At the outset, let’s put it out there- creating a private label is a business strategy that may or may not work for you. As ominous as that sounds, private labeling isn’t merely another way of doing business. The priorities of people who have their own private label are different, and so are the business outcomes. For one, private labeling is a brand-building exercise and everything you source from your suppliers is branded, packaged and sold to represent your identity. It works very well for people trying to drive a majority of sales through their website or stores.
If you’ve ever bought products such as a Tesco strawberry jam or clothing from an in-house brand at a multi-brand retailer, you already know how private labels work. In this method, products are manufactured for a specific retailer and branded with the retailer’s attributes. A manufacturer of such products must consider the potential benefits (a more significant revenue) and downsides (not having a presence of their own).
As a retailer, however, you need to think of several other things.
Is private labeling right for you? Without further ado, let’s explore the pros and cons.
The Benefits Of Private Labels
When you operate under your own label, every product you sell carries your logo and brand name. Apart from the obvious branding benefits, there are several other advantages too.
- As the owner of a private label, you control the quality of your products. Your manufacturer will often accommodate special requests and always manufacture goods that meet your brand parameters. Thus, even as a retailer, you have complete control over production.
- Since you have a complete perspective of manufacturing, you can also determine the pricing that gives you maximum profit for a set amount of resources used.
- You can identify those products in your catalog that are selling very well and choose to start by branding them to make your name reach a wider audience. This is one way of marketing your brand using a sales spike that already exists.
- Since your name will appear in conjunction with the product, you have complete control over packaging and delivery. In essence, while the manufacturer may be anyone, consumers identify products by your name. Therefore, it is your product experience that they appreciate.
- We often observe this trend in the FMCG sector- products under the private label of the seller are cheaper than branded goods from other sources. This is because the seller has had complete control, right from production to logistics and sales. As a result, their product cost price is lower, and this reflects in the selling price as well.
- Due to the above reason, and if you manage to stock products of a better quality than what is available in the market, you efficiently defeat your competition on both price and quality parameters.
- You are the sole seller of your private label products. In other words, your revenue streams are your stores, websites and marketplace presence, and no one else can stock or sell under your brand name unless you approve of it.
The path to creating and establishing a private label is not all rosy. Before you decide that this is the right course of action for you, here are a few things to keep in mind.
- Since you are not the manufacturer, you are heavily dependent on them to keep selling under your brand name. Your sales can be held hostage by demand and supply fluctuations, as well as product lead time and other factors in the supply chain that can affect sales.
- While it may be beneficial to only sell through channels you control, it does take time to build brand loyalty. Unless your product has distinct benefits and solves a problem, consumers may look elsewhere for an alternative.
- In a retail outlet, by not stocking products from other brands, you may miss out on the slotting allowance- a flat fee paid to store owners for showcasing specific products in a particular place in the store.
Making The Decision
In the long run, if it is crucial for you to be recognized by a brand name, a private label is a good starting point. However, when you choose to go down this route is as important as how you do it. When starting out, it may not be a good idea to start with a private label. If you have a reasonable presence in the market, you can use past sales data to identify your customer personas and brand your products accordingly. Remember, it is not enough to create a brand that you like. You must instead strive to create a name and an image that will resonate most with your audience.
Creating a private label involves quite a bit of legal compliance. You need to register your trademark and ensure that it is unique. Apart from compliance, you also need to create a logo and branding material for your consumers to identify you with. It’s also important to make sure that you protect your brand identity in the process, specially in the context of online selling. All these processes involve time and money. So make the decision when you have both in abundance.
In today’s digital-enabled world, it helps to be in constant touch with your customers through email marketing and social media. You can observe changing patterns of buying behavior, pinpoint the kind of messages that get across to your customers and design your product catalog and packaging accordingly.
What prompted you to want to start a private label? Share with us in the comments below.