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Private labeling over the past few decades has slowly but surely taken over a larger and larger slice of the retail market. In the first part of this article I’ll explain what private labeling is and how retailers, large and small, and established businesses utilize private labeling to sell products themselves under their own brands. Then I’ll explain how private labeling can be used by the individual intrepid entrepreneur to sell via Amazon.
What Is Private Label
Simply put, private labeling is when a wholesaler or business buys products from manufacturers and then markets and sells those products in-house under its own brand. These various private label goods are usually referred to as “store brands,” as opposed to the “name brands” that are sold under the original brand name of the manufacturer.
Private labeling gained prominence during the recession of the late 1980s, when many consumers, in an effort to save money, chose to give up expensive name brand products. Quickly taking note of this, many retailers began to market more affordable store brands in an attempt to reach out to these consumers who grew increasingly eager to save on everyday purchases. One of the simplest strategies to lower prices was to switch to generic “no-name” brands sold only at specific chains, and this turned out to be a huge success. Even when consumer confidence in the recovering economy rebounded in the 1990s, consumer loyalty to name brands did not.
Regardless of if we’re talking about potato-chips, face-creams or brushes, products featuring recognized name brands tend to cost more than their generic store-brand counterparts. When they first became available, private label goods were, for the most part, cheap imitations of leading name brands, even copying the colors and designs of these major brands packaging. Except in cases where this has led to documented confusion among consumers, court rulings have supported the right of private labelers to imitate the packaging of leading brands. Despite this, private label retailers began to move away from imitation and toward unique attractive packaging of their own design.
To help keep the product price down, some retailers use eye-catching packaging because they spend less effort and money on advertising, and instead rely on consumers taking notice of their offerings as they walk through store aisles. Over time, many consumers have come to consider store brands on the same level as national brands as far as quality, performance, and satisfaction, and the assumption that higher price means higher quality is quickly fading.
Private Label And The Recession
At the end of 2007, the US again entered a recession and in the following year many other nations follow suit. The US recession of 2007 ended in June 2009 as the nation began the current fluctuating economic recovery, but once again, the consumers did not flock back to the more expensive name brands.
By late 2010, surveys indicated that over 90% of consumers had changed their grocery-shopping habits and many of them did so by trying out more store-branded goods, sampling everything from generic soaps to generic frozen waffles. Today, private labeling is a widespread business practice among supermarkets, drugstore chains, and mass merchandisers. These include Whole Foods’ 365 Everyday Value line, Walmart’s Sam’s Choice, Archer Farms, available only at Target, and eponymous labels at CVS and Publix, among other stores. These retailers sell hundreds of different items under their own brand names, from basic household items and food to specialty items and even clothing, but these types of wholesalers aren’t the only ones using private labeling. You can find, among others, hair salons creating their own branded line of shampoos, conditioners, and styling products for their customers to buy and take home, toy stores selling their own brand toys and puzzles, pet stores with private label pet foods and grooming tools, and restaurants with private label condiments or mixes that have become popular with customers.
As The Quality Improves More People Buy Generic
As the quality of these private label brands have increased, consumers for the most part have been impressed. Consumers have also realized a simple fact; that many “generic” store-brand foods are actually made by the same companies that produce the higher-priced name-brand products. For example, cosmetics and foods have been known to come out of the same factories, with the same ingredients inside, with the only difference being the label. Consumers now know that switching to a store brand is an easy way to save 30% or so, without sacrificing quality.
Because store-brand sales are often more profitable than those of national brands, major chains have been putting more effort into bringing generics to the marketplace. The growth of store-brand sales at Safeway has been outpacing national brands by a ratio of 3 to 1, while nearly one-third of the new items introduced at Kroger stores are house-brand products.
Another emerging trend is the type of products that are sold as store brands. Whereas the majority of private label products used to be basic household goods, the areas of growth in recent years have been in premium and super-premium goods. As store brands inched up in popularity, private-label prices rose as well. Even so, it is still common for store brands to cost 25% to 30% less than their name-brand equivalents at full retail prices, and the consumers are voting with their wallets!
