What is Private Label?
Private label is a business model where a retail brand leverages the supply chain and production capacity of a third-party manufacturer to produce its own exclusive product. Private label means a retail seller putting its own branding on a product that is actually produced by another company.
Private label as an adjective: Private label brands have the highest profit margins when selling Amazon FBA.
Private label as a noun: Walmart carries many products under its own private label.
Private label as a verb: Her business earns tremendous revenue by private labeling clothes.
Another name for private label is private brand, store brand, phantom brand, house brand, or own brand (British English).
A simple definition of private label is using custom branding on an exclusive product manufactured by a third-party.
The purpose of private label is to improve economic opportunity for the private label brand and the private label manufacturer by combining their respective areas of expertise. Private label manufacturers handle all aspects of production, like sourcing components or ingredients and quality control, while private label brands market and sell the products. The private brand earns higher profit margins than if it were to sell the products of other brands and the manufacturer has a revenue-generating function for its production line.
What brands use private label?
Both major retail brands like Walmart, and relatively small-scale brands like Amazon sellers, use private label. Aldi, Target, and Amazon own the fastest growing private label brands, according to Produce Blue Book. If a brand uses a third-party to produce their product, the brand uses private label.
What is an example of a private label?
Private label examples include brands like:
How private labeling works?
A private label is created when a manufacturer signs a private label agreement with a brand. Common provisions of a private label agreement include what components will be included in the final product, how the product will be packaged and labeled, recall responsibility, and the order quantity that the manufacturer will produce for the seller. A private label partnership between a manufacturer and a brand can form in two ways.
What are the 2 types of private label suppliers?
- Co-packers - These manufacturers are exclusively dedicated to producing private label goods for the brands they partner with. They only use their manufacturing capabilities for third-parties and don’t sell their own branded products.
- Brand manufacturers - Established brands with extra manufacturing capacity can generate additional revenue beyond selling their own products by supplying private label goods to retailers. For example, the maker of Huggies diapers, Kimberly-Clark, also produces Kirkland Signature diapers for Costco. Besides pushing down unit costs by expanding manufacturing volumes, this arrangement can also increase a brand’s relationship with a large-scale retailer carrying their goods. They may even get better shelf space in the retailer's store.
Who owns private label?
The developer of the private label product owns the physical product, while the brand owns the branding aspects of the private label product. According to Thomas Reuters Practical Law, the manufacturer may own the design or formulation of the physical product if they developed it. However, if the private label brand created the design or formulation themself and just provided the details to the private label manufacturer for production purposes, then the brand owns the private label in its entirety.
What is the difference between private label vs white label?
The difference between private label vs white label is that a private label product is exclusive to the brand selling it, whereas the same white label product can be packaged and sold under multiple brands. A private label product is unique from similar products on the market in both composition and packaging, while a white label product is only unique in packaging because the product is available for multiple retailers to use. Private labeling and white labeling are often used as synonyms because of their similarity in outsourcing production to a third-party manufacturer, but they are distinctly different business models.
What is the difference between private label vs branded?
The difference between private label vs branded products is that private label products are sourced from a third-party while branded products are sourced from the brand’s owned and operated manufacturing line. A private label product doesn’t have direct oversight of the entire production process, like a branded product does. Therefore, a private label brand is not able to control the origin or sourcing procedures of the components of its products to the same extent that a company selling branded products can.
Advantages of private label
- Unique offer - Instead of selling established national brand products like Coca-Cola or generic white label products, private labelling allows you to offer something unique to the marketplace. Although you compete against other sellers in your product category, you don’t have direct competition with other sellers of the exact same product.
- Control over product - Selling a private label allows control over product development, production, quality control, marketing, and pricing. This control enables private label sellers to maximize profits by experimenting with different price points and adjusting product inputs as needed based on market conditions.
- Brand loyalty - 59% of US consumers remain loyal to a brand for life, according to digital experience firm Acquia. A private label brand can establish a loyal base of returning customers that can also refer new customers to the brand by word-of-mouth.
- Better profit margins - According to Dartmouth College marketing professor Kusum Ailawadi who has been studying private labels for over 25 years, private label goods net around a 25% higher profit margin for retailers than national brands do.
- Bonus: Private label products wholesale - Besides earning revenue from the sale of their own product, a private label business can also earn income and spread brand awareness by wholesaling its brand name products to other retailers.
Disadvantages of private label
- Competition with major brands - As opposed to selling the products of major brands with established customer bases like a wholesaler does, a private label seller competes directly with those brands for market share. According to a survey by marketing Saas company DISQO, 58% of consumers reach for brand names they're familiar with rather than generic alternatives.
- Minimum order quantities - Private label manufacturing requires products to be bought in bulk and most manufacturers require a minimum order quantity (MOQ). An MOQ is the least amount of a product the manufacturer requires you to purchase in order to produce the private label item for you and can range anywhere from 500 to 5,000+ units.
