Launching a business is challenging, and one of the biggest hurdles many entrepreneurs face is developing a product line. Creating a new product can be time-consuming and expensive from ideation to production. However, there is an alternative option that can help entrepreneurs circumvent this challenge: private labeling.
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Private labeling allows you to create a unique product line for your business without manufacturing the products yourself. Private labeling involves partnering with a third-party manufacturer who produces products under your brand name. This arrangement allows you to focus on marketing, sales, and other aspects of growing your business while leaving the production to someone else.
In this guide, we'll take a closer look at private labeling, including what it is, how it works, and why it's become such a popular option for businesses of all sizes. Whether you're an established business looking to expand your product offerings or a new entrepreneur starting your first venture, understanding the basics of private labeling can help you create a successful business strategy and achieve your goals.
Private labeling is when a retailer sells products under its brand name, but a third-party company manufactures them. Examples of private-label brands that you may have encountered include President's Choice (Loblaws), President's Choice Organics (Loblaws), and PC Black Label (Loblaws). When shopping for these products, the average consumer may not be aware of the names of the private label manufacturers who produce them, as they do not sell directly to consumers. Instead, they sell to retailers offering the products to the public under their brand names.
Private label products are often comparable in quality to their branded counterparts and can be more affordable. These products can help retailers stand out from their competitors and attract customers with unique offerings. Private labeling is common across various industries, including food and beverages, personal care, clothing, and electronics. For instance, in the coffee industry, private label brands such as Starbucks Reserve, Folgers Gourmet Selections, and Dunkin' Donuts Bakery Series are popular examples of private labeling. The products made by these brands may be similar to those offered by their competitors, but the specific manufacturing process is unique to each private label. In other words, private label products are customized to meet the retailer's specifications while being produced by a third party.
Private labeling is a business model that involves two key players: private label manufacturers, who produce a product, and private label sellers, who market and sell the product under their own brand name. A reputable private label manufacturer will prioritize the quality of their products and ensure cost-effectiveness. In contrast, a knowledgeable private label seller will focus on developing a strong brand identity, implementing effective marketing strategies, and pricing the product for maximum profitability.
Private labeling should not be confused with white labeling. White labeling also involves a third-party manufacturer creating products that are not customized for one particular seller. Instead, the manufacturer creates a generic product and then sells it to various retailers, each selling it under their brand name. This means multiple companies can sell the same white label product under different names. An example of white label products would be unbranded or generic items sold under different brand names, such as bottled water, generic medicines, or office supplies.
The private label business model is beneficial for both manufacturers and retailers. It offers a range of advantages that extend beyond just increased profit margins and quality control. From cost savings to greater control over the brand, private labeling is a model that allows businesses to enjoy several benefits.
Private labeling allows businesses to ensure the quality of their products. Since private label products are made to the retailer's specifications, businesses can control the ingredients, production process, and packaging to guarantee high-quality products that meet their brand's standards.
Private label products help retailers build brand loyalty by offering unique products that cannot be found elsewhere. By creating their own products, businesses can offer something different to their customers, helping them stand out from competitors and attract customers looking for something new and unique.
Private labeling can provide businesses with a cost-effective way to offer high-quality products. Since retailers don't have to develop and manufacture their own products, they can save on production costs and pass on those savings to their customers.
Private labeling allows businesses to have greater control over their branding. Since they are creating their own products, they can develop their own unique branding and design, making their products instantly recognizable to customers. This control can help businesses build their brand identity and distinguish themselves from competitors.
Private labeling can be a lucrative business model. Since businesses create their own products, they can establish their own pricing model, ensuring maximum profitability. Retailers can also save on marketing costs since private label products are marketed under their own brand name.
Private labeling provides businesses with flexibility in terms of product development. Retailers can choose to create products that are completely unique or modify existing products to meet their specific needs. This flexibility allows businesses to be agile and quickly respond to market changes.
Private labeling allows businesses to have greater control over their inventory. Since they are creating their own products, they can adjust production to meet their specific inventory needs, ensuring they have the right amount of product to meet customer demand.
Private labeling has become a widespread business model that many industries utilize to offer unique products under their brand name. In fact, private label products are found in a variety of categories in both online and brick-and-mortar stores. Let's take a look at some examples of private label manufacturers and product categories:
Beauty and Personal Care Products: A wide range of personal care products, such as shampoos, soaps, body lotions, and make-up items, are made by private label manufacturers. These products are sold by various retailers under their brand name.
Food and Beverages: From frozen foods and snacks to energy drinks and protein powders, private label manufacturers produce a variety of food and beverage products. Many grocery stores have their own private label products, such as Walmart's Great Value line and Costco's Kirkland brand.
