Products that fall under the “private label” categories are manufactured by a third-party manufacturer and are sold under a retailer’s courtesy. As the retailer, it is your job to describe and specify the details about the product, such as what goes in it, its packaging process, what the labels look like, and more. Afterward, you pay to have it produced and delivered to your store’s doorstep. Private labels are the perfect parallels to buying products from other businesses with their brand names slapped on them.
A good example would be Target’s private labeling system. Target offers a range of packaged foods from companies such as General Mills and Frito-Lay, but under the Archer Farms name - Target's private label brand - it also sells its own chips and crackers. Hair salons also produce their own branded line of shampoos, conditioners, and styling items to buy and take home for their clients. Restaurants also prefer condiments or mixtures from private brands that have become popular with clients. Maid services could mark a line of kitchen cleaners as private label, and pet shops could label a line of pet food and grooming equipment as private label.
These examples of private labeling systems should give you an idea of how private label products will work in business scenes. Now, let’s go over some common private label categories.
Common Private Label Types and Categories
Nearly every type of consumer product has both marketed and private label offerings, including:
- Personal care
- Cosmetic goods
- Properties of paper
- Cleaners for Households
- Condiments and dressings for salad
- Things from the Dairy
- Frozen foodstuffs
According to the Harvard Business Review, while private label goods remain in the minority - representing 15 percent of U.S. retail revenues - some private label segments are seeing significant expansion, according to a Nielsen survey.
The basics of Private Labeling
We do not want to make it sound like it is easy to sell online. It is just not as complicated to make it appear as some of the "gurus" want. Along the way, there are many crucial choices that you will need to make. This guide will go a long way in highlighting the obstacles your business will face.
You need to be mindful of some of the obstacles before you begin selling goods. The approaches we describe will assist you in getting over them. To initiate a private label company, you need money. For initial product positions, branding, architecture, marketing, shipping, and customer support, you have to pay. The more units you buy upfront, the higher the rate would be per unit.
For as little as $500, resourceful entrepreneurs may source private branded goods. It all depends on the strategy. Also, do not forget to file with the IRS for a company tax ID. Hold your bank statements and careful notes. Consider hiring a preparer for taxes.
To help you out even better, here are more tips and cautions we prepared to get your brand started for private labeling:
- Perhaps you'll end up chasing the wrong niche market. That is going to be a costly miss.
- Maybe your provider is not up to the job. It's very important to monitor consistency. You have an expensive question on your hands if you don't get what you paid them for.
- The wrong packaging will harm the experience of customers. Protection is almost as relevant as marking during delivery.
- It can be harsh to set profitable commodity price points. There are several aspects that can damage profitability.
- The business will turn towards you because by the time you are finally up and running, the “hype train” might have already left the station - and your products are left to collect dust in your inventory.
Private Labels Advantages
Just like with any retail type and model, private labels have their fair share of advantages and disadvantages. By going through them one by one, you will have a better idea of when to implement the system with your retail business or enterprise.
For all their goods, some retailers rely on suppliers. They depend on them, as such, to respond to market demand. If buyers begin to want new lines or new features, manufacturers will have to change their products. While this is an advantage, it is a tedious step in private labeling.
Additionally, retailers will be more agile if a manufacturer has private-label goods made. If they detect a change in consumer behavior, they may respond more easily. Lastly, they will be able to tell a producer to tweak the product accordingly with an email or any convenient method.
- Control overpricing
With private labeling, manufacturers are responsible for the supply chain as a whole. To ensure the most efficient pricing, they set and monitor production costs. Things are manufactured in a way that ensures that the final margins are the healthiest.
- Control overproduction
Retailers not only have greater power when rapid adaptation is necessary. Another benefit of private labeling is that it allows more manufacturing power.
For all aspects of a private label product, the supplier instructs the manufacturer. They can describe components or ingredients. They will insist on correct specifications, down to items as basic as the color or shape of a component.
- Control over branding
Private labels build loyalty, not the distributors, to the producers of their favorite products. Your own name and branding include private label products and their packaging.
That’s why at the end of the day, branding is still one of the strongest factors that you have to watch out for in business. It won’t matter as much if your products are the best if your branding and image are not reputable and trustworthy. With a private label brand, you will be able to control your merchandise and retail on a whole other level. Things like building an online presence where you post in blogs or social media platforms like IGTV can be a good start.
Private Labels Disadvantages
Of course, there will also be risks and disadvantages to private labeling. As for all businesses, there is no 100 percent way to make money. In one way or another, businesses and entrepreneurial ventures will always involve a risk or two.
- Your inventory is going to be a mess
Before assessing the needs of your clients, if you order a line of private-label products, you could make a poor product choice and then have a difficult time selling through your inventory. You will get a return permit for branded goods, but you may not be able to return private-label items and will have to reduce the prices significantly to get the units out if consumers do not accept them. This can be a headache and one of private labeling’s cons.
- Customer perception and view of your brand image
Some clients believe that private label products are of poorer quality than products that are familiar with a brand name. Don’t be afraid to conduct in-depth research on your clients, their likes and expectations, and build a name and quest for your private label line that suits the level of quality that your clients want, and that is also comparable to the more common branded product lines that you sell.
- Minimum orders
Most manufacturers demand a minimum quantity for each order before considering customizing products to meet your private-label requirements. Sometimes, this is a much greater amount than anyone object or SKU you would usually purchase. When buying, try to work with the seller and be imaginative to see if you can get any extended purchase dates or reach the minimum purchase with different colors or sizes of the same item.
Learn to create your own label
As long as you are mindful of the dangers, private-label merchandise can be a great help to your store. By experimenting with one or two goods versus a whole line of things, start slow and ease into it.
Take note of the branded things that are your best sellers for your first few goods. For example, if you sell a lot of lavender soap that is wrapped in beautiful gift paper, find a supplier who can produce a similar item, add or make a two-pack of your own twist to the design, such as added ribbon, and have a label made with your own unique brand. You might place your soap alongside the branded product and charge slightly less, depending on your relationship with the branded soap vendor, or you could need to place your private label product in a different section of your shop.
There are still many consumers who prefer brand-name goods to be familiar, and major companies spend millions of dollars to persuade buyers that their brand is better than a generic or private label. When making your own line, it pays to be cautious and conservative, but there is no limit to the potential.
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