Private label and white label are business models utilized by manufacturers and retailers to produce and sell goods and services. The methods involve an agreement between a retailer looking to sell a product or service made by someone else and a manufacturer who produces a product for sale to a retailer.
Learning about these two business models can help you choose a way to source your goods and services without having to set up an entire warehouse, hire hundreds of people to make products, or lease a space to stock inventory.
This article will define white label and private label products and discuss their differences. Read on to learn about these business models and find out which suits your company better.
What Is Private Label?
A private label is a business model where you, as the retailer, contract a manufacturer to create merchandise based on your specifications. You can then market and resell the products under your brand. It's called a private label because the manufacturers can only make the product exclusively for you. They can't sell it to another reseller.
This business model benefits both retailers and private label manufacturers because it reduces costs. It also allows both businesses to specialize in one area. The manufacturers earn revenue from selling to retailers and retailers take care of branding and getting the products to end consumers.
Small business owners use the private label model to compete with more recognizable national brands. They do this by creating a lower-priced product that has the same features but unique characteristics. The use of private label brands is widespread in the beauty, clothing, and household item industries, as well as other types of physical products.
Examples of private label products in the market include Costco's Kirkland brand. Costco does not produce its inventory itself, but many of the behind-the-scenes companies are popular brands. Thus, customers don't need to worry about the quality. For instance, Costco's Espresso Blend is made by Starbucks, and their Supreme diapers are contracted from Kimberly-Clark, maker of Huggies.
Benefits of Private Label
- You can make changes to the product as a way to differentiate your brand from other goods in the market
- You collaborate with the manufacturer to create a unique product with your choice of ingredients, packaging, features, etc.
- You can generate income as a wholesaler by selling your products for other retailers to carry
Drawbacks of Private Label
- You risk losing capital and carrying inventory you can't dispose of if your product idea does not sell
- You may need to come up with a significant amount of money to cover minimum order requirements by manufacturers
What Is White Label?
White label refers to the practice of buying unbranded goods from manufacturers, rebranding them, and reselling them as your own. In general, white labeling involves less customization and the only difference between products in the market is the retailer's branding and marketing. White label brands are used for both physical products and services. In the technology industry, a retailer buys generic services or white label solutions and resells them under their e-commerce brand name.
The white label concept is based on anonymity. The white label manufacturer's identity is not advertised and the brands take the products as if they've produced them themselves.
The term "white label" came from the music industry during the vinyl records era. When artists or recording studios want to promote a record, they will send copies of records without artwork or labels to radio stations. The purpose of the white sleeves or white labels is for the competitors or DJs not to know where the music came from.
Benefits of White Label
- You can offer white label products without spending capital on product development
- You can offer a wide range of products with slight variations at different price points to appeal to both cost-conscious shoppers and premium-product consumers
Drawbacks of White Label
- You may need an established brand to benefit from using white label services
White Label vs. Private Label
Private labeling is used for physical products and perishable goods that are produced in large quantities. On the other hand, the white label concept is used for service offerings and nonperishable technology. Both white label and private label business models offer excellent opportunities for entrepreneurs looking to start their own brand or retail store.
This section will take a closer look at the key differences and similarities between the white label and private label business model.
Similarities of White label and Private Label
- Both methods benefit manufacturers and retailers. Manufacturers can focus on production and retailers take care of marketing and distributing the products to end-users.
- Both methods drive competition and the creation of small businesses due to fewer barriers to entry.
- Private label and white label allow companies to choose the type of products that fit their brand, resources, and business goals.
- Private labeling allows you to control the product design and specifications of the merchandise you order. This means you can make and sell merchandise that is different from other products in the market.
- White labeling means you purchase products already made. This method does not allow for product customization, except for the packaging.
- With the private label approach, you'd need more capital for market research and product development.
- Carrying white label products lets you start with a smaller investment and lower production costs.
- With private label products, it's doubtful that another business will create and sell a product that is exactly the same as yours. Also, manufacturers are also not allowed to sell your design to other retailers.
- With white label products, you'll be selling identical products from the same manufacturer except with your own packaging. Since there are similar products in the market, your competitive advantage lies in customer service, marketing strategy, and pricing.
- Private labels can earn you more revenue and brand recognition in the long run because you offer exclusive and unique products. The profit outlook for using private labels is slow.
- White labeling gets you generic products that are ready to sell at lower profit margins because you have to stay competitive with other retailers. You won't need significant upfront capital investment and you can earn income fast if you offer highly sought-after products.
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Whether you are still in the planning phase of your company or in the expansion phase, utilizing either white label or private label products can offer great business opportunities. Through these methods, you can expand your offerings or enter new markets with a new product idea.
If you're looking to add ready-for-market goods and services to your product line, white labeling would be the easier method to leverage. If you want to create your own products and build brand recognition, private labeling is the better route for you. Ultimately, choose the model that fits your brand, resources, and business goals.
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Notice to the Reader
The content within this article is meant to be used as general guidelines and may not apply to your specific situation. Always do more research and consult with a professional to ensure that you're making the best decisions for your business.