Home Goods: Private label manufacturers also make products like towels, bedding, cookware, and other household items. Retailers like Target, Bed Bath & Beyond, and Wayfair offer these private label products.
Electronics: Many third-party accessories like cases, chargers, and headphones are made by private label manufacturers and sold under different brand names.
Apparel and Accessories: Online clothing retailers use private label manufacturers to produce their apparel, shoes, handbags, and other accessories. Private label manufacturers can print custom designs on apparel and offer custom tailoring and leatherworking.
Pet Food and Supplies: Pet stores, both online and offline, sell private label pet food and supplies that are produced by private label manufacturers. Brands like Purina and Royal Canin have their own private label products.
Smart Backpacks: Private label manufacturers make smart backpacks with features like charging ports and built-in loudspeakers. You can partner with a private label manufacturer to create a customized smart backpack for your customers.
Private label products are typically manufactured in large quantities, and this model allows for greater control over production and branding. Private labeling also enables businesses to offer unique products not found anywhere else, increasing customer loyalty and driving sales.
Private labeling is a business model in which a company sells products under its own brand name while outsourcing the production of those products to a third-party manufacturer. The products are often similar to established brands but have unique packaging and branding.
Many private label manufacturers and suppliers are available, and finding the right one can depend on the specific product and industry. Finding a private label manufacturer includes searching online directories, attending trade shows and industry events, and networking with other business owners in the same industry.
When choosing a private label manufacturer, consider factors such as their manufacturing capabilities, production capacity, quality control processes, pricing, and lead times. It's also important to ask for samples and references and to review their manufacturing facilities and certifications.
Yes, private label products can be customized to meet a retailer's or business's specific needs and preferences. This can include the design and packaging of the product, as well as the ingredients, materials, and manufacturing process used to produce the product.
Yes, private label products can compete with established brands. Private label products often offer similar quality and functionality to established brands but at a lower price. Private label brands can also offer unique product features or designs not found in established brands, which can help them stand out in the market.
Private labeling can benefit small businesses by allowing them to enter the market with a unique product that is not available from established brands. This can help small businesses build brand equity and customer loyalty while offering higher profit margins than reselling established brand products. Private labeling also allows small businesses to have greater control over product quality, marketing, and branding.
A private label, also called a private brand or private-label brand, is a brand owned by a company, offered by that company alongside and competing with brands from other businesses.[1][2] A private-label brand is almost always offered exclusively by the firm that owns it, although in rare instances the brand is licensed to another company.[3] The term often describes products, but can also encompass services.
The most common definition of a private label product is one that is outsourced: company A makes a product for company B, which company B then offers under their brand name.[4][5][6] However, it can also define products made in retailer-owned firms.[7][8] For example, in , The Kroger Company had 60% of its private brands produced by third parties; the remaining 40% was manufactured internally by plants owned by Kroger.[9] Private-label producers are usually anonymous, sometimes by contract. In other cases, they are allowed to mention their role publicly.[10][11]
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The term private label originated in retail,[12] but has since been used in other industries as well. Probably the best known private-label brands are store brands, which are managed by supermarket and grocery store chains. Examples are Simple Truth by Kroger and Great Value by Wal-Mart.[13] Store brands compete with national brands or name brands, like Coca-Cola or Lay's.[14][15][16]
The term private-label product overlaps with the term white-label product. They are sometimes used interchangeably, but they don't mean the same thing. A private-label product is created exclusively for a client, who sets specific demands on what the product or service must contain.[17] A white-label product is not created exclusively for one company, and although white-label manufacturers might offer customizations to their products, these are usually limited.[18] The specifications of a private-label product are set out by the client, whereas a white-label product is more generic and already designed.[19][20]
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νώμα (noma, "remembrance, memory"), a private-label trademark of Lidl for its Greek branch. Around 80% of the products in a Lidl store are private labels.[
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Shelves in a Swedish grocery store showing both private label and international brands.In the supermarket and grocery store industry, the term private label/brand is almost always used, even if the same product is sold non-exclusively to multiple retailers with different packaging (white label/brand).
