Private labeling is a growing business model for e-commerce entrepreneurs. It entails outsourcing manufacturing to a third-party while selling the products under your brand name.
This business model gives you access to a robust supply chain for lower costs. You’ll focus more on branding and marketing while outsourcing production headaches. Read on to learn what private labeling is and how to harness it to build a successful venture.
Private label products are produced by a third-party but sold under your brand name. The third-party makes the product according to your specifications, making it easier to stand out from competitors.
For example, many perfume brands are private label products manufactured by third parties. The manufacturer creates a unique scent and packaging, and the perfume brand handles marketing. The perfume is sold at a significant markup to the manufacturer’s price.
Many retailers choose private labeling because it is convenient. They can quickly expand their product lines with third-party manufacturers instead of taking the risk themselves. Popular private label products include cosmetics, jewelry, electronics, and clothing.
Private labeling involves two main parties. The first is the private label brand, i.e., the retailer designing and marketing the product. The second is the manufacturer, who makes the product according to the brand’s specifications.
The manufacturer might already have a catalog of products. Then, the brand can pick a product and add finishing touches like packaging and color. Alternatively, the brand can design a new product from scratch for the manufacturer. After paying for manufacturing costs, the product is sold at a sizable markup to give the brand profits.
Private labeling differs from contract manufacturing. In the latter, the brand is heavily involved in the product's design, development, and testing. However, in private labeling, the manufacturer handles most of the development and testing while the brand adds the finishing touches.
Contract manufacturing is ideal for complex products like electronics. It allows more extensive customization than private labeling.
People often confuse private and white labeling, but they’re different. White-labeled products are generic and cannot be customized, while private label products can be customized. Private label products are made for a specific brand, while white label products are sold to multiple brands.
In white labeling, the manufacturer creates a single product for different retailers. The retailers sell the same product under their brand names, but the core product isn’t unique. White labeling doesn’t offer much room to stand out from competitors.
Private labeling allows businesses to sell exclusive products with unique value propositions. Companies can customize their products' feel, look, and characteristics, offering buyers a value they’ll hardly find elsewhere. This customization makes it easier for businesses to stand out and build a large customer base.
Exclusive products translate to higher profit margins. Private labeling allows brands to offer unique products and charge more for them. Customers are more likely to tolerate higher prices when they know they can’t find the same product elsewhere.
Private labeling gives brands greater control over product branding and marketing. Customizing the end product’s look and feel makes it easier to form an effective marketing strategy.
Suppose you want to launch a new perfume. You can demand a pink color and a rose scent from the private label manufacturer. These characteristics enable you to create effective marketing campaigns based on roses and pink visuals.
Private labeling enables businesses to adapt quickly to changing consumer tastes. When trends change, you can request that the manufacturer tweak the product quickly.
Suppose you sell wristwatches and notice customers’ preference for new colors. You can tell your manufacturer to switch to these colors immediately. The manufacturer has a robust supply chain that helps your business adapt to rapidly changing trends.
Private labeling allows product customization, but you remain dependent on the manufacturer’s whims. For instance, the manufacturer may be unwilling to customize the product to your desired extent or make rapid product changes in response to customer feedback.
Private labeling involves a considerable risk of dependence on a third-party manufacturer. However, you can mitigate this risk by choosing reliable manufacturers and suppliers. Zendrop connects you directly with high-quality manufacturers offering a broad product variety. We control our supply chain to assure product quality and speedy delivery.
This risk is related to your dependence on third-party manufacturers. You may want to innovate with your product, but the manufacturer may be unwilling to implement the required changes. The manufacturer can limit your customization options, reducing the chances of standing out from the competition.
The best way to mitigate this risk is by choosing the right manufacturers that allow extensive customization. Research different manufacturers and read reviews from past partners before making a commitment.
Image: Coburg
Many brands sell coffee manufactured by third parties at high markups from the manufacturer’s prices. Coffee is a highly demanded product that can be easily branded as premium. Many are willing to pay high prices for cherished coffee goods, so companies leverage this situation to sell high-margin coffee.
Personal care products, including body lotions, shampoos, toothpaste, and deodorant, are often sold via the private label model. Many manufacturers specialize in making personal care products for external brands, and this abundance of manufacturers makes it easier for retailers to find the right partner.
Suppose you want to start a soap brand. You can give a private label manufacturer your specifications, and they’ll make the product accordingly. You can buy these products in bulk at lower prices and sell them at high prices.
Source: VAFO Group
Pet food, especially cat and dog food, is commonly sold via the private label model. Some major pet food manufacturers serve multiple brands, each with products made according to their specifications. These brands sell pet food at high markups, capitalizing on customers’ willingness to spend big on their pets.
