Understanding Private Labeling in Retail
Comprehensive Guide to Private Labels: Understanding Private Labels from A to Z
Private labeling, also known as store brands, is a retail strategy where a merchandise is manufactured by a third party but marketed and sold under the retailer's label. This approach is becoming increasingly common, although still uncommon compared to traditional sales channels.
In private labeling, the retailer has full control over every detail of the product, from its specifications to packaging. They function as Original Equipment Manufacturers (OEM).
Building a Recognizable Private Label Brand
Private label branding techniques help create a positive image for private label products, setting them apart and enhancing their recognition among customers. With the rapid growth of private label items, high-priced multinational brands are losing market share. This trend presents a significant sales opportunity for smaller businesses.
Both parties, supplier and customer, agree on the Minimum Order Quantity (MOQ). This ensures the vendor can conveniently produce the required quantity, while meeting the minimum requirement of the client.
As customers become more accustomed to private label products, it presents a lucrative opportunity for eCommerce merchants to explore this niche.
Exploring the Differences Between Private Labels and Brands
Private labels, often called private brands or store brands, are usually cheaper than leading national brands. Supermarkets earn a higher profit margin on private label products as opposed to branded ones.
Classification of Private Labels
Consumer products across various sectors benefit from well-established brand options and private labels, with some exceptions. Notable private label types include:
- Phone accessories
- Dairy products
- Paper products
- Chilled and fresh food
- Essential oils
The Purpose of Private Labeling
Private label manufacturers solely concentrate on producing goods for other companies, choosing not to sell, market, promote, or advertise their products. They manufacture and sell these products to consumers or businesses.
Advantages and Disadvantages of Private Labeling
Advantages
Increasingly, manufacturers are turning to private labeling, especially in the fashion industry. Some benefits include:
- Establishing customer and brand loyalty
- Higher profit margins due to cost control
- Complete control over pricing, branding, production, and product specifications
Disadvantages
- Dependency on a single manufacturer, causing potential financial loss
- Competition against well-established brands may be challenging, especially with limited promotional budgets
- Difficulty in building brand loyalty
Effective marketing, strategic planning, and finding the right manufacturer are crucial to successfully navigating the world of private label products. Known private label brands include Tesco Everyday Value, Frito-Lay, Heyday, IKEA, Prologue, Nike, Smartly, Original Use, Target, Universal Thread, and many more.
In industries such as pet accessories and food, clothing, food and beverages, personal care and grooming, private labeling is quite common. Customers reap the benefits of both private label and branded products when shopping in these sectors.
- In the world of fashion, manufacturers are seeing an increase in private label clothing production due to advantages like building customer and brand loyalty, earning higher profit margins through cost control, and having complete control over essential aspects like pricing, branding, production, and product specifications.
- To further explore this capital-efficient approach, businesses in various sectors such as pet accessories, food, clothing, food and beverages, and personal care and grooming can consider private labeling for financing opportunities and investing in their own line of products, thereby potentializing a higher return on investment (ROI) and market share growth.