A store brand, also called a house brand[22] or, in British English, an own brand,[23] is a private-label brand trademarked and managed by a retailer.[1] This brand is almost always offered exclusively at the chain store that owns it; in rare instances, however, the brand is licensed to another company.[24] Examples of store brands are Simple Truth by Kroger, Great Value by Wal-Mart, Clover Valley by Dollar General, Market Pantry by Target, and Specially Selected by Aldi.[13][25] Store brands can also be eponymous, or named after the store, such as Joe's O's cereal by Trader Joe's.[26] Store brands compete with national brands, also called premium brands or name brands,[14][15][16] with its items sometimes being called brand-name products.[27] Examples are Coca-Cola, Lay's, and Kellogg's. The general appeal of store-brand products is that they are usually offered at a lower price than their name-brand counterparts.[1]
Most private-label store brand products are manufactured by third parties, but some are made by companies owned by the retailer.[8] For instance, a vice-president of The Kroger Company stated in that approximately 60% of their private-label products are outsourced. The remaining 40% is manufactured internally: in , Kroger owned 38 plants, including 19 dairy farms, 10 bakeries, and 2 butcheries, strategically spread across the US.[9] Similarly, Safeway Inc. owned 32 plants as of .[28] Most retailers prefer to keep the identity of their suppliers private, and accordingly have non-disclosure clauses in their contracts, making it difficult to determine the producer of a private-label product.[10][11] In a few cases though, the manufacturer is allowed to mention it publicly,[29] is revealed through a product recall, or in rare instances, is stated on the product itself. For example, the bags of Kirkland Signature coffee by Costco feature the text "Custom roasted by Starbucks".[30][31]
Private-label brands emerged in the 19th century.[12] Until the early 20th century, their general focus was on delivering quality at a price below that of the national brands. In the first half of the 20th century, the quality of private brands diluted and their standards dropped. In their competitive struggle against national brands, low prices were considered more important than quality. In the second half of the century, this trend gradually reversed.[32] As quality and visual appearance improved, private labels rose to prominence in the s and '80s.[33] By the s, they were increasingly seen as a threat to the established brands.[34] Also, from the s onwards, a premiumization of store brands began to occur,[35] giving rise to more expensive premium private labels.[36][37] A survey conducted by the UK's Groceries Code Adjudicator in noted that retailers were introducing more own-label products and the adjudicator commented that this trend added to management complexities for suppliers.[38]
Generic brands are often associated with store brands. Generic products were first introduced in the United States in ,[39][40][41] quickly winning market share from national and private-label brands.[42] A academic article described them as products "without brand names, in very plain packages with simple labels and usually sold at prices below both the national and private brands with which they compete".[39] Packages of generic products often feature only the name of the type of product it contains, e.g. "Cola" or "Batteries".[40] Nowadays, the terms generic brand and store brand are sometimes used interchangeably.[14][43][44] The term generic can be used as a pejorative toward store brand items that are perceived as bland or cheap.[45][46]
A private-label brand is often produced by the same company that manufactures the national brand of that product.[47] Different brands target different consumers. For instance, Kimberly-Clark makes Huggies diapers, but also produces a Walmart budget version.[48] Allegedly, some store-brand items are identical to their name-brand counterparts: they are said to be literally the same product, except for the packaging and price.[43] In other cases, a manufacturer can have multiple formulas for one product, creating a private-label version using one method and the national-label version using another.[49] In , a mass-recall of contaminated pet food products brought to light that more than 100 different brands of pet food, both premium- and private-label, were in fact produced by a single company: Menu Foods Inc. in Ontario, Canada. The ingredients and recipes they used differed substantially among brands, depending on what their clients specified.[48]
In the United Kingdom, supermarkets have been criticised for "fake farm" private label brands.[50][51]
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Fast food restaurant chains sell their products under their private-label brands. Their core items are usually fries and meat-based items, but they might also offer brownies, muffins, cookies, and salads. These private-brand products are offered alongside national-brand products, such as soft drinks by Coca-Cola or Pepsi, and ice creams co-branded with Oreo or M&M's.[52]
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A private-label credit card (PLCC) is a type of credit card that can only be used at a specific company or chain of companies. Since this is virtually always a retail business, they are also called store cards.[53][54] The retailer partners with a bank that issues the cards, funds the credits, and collects payments from customers. The cards themselves are branded with the logo of the store, but not the bank.[55] Examples are the Target Circle Card (formerly Target RedCard) (issued by TD Bank, N.A.),[56] the Walmart Reward Card (issued by Capital One),[57] and the Amazon Store Card (issued by Synchrony Bank).[58] PLCCs also do not carry the logo of the payment network (e.g. Visa or Mastercard), but they do use that network for transactions.[53]
Private-label store credit cards are sometimes compared to but not the same as co-branded credit cards. These cards usually feature the logo of the payment network, and sometimes the logo of the bank.[59] Unlike PLCCs, co-branded cards work like 'normal' credit cards, usable at any place where that type of card is accepted.[60] For instance, warehouse chain Nordstrom offers a Nordstrom Store Card (private label) and a Nordstrom Credit Card (co-branded), both issued by TD Bank, N.A. and using Visa's network.[53]
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