- Dead inventory - Private label sellers can get stuck holding excess inventory for various reasons, like if their product is out of season or there’s too much competition in their chosen niche. They can try to reclaim some of the investment by lowering the price and selling at a loss or can sometimes even lose out on the inventory's value completely.
- Marketing costs (Ecommerce) - Unlike private label items that can be found on shelves in brick and mortar stores, Ecommerce private label brands need to invest resources into marketing to get their product in front of customers. For example, Search Engine Land highlights that Amazon private label sellers spend over 10% of their revenue on Amazon PPC advertising.
What is private label in Amazon?
Private label in the context of Amazon is probably the most common usage of the term today. Amazon private label is a business model that both third-party sellers and Amazon itself use to sell unique products on the platform. In fact, according to the 2023 State of the Amazon Seller report by JungleScout, the majority 54% of Amazon sellers use the private label business model. Amazon itself generates billions of dollars from selling its own private label brands on the platform.
What are Amazon's private label brands?
- Amazon Basics - Most successful, sells products across multiple categories
- Amazon Essentials - Clothing
- Amazon Collection - Jewelry
- Amazon Elements - Health and household
- Amazon Fresh - Grocery
- 206 Collective - Shoes
- Lifelong - Pet supplies
- Mama bear - Baby products
- Revly - Vitamins and supplements
Amazon actually has over 100 of its own private label brands, according to CNBC. These in-house private label brands have caused a lot of controversy because they diminish selling opportunities for third-party private label brands on Amazon. Government officials like US Senator Elizabeth Warren have even called on Amazon to change this anti-competitive behavior. Third-party sellers already have tremendous obstacles to overcome on the platform, like high Amazon private label costs.
Why is private label the most popular business model among Amazon sellers?
Private label is the most popular business model among Amazon sellers because it allows sellers to:
Although success on Amazon is difficult because of the high competition, most sellers would agree that Amazon private label improves the chances of long-term success. An online business model with less competition is local lead generation. Local lead generation involves setting up websites to attract customer leads that you sell to small businesses. Instead of competing against millions of Amazon sellers, you only have to compete against a few small businesses for space in local Google search rankings.
How to start a private label brand?
- 1Decide what category you want to sell in and choose a private label product idea by doing product research to see what you can be competitive selling
- 2Research and contact private label manufacturing partners who can develop and produce your private label product idea
- 3Create branding materials to give your private label brand its own identity like a name, logo, branding colors, tagline, and product packaging
- 4Order product samples to assess your potential manufacturing partners' production capabilities
- 5Sign a private label agreement with the manufacturer you decide to work with and produce your private label product for sale
- 6Choose a sales channel for your private label brand, such as selling your private brand on an Ecommerce platform like Amazon or your own Shopify store
- 7Grow your private label brand by marketing, expanding your product offerings, and keeping your customers happy so they repeatedly buy from you and recommend your private label brand to others
- 8Optional: Sell your private label business to an interested buyer once you have a history of generating solid revenue with the brand
Other meanings for private label
What is private label credit card?
A private label credit card is offered by a brand or retailer, but the cards are issued and payments are collected by a third-party service. The cards carry the brand’s logo instead of a network logo like Visa or Mastercard and can be used only within the brand’s network to make purchases. The partnership earns the credit card processor revenue on each customer transaction and the brand generates more sales for their business by incentivizing customers to use the card through offering perks like loyalty points and discounts. Examples of private label credit cards include the Amazon store card and the Target RedCard.
What are private label rights?
Private label rights (PLR) are a type of original content licensing where the creator allows the rights buyer the ability to use their content. Also known as Done-For-You (DFY) content, PLR includes various content types, like articles, eBooks, courses, music, and videos. PLR content is created by a third-party for the buyer to use as they wish.
Private label FAQs
It costs $3,000 to $5,000 to private label a product, usually. The cost to private label a product depends on many factors like, who owns the rights to the product formulation, the MOQ of the manufacturer, and the quality of branding for the product.
As you can see, the most successful private label brands are sold by the major retailer, not the small business.
Private label clothing is a common business model for clothing retailers like H&M where the designs are developed by a manufacturer and sold to retail buyers to be presented in their stores under their brand name.
Private label cosmetics is a business model popular among skin care brands where they obtain their products from a private label company that manufacturer cosmetics like Trilogy Laboratories instead of concocting their own formulas.
Private label wine is common among restaurants and retail brands where the wine is sourced from a third-party winemaker but is bottled as the retailer's own product.
Private label foods are consumable goods that are sourced from third-parties and sold under the brand name of grocery retailers. For example, Trader Joe’s yogurt is actually processed by Stoneyfield Farm. According to Win Sight Grocery Business, over 70% of money spent on poultry, meat, and seafood is associated to private label food brands.
