Close
Type at least 1 character to search
Back to top

Is Private Label Retail Best for Your Products?

Retail is one of the most competitive industries in the world. Not only is the market saturated with competitors, but it’s difficult to make your products stand out when most companies can produce similar things. This makes it hard to draw customers to your offerings instead of someone else’s.

One of the best ways to make your products the go-to option for a given need is to manufacture them with private labeling. Since private label manufacturing essentially brands all the products you offer, it can help to make your brand more recognizable in your niche and convince people to purchase your products when they otherwise wouldn’t.

However, private label retail does come with a few risks in addition to its potential boosts to your business. Let’s take a closer look at how private label retail works and explore whether it’ll be a good choice for your products or store strategy.

What Exactly Is Private Labeling?

In brief, private labeling means selling your products with branded or specialized labeling to distinguish your offerings from the competition.

Consider the example of a business that sells wholesale shoes. These shoes are often indistinguishable from the shoes offered by competing companies, making it difficult for this hypothetical business to connect with its customers, enact effective marketing campaigns, and more.

In contrast, another shoe company may practice private labeling. Every pair of shoes that they receive from their manufacturing partner and sell to the customer has their branding included. This leads to a number of significant advantages, including better market recognition, higher profit margins, and more.

Private labeling is becoming more common as businesses seek to distinguish themselves and dominate their industry niches. It’s also useful since it allows companies that can’t produce their own products to still sell those products with their branded iconography included.

How Does it Work?

In most cases, private labeling works when companies partner with private label manufacturers, which are design and manufacturing agencies that can produce the products to be sold by their partners. Products produced by private label manufacturers, however, can also be sold independently or as supporting assets for other product lines.

For instance, a coffee farm may provide a raw product (coffee beans) that is then included in coffee beverages from other companies. The coffee farm then experiences better overall sales volume and additional brand recognition (depending on the marketing deal struck between the coffee farm and its partners).

Benefits of Private Labeling

More and more companies are practicing private labeling these days due to the benefits that it can lead to across the board.

More Brand Recognition/Customer Loyalty

Brands survive or die based on brand recognition and the customer loyalty they can curate as a result. The more recognizable your brand is, the better your overall odds of market success. You can make your brand more recognizable by plastering it everywhere possible.

One of the best ways to make sure your brand is recognizable is to pursue private label manufacturing. If your logo and brand iconography are on every product you sell, people won’t be able to forget who they’re buying from… and they won’t want to, either.

Nike shoes, for example, aren’t necessarily all that more technologically advanced or higher in quality compared to competing shoe brands. But people will still opt for Nike shoes over all other options purely because of the brand loyalty they feel when they slip on a pair of Nikes.

Reduced Competition

Many retailers these days necessarily match prices with competitors in order to draw customers away from the competition.

If you sell private-labeled goods, you can make identical products from those of your competitors – distinguishable only or largely by your brand iconography – for the exact same price. People will buy your product, attach your brand iconography to it in the long run, and eventually lead you to market dominance over that micro-niche.

Plus, you’ll have the opportunity to address customer complaints or pain points about said product when you’re manufacturing your own version of it.

Higher Margins

Arguably the biggest benefit of private label manufacturing is the potential increase in profit margins you’ll likely see.

Consumers are actually aware of this phenomenon to some extent – it’s a common complaint that “branded” products cost more than “store brand or generic” products. But people still buy the branded products they feel loyalty to instead.

You can essentially charge a slightly higher price for a product that may be identical in other ways to competing products so long as it is branded for your company.

Furthermore, you don’t have to pay any additional cost for any promoted branded products since you don’t sell them. You only sell your own branded products rather than the products of your competitors. This lowers your manufacturing costs and, again, increases the overall bottom line for your company.

Even better, it’s often cheaper in the long run to make your own products or partner with a private label manufacturing company compared to buying premade products from other sellers. This is dependent on the industry, of course, but you’d be surprised how affordable it can be to make your own branded products. 

Control Over Marketing Strategy

By making your own branded products, you can tailor your product offerings to different stores, communities, or target audiences, depending on retail locations. Basically, it gives you more control over your products themselves, which allows you to market more effectively to different groups.

The more successful your marketing campaign is, the more likely your target customers will be to purchase your wares.

Risks of Private Labeling

While private label retail is an excellent business model that many companies will opt to transition to, there are some risks you should be aware of as well. By planning ahead, you may be able to avoid these risks or might determine that they are worth the potential gains.

Dead Inventory Potential

When you work with a private label manufacturer, you’ll need to accept the risk of dead inventory. Dead inventory is any product that you aren’t able to sell that takes up space in your warehouses. Dead inventory can sometimes pile up if customers don’t take to your branded products, whether it’s because of the price uptick or because of other factors.

Be sure to do plenty of market research before transitioning to private label retail in order to determine whether this model will be popular with your customers. As with any new business operation, your customers need to be interested in the new offerings for it to be worthwhile in the long run.

Minimum Order Requirements

The majority of private label manufacturers will require you to purchase a minimum order amount as they create your customized products or add private labels to different products. Minimum orders can sometimes be much higher than you would normally purchase – this should all be specified in the contract you signed with the private label manufacturer in question, however.

To avoid unnecessary purchases, be sure to work out the details with your manufacturer before forming an official partnership. See what their minimum order requirements are (if they have any) and speak with your marketing and inventory teams to see if that minimum order amount is reasonable or if it’s too high a quantity in the early stages of private label transitioning.

Customer Recognition Difficulty

Lastly, private label retail can actually make it more difficult for people to trust your brand in the short term. Humans, as a rule, are slow to change or to trust brands that they haven’t purchased from before.

Ironically, although people tend to prefer branded products in the long run, they may prefer generic or store brand products if they haven’t seen your branded versions before. This can drive down sales after launching your new branded items.

Again, this can be either avoided or anticipated through proper customer research and through great marketing techniques. If possible, try to highlight how your branded products are better than the competition or generic alternatives.

Summary

All in all, private label retail carries so much potential for business advantages that it’s no surprise more and more companies are taking advantage of this manufacturing model. While there are some risks to be aware of, it’s a great idea to look into private label retail for yourself.

Fortunately, you can get started right away with companies like Harper+Scott. As an award-winning design and private label manufacturing agency, we’re well-equipped and ready to listen to your business ideas. We can help you create products or marketing supplies that can connect your customers to your brand better than ever before.

Contact us today so we can start talking details. 

Sources

https://www.shopify.com/encyclopedia/private-label

https://www.investopedia.com/terms/p/profitmargin.asp

https://www.investopedia.com/terms/b/brand-recognition.asp