These days people are just not buying products in physical stores as much as they used to. Instead, most consumers choose to buy their products online – primarily through Amazon. Selling products online, or even just selling products over Amazon, can be done by using a number of different methods. Two of these methods are arbitrage and private labeling. Both of these methods have their own advantages and disadvantages for selling products online. We’ll cover the ins and outs of both arbitrage and private labeling here in our Arbitrage vs. Private Label feature!

What is Online Arbitrage?

The leading online marketplace, Amazon.com has established itself as a titan of e-commerce. When shopping on Amazon, more often than not consumers will find what they’re looking for at a great price. There’s usually no need to shop around, as Amazon offers many of the best deals available. Strictly speaking, however, this is not always the case. Sometimes, competing retailers do in fact stump Amazon! This is where online arbitrage comes into play. In the world of e-commerce, arbitrage refers to sourcing products online with the goal of exploiting price mismatches between two marketplaces. You can then resell the price mismatched product and profit.

For Amazon sellers, arbitrage has slightly different connotations. For them, arbitrage refers to their attempting to identify products being sold in other online stores at lower prices than Amazon. Online arbitragers buy from online stores as ordinary customers instead of buying them as a business from manufacturers and wholesalers.

Online Arbitrage isn’t free, and usually requires real financial investment in order to be successful. This differs from retail arbitrage, which involves purchasing products at a discounted rate before selling them on Amazon for a profit. Discounted Walmart products, old textbooks from used book sales, and sourcing products from eBay can be used as sourcing strategies for retail arbitrage businesses.

Pros and Cons of Arbitrage

Like any form of buying or selling, both online and retail arbitrages have their pros and cons. It’s important to note that no form of selling is truly ‘superior.’ Different folks under different circumstances will be more or less suited for either arbitrage or more traditional sales. Do your research in order to figure out what is truly best for you and your business.

Pros of Online Arbitrage

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  Sourcing your products from your computer in the comfort of your own home or on the go.

• Having the opportunity to do cross-price checks of competitor items in a simpler and faster way.
• Items can be shipped to you directly. No need for pickup.
• Build internet sourcing skills.
• Allows you to accumulate cash back deals and rewards points.
• Has a low entry cost, although there might be some financial investment needed to buy the stock.

Cons of Online Arbitrage

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  Online arbitrage has a high level of competition.

• Products may take longer to ship than expected. Once profitable finds may become unprofitable, and fast.
• You may be stuck waiting at home fora UPS delivery.
• While not technically illegal, online arbitrage is considered to be more of a grey area business. Sourcing brands may allow their products to be sold through authorized re-sellers.
• Some of the sourcing may be counterfeited, which can get you in some serious trouble with Amazon.

How is Private Label Different than Arbitrage?

Despite its ‘pros,’ arbitrage still has a lot of serious cons to consider that can make it an inferior option for your business. One of the sales methods that arbitrage pales in comparison to is private labeling. Retail arbitrage involves sourcing products, packaging them, sending them to an Amazon warehouse, and listing the products on Amazon.com. A short pre-sale wait time follows, after which Amazon will send you your cut.

Private labeling is a little bit different than arbitrage. Private labeling doesn’t involve sourcing existing brands or products. It involves researching products that currently sell on Amazon and finding manufacturers to produce similar types of products and selling them under new branding. For private labeling, knowing which products to select is extremely important. Don’t select products that don’t have much demand or too much competition. Make sure that whatever products you select will have profit margins that will not be wiped out by the fees paid to Amazon.

Why is Private Label Superior to Arbitrage?

Overall, most people will find greater success with private label sales on Amazon. With private labeling, you don’t need to worry about inventory levels getting erased. Private labeling doesn’t require price undercutting in order to stay competitive with other sellers who may sell the same product. Private labeling also provides more opportunity for growth. It allows you to grow brands and expand with new products into other channels. When private labeling, eBay is a more accessible platform as well.

When looking to sell quality products, private labeling gives you the kind of leeway that other business strategies don’t. Private labeling allows for selling of products that are under your own brand and control. This will require just a little bit more work, although this work will almost certainly prove to be worthwhile. Providing Amazon with a listing and images for your product requires time, effort, and money. However, this allows you to promote sales for your business exclusively and not someone else’s, as would be the case with arbitrage. If you don’t want to be the one taking the time and effort to directly handle product sales, you can always hire a company to handle the logistics. Your call.

Worried about time constraints? If you private label you can plan your shipments in advance, as well as manage your business remotely. With private labeling, restocking your inventory is fairly easy as well. Private labeling your products through Amazon also keeps your inventory organized and coherent. When shoppers visit your product list on Amazon, they’ll be able to buy more than one item because the items are organized into relevant categories.

There are a few other great benefits that come with selling your private label products over Amazon. With private labeling, you will own your
“buy box” on Amazon. You can place ads in your buy box, enabling them to be up-and-running for 24 hours a day, 7 days a week! Your brand can also be registered on the Amazon brand registry. More so, brand building via private label sales on Amazon will make it easier to begin selling your products elsewhere! If your brand takes off, you’ll have a host of options to choose from and your business will be set.

Conclusion

After evaluating the pros and cons of selling online via private labeling and arbitrage, it would appear that private labeling has more advantages. Private labeling gives you the flexibility of selling from a variety of different locations and gives you more control when selling your products. Retail and online arbitrage can still be effective methods of selling your products online, however they tend to be more complicated. You don’t have as much control when selling your products because it isn’t your brand and again, can be considered a grey area in terms of business. If you’re looking to minimize risk when selling your products online, private labeling is usually going to be the way to go.

For more information on Private Label business, check out our Private Label 101, How-To, and Private Label vs. White Label features here at Innovate Private Label!