[2023] Private label: what is it? How to start?

Can you imagine selling a product with your brand, with no need to participate in its development? This is the idea of private label.

This model is growing worldwide and can present itself as a good opportunity for those who want to become entrepreneurs or for large companies.

Want to know more? Then follow this article until the end and learn everything about private label!

What is Private Label?

Private label is a business strategy that allows a company to manufacture and sell its products in wholesale to another company that will sell these products to the final public using its brand.

So, private label is an outsourcing process whereby company A hires company B to supply the product or service, which is then offered under company A’s brand. 

This means that the seller or producer makes money by selling the goods to a “middleman,” while the middleman makes money by selling them to consumers. 

Private labeling is used extensively in the modern e-commerce, dropshipping, and further in industries such as:

• Supplements;
• Skin care;
• Fashion; 
• Food;
• Technology;
• Credit Cards.

The manufacturers use this practice to reduce costs and offer an easy way to sell their products, while end sellers are able to sell a product without worrying about manufacturing it. 

This is especially useful for companies with a low starting point or no previous experience in the industry.

In Brazil, these sales have been growing annually and now represent 3% of the total food and beverage market consumed in the country (Nielsen/GFK).

Advantages of Private Label

Some of the benefits of private label include money savings, process standardization, and creation of new products.

Therefore, private label companies use only their own labeling while buying an “unbranded” product in bulk, without worrying about the costs and challenges of manufacturing.

In addition, this model allows manufacturers to expand their business without relying on outside investment or sponsorship deals. 

Ultimately, private label can help any company achieve profitability in a short time.

Advantages of private label for producers

With the private label model, companies can sell excess stock easily and on a large scale, enabling them to generate extra income, for example. 

In addition, companies can also use private label as a way to build up new stock for established brands that sell on consignment. 

This practice effectively increases sales numbers, as well as generating additional revenue for the businesses involved in these deals.

Therefore, private label can be a great way for companies to grow when applied correctly, both suppliers and end sellers. 

Companies that want to increase profits usually turn to private labeling when they want to reduce costs and increase sales volume. 

After all, by controlling the final labeling, the company still has control over brand standards and cost savings for its customers. 

From the producers’ point of view, it is possible to establish profitable new products based on the excess stock that was previously a problem. 

Disadvantages of Private Label

The pennies-per-dollar margins of a private label product are usually lower than those of a traditional product (especially when you factor in the cost of goods sold). 

However, from the end-seller’s point of view, good marketing can compensate for this factor by generating demand for your product, since your company will be solely responsible for exposing the brand to customers.

Also, private label contracts can increase dependence on a single manufacturer. 

Private label examples

Many large companies already sell their products under private label (either as suppliers or as final consumers).

Some famous examples are IKE, Foxconn, Tesco Everyday Value, Heyday, and Amazon Basics.

You may not know all these companies by name, but you may have already been impacted by their services. Foxconn, for example, is a Chinese factory that produces electronics for other companies around the world, including Apple’s famous iPhone.

While private labels traditionally rely on price and shelf presence to attract purchases, major retailers recently are using convenient channels to convey the stories behind their store brands-for example, how they sourced ingredients or where products are made.

Thus, using marketing strategies like storytelling can be a great differentiator for your business.

Other related articles: White Label.