduces confusion and builds brand loyalty.
Private Label Brands Are Developed and Managed By...
Private label brands are developed and managed by retailers. Naturally, the term “retail” is broad and can imply everything from a retail store chain down to the individual staff members working in a store. A retail office is composed of various team member specialties that ensure private label goods achieve maximum ROI.
Supply chain specialists are responsible for managing how raw goods are transformed into ready-made products for selling, and every step in between. These professionals oversee the stages of private label goods in order to become successful in-store brands.
Supply chains are complex and involve numerous moving parts on any given day. There are material suppliers, manufacturers, distributors, government agencies, wholesalers, retailers, and more. Supply chain experts ensure each element is in cooperation with the others, including wholesalers.
Information products are private label products that aren't managed by supply chain specialists. Information products, like eBooks, courses, and audio downloads, are used by many types of eCommerce businesses. These products answer a specific question (or multiple) for the person who bought them. They can also be bought, modified, and sold without involving physical supply chains.
Private Label vs. Brand
When thinking about private label vs. brand, numerous differences come to mind. It’s important to understand the differences in order to market your business properly.
Here are the primary differences:
- Private label products are sold with no branding; branded goods are marketed via specific product characteristics.
- Private label companies profit by selling manufactured goods to other businesses; brands profit through their products’ margin revenue.
- Private label companies usually sell only to other businesses; brands may sell as a B2B business or a B2C business.
Private Label Brands Examples
Knowing how powerful private labeling can be, you’re probably thinking about examples of private label brands. While some private label companies don’t advertise their goods, you’d be surprised at the businesses right under your nose.
Here are some private label brand examples:
- IKEA (assemble-your-own home and office furniture)
- Original Use (young men’s street clothing)
- Tesco Everyday Value (pre-packaged grocery items)
- Universal Thread (women’s denim)
- Prologue (working women’s clothing)
- Heyday (consumer electronics)
- Smartly (everyday consumer products)
Most Successful Private Label Brands
While private labeling can help any venture become profitable, there are a few companies that stand out. This is due to a combination of sourcing quality products, building strong relationships with customers, and engaging in memorable branding. Brands that know how to take an existing product and make the most out of it from an eCommerce perspective end up successful.
Here are a few of the most successful private label brands:
- Kirkland Signature. As one of the most widely recognized and purchased brands of all time, Kirkland sells dozens of consumer products. From grocery goods and beauty products to hardware and pet supplies, Costco’s private label success has nearly everything.
- Pinzon. This towels and bedding product line was one of Amazon’s first private label brands and has remained successful since.
- Stone & Beam. You’ll find all kinds of home and furniture goods here, like rugs, kitchenware, lights, and chairs.
- Happy Belly. Another Amazing private label brand that sells packaged foods, like nuts, smoothies, dairy products, and granola.
- Buttoned Down. A modern fashion brand selling stylish menswear. This is another Amazon success and makes for affordable gift-giving.
- Presto! This now popular brand sells home consumables, like laundry detergent, toilet paper, and paper towels.
- Great Value. Walmart’s private label brand sells hundreds of packaged grocery products like mustard, snacks, popcorn, and beans.
Slap a Label On It
Many people understandably associate launching an online business with hefty costs, long hours, and lots of paperwork. Running your own company does take work, but you can reduce the amount needed through private labeling.
Instead of wondering what the right products are, you can leverage proven concepts for faster success. Both white labeling and private labeling provide greater flexibility on the marketing and branding end while keeping costs lower.