When you want to sell branded products as a seller, you have the choice of either choosing to design, develop, test, manufacture, and market the products yourself, or you can buy ready-made products, add your brand and sell them.
Private-label branding is the branding of products made by third-party manufacturers or contractors. As a private label seller, you don’t have to worry about the manufacturing process. A contracted manufacturer can manufacture and deliver your products. All you have to do is provide product specifications, branding guidelines, logo, and packaging requirements. The manufacturer will follow your instructions and ship the products directly to you. Private labeling allows you to set your own price and have control over profit margins.
Private-labeled goods are available across a wide range of categories including food and beverages, cosmetics, clothing, and technology. This makes it easier for new sellers to test market trends to build brands. Outsourcing manufacturing opens up a lot of possibilities for sellers as they can focus on marketing the products and attracting customers.
As one of the most profitable online-selling business models, Private labeling has advantages and disadvantages. Let’s take a look at them.
Advantages of Private-Label Branding
The advantages of private-label branding entice many sellers to venture into new markets to grow their business.
- No Manufacturing Expertise Required
Private labeling does not require the in-house manufacturing of goods. A third-party manufacturing partner will take the responsibility to manufacture products. Everything from sourcing raw materials to creating the final product is taken care of by the manufacturer. Since the manufacturer will have connections with various suppliers, the cost of production will be much lower than if you were to manufacture the goods.
- Better Profit Margins
It costs more money to market and sell branded products. Hence, manufacturers can sell you only the products at a lower price. Since you’re saving money on the purchase cost of the product, you can set your own profit margin when you add your branding and market the product.
- Building a Brand
The best way to build a brand is to design, develop, and manufacture products in your own facility. However, private labeling can still work. Even Nike sources its products in bulk from credible partners to add its brand and sell them. When you’ve built a brand reputation, it becomes easier to add new product lines. Private labeling enables a cost-effective way to build a brand. You can either add your brand label when you receive products from manufacturers or request them for custom-design labeling.
- Brand Equity and Customer Loyalty
A unique brand will set you apart in the market from competitors and allow you to strengthen brand equity. As more customers share their positive reviews of your brand, you improve visibility and attract more customers. If your product is highly preferred, you will begin to gain customer loyalty for your brand. This will improve the chances of success for new product lines you’ll launch in the future.
Disadvantages of Private-Label Branding
There are a few disadvantages of private-label branding. However, as long as you make good strategic and financial decisions, you should be able to stay profitable and grow your business.
- Minimum Order Quantity
Most manufacturers require a minimum order quantity (MOQ) for private-label products. If you have the financial resources to meet the minimum order quantity, you will not have any problems. However, small businesses and startup companies may struggle to meet the order quantity requirements. If you’re not able to meet the minimum order requirement, try negotiating with the supplier to see if an exception can be made or if you can pay a little extra for each unit.
- Unsold Inventory
Unlike branded products that can be sold at a small discount if goods remain unsold, private-label products require huge discounts to clear shelves. The higher minimum order quantity can result in stale inventory. Hence, it is important for sellers to conduct market research to understand the demand for products before buying in bulk from manufacturers.
- Lack of Trust
Initially, private-label brands lack the trust of customers. They need positive reviews from early customers and work on marketing and customer experience to build trust. It can take years and decades to build brand loyalty and trust.
- Manufacturer Dependence
As a seller, you can get dependent on a manufacturer and fail to get promised deliveries on time during a peak season. Also, your preferred manufacturer’s business failure will affect your business. Hence, it is important for sellers to have a list of manufacturers to work with, that have a proven track record of success.
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