How Can I Utilize Private Labeling?
We again live in uncertain times. The economic reality existing today is making more and more people want to be their own bosses, and not have to rely on others for their financial success and advancement. Every day people are becoming entrepreneurs and taking their fate into their own hands by becoming private label sellers on Amazon.
Many private label sellers get started in retail arbitrage, though some just right into private labeling. In retail arbitrage (where you buy low and sell for higher), you can buy a product from a local retailer and send it into Amazon to be sold. The problem with retail arbitrage is that Amazon might have multiple people selling that exact product, and since Amazon wants their buyers to have the best possible buying experience (which generally translates into buying a product for cheap), they will choose the product offered with the lowest price, so you are always competing against other sellers, your product might not be the one chosen for sale, and your profit margins will suffer accordingly.
With private labeling, the product becomes your own. You’ve picked a manufacturer, named the product, had a logo custom-made, and now it is YOUR product, so you will not be competing with any other seller for that specific product which belongs to you. Since the manufacturer is already making these products, you don’t have to worry about doing any designing or inventing. You can just pay someone to come up with a logo and label for you, then you are set to go. Essentially, you are finding generic products that are already selling well on Amazon, creating your own packaging and logo, and marketing them better than your competition. You can always start simple and constantly tweak your product and packaging, and improve them based upon the customer reviews you receive.
When you use the FBA (Fulfillment By Amazon) system, Amazon handles the fulfillment processes, meaning they will take care of the storing, packing and shipping once the items sell via their site. This is a huge advantage since you will not need to worry about any of these things. You’re saving time and money that you would otherwise need to spend on all the above mentioned processes.
Today, private labeling is the single greatest way to sell products online, and it can launch your own business into huge success. It is not without risks, but these are small in comparison to the benefits.
Private Label Product Categories
Today almost every consumer product category has both name-branded and private label offerings, including:
- Dairy items
- Frozen foods
- Pet Foods
- Paper products
- Household cleaners
- Condiments and salad dressings
Private entrepreneur who wish to venture into selling private label products have good reason to. Some of the biggest advantages of private label products include:
- Initial investment– The seller can choose whatever initial investment they wish to put in in order to keep their risk low. The novice seller can proceed with caution.
- Production control – Third-party manufacturers work at the seller’s direction, offering complete control over product ingredients and quality.
- Pricing control – Because of production control, sellers can also determine product cost and final pricing.
- Profitability control – With production costs and pricing control, sellers therefore set the level of profitability their products provide.
- Branding control – Private label products utilize the unique brand name and packaging design created by the seller.
- Adaptability – Sellers have the ability to move quickly to get a private label product in production in response to rising market demand. They can also quickly and relatively simply change features and ingredients according to consumer response.
- Amazon offers the FBA– You will not need to worry about storing, packing or shipping, saving you time, effort and money.
The disadvantages of selling private label are fewer, as long as you have the financial resources to invest in developing such a product. The main disadvantages include:
- Picking out a product to sell– You’ll need to do your own market research and pick which products you wish to sell. This isn’t really a disadvantage, but some might find this overwhelming or scary, at least at first.
- Dependency on the manufacturer – Since production of your product line is in the hands of a third-party manufacturer, it is crucial to partner with well-established companies such as Innovative Private Label; otherwise, you could miss out on sales if your manufacturer runs into problems.
- Difficulty building a client base – Established household brands have the upper hand, because they are recognizable and trusted, and can often be found in a variety of retail outlets as well as online. Your initially unknown private label products will probably only be sold online (most likely through Amazon), limiting customer access to it. Also, it may or may not take time till people begin using your brand and trusting it.
Innovative Private Label was established to help entrepreneurs develop their own private label brands. In the upcoming articles we will take a look at the many aspects of starting a private label brand.