The global pet food market is worth $158 billion, with the U.S. accounting for the largest share, $62 billion. Its healthy growth rate, projected to reach $195 billion by 2029, makes pet food a promising market for new private label brands.
Source: Kirkland Signature/Costco
Kirkland Signature is a private label brand run by Costco, a major American brick-and-mortar retailer with $250 billion in annual sales. This brand offers everything from grocery products to clothing, cleaning items, pet food, and baby diapers.
Costco works with many third-party manufacturers to produce items for its Kirkland Signature brand, which has built a reputation for offering high-quality products at competitive prices.
Kirkland Signature is one of Costco’s top-selling brands, making it an ideal case study for learning what a private label brand is. This contributes to Costco’s envied customer base of 136 million members who pay annual membership fees starting from $65.
Source: Amazon Basics
Amazon is best known as the world’s largest online retailer, with over $500 billion in annual sales. It sells virtually any product one can think of.
Private labeling contributes to Amazon’s e-commerce dominance. The company has its private label brand, Amazon Basics, with numerous products like kitchen utensils, phone accessories, home decor, office supplies, and travel luggage.
Amazon contracts third-party manufacturers worldwide to make its products. The lower manufacturing costs enable Amazon to sell private label products at reasonable prices and retain customers in a fiercely competitive e-commerce market.
Amazon Basics contributes billions of dollars in annual sales and helps Amazon stay atop the global e-commerce sector. It’s an excellent example for learning what a private label product is.
Source: Trader Joe’s
Trader Joe's is one of the biggest grocery store chains in the U.S. Its product selection is primarily based on private label goods produced by third parties.
Trader Joe’s works with big-name manufacturers who own some of the most popular product brands. For example, Trader Joe’s pita chips are made by Stacy’s, which sells a famous brand of its own pita chips.
Third-party manufacturers create custom products for Trader Joe’s, helping the grocer retain its loyal customers by selling high-quality products at competitive prices. Brand loyalty has helped Trader Joe’s remain a dominant grocery retailer with $20 billion in annual sales despite tough competition.
An ideal manufacturer should offer high-quality products with consistency. It should have stringent quality controls ensuring you get high-quality products and regular checks to prevent deficient output.
Before choosing a manufacturer, read other dropshippers’ opinions about their products. You can order samples or visit trade shows to evaluate the quality in person.
Zendrop gives you direct access to vetted, high-quality manufacturers. We control our supply chain to ensure outstanding quality and consistency. Choosing the right manufacturer is just one step away with Zendrop.
Consider your sales target and if a manufacturer can handle the required output. Suppose you aim to sell thousands of units monthly. Consider if the manufacturer has sufficient capacity to deliver these units.
You need manufacturers who can scale their production according to your needs. This characteristic is crucial for fast-growing brands whose product demand may rise sharply. Zendrop gives you access to reliable manufacturers with robust production capacity.
Manufacturers can make or break your private label brand, so you need effective communication and support from them. An ideal manufacturer should offer excellent customer service and allow you to contact them quickly via email, telephone, or live chat.
You should receive speedy responses to inquiries, and the manufacturer should be willing to go the extra mile to resolve problems. Before making your final decision, check reviews about a manufacturer’s customer support.
Knowing what to consider when choosing manufacturers is an integral part of learning what private labeling is.
This guide has answered “What is private label?” and it works in detail. When done correctly, this business model can be lucrative, and we’ve provided case studies to prove it. Private labeling offers many advantages for retailers, mainly higher profit margins and a unique value proposition for your product.
Zendrop is your ideal partner for launching a private label brand. We offer high-quality products you can customize and sell at high margins. This program is available for high-volume sellers via Zendrop Select.
Private labeling refers to products created for specific brands by third-party manufacturers. You can partner with these manufacturers and sell their products under your brand name. It’s an effective business model adopted by many manufacturers.
Private labels involve partnering with a third-party manufacturer to produce items according to your specifications. You’ll then sell these products at higher markups, paying the manufacturer and pocketing the rest as profit.
Manufacturers can make or break your business, so choosing the right one is a crucial aspect of learning what private label is.
Private label and branded products don’t differ much except for the manufacturing process. Branded products are usually designed and produced by the same company selling them, while private label products are outsourced to third-party manufacturers.
Many people confuse private label products with branded products. However, differentiating between both is an essential part of learning what a private label is.
Yes, many brands have built formidable businesses based on the private label model. The key is having the proper product selection and manufacturers who deliver high-quality products for your customers.
Costco’s Kirkland Signature is an excellent example of what private label is and how to leverage this model to build a highly profitable brand.
The process starts with choosing a niche and selecting products. Then, seek the right manufacturers who will deliver high-quality products. Finally, create a unique brand and promote the products to win customers.
Learning what a private label is includes acknowledging the intense competition in the industry. You need unique products and marketing strategies to stand out from competitors and build a formidable business.
