In the past, private label brands were seen as generic and cheap in comparison to national brands. Today, as inflation soars and product choices abound, consumers seek these brands for ultimate value and simplicity. In fact, 89% of US adults say they switched from a national label mainly because the store brand offered better value.
Let’s take a look at the must-know details of private labels and explore how to begin marketing your own brand.
What is a Private Label?
A private label is a line of products that a company secures from a manufacturer and sells under its own name. For instance, Costco does not manufacture its Kirkland brand products, but purchases them from a supplier and packages, brands and markets them as its own. Similarly, Walmart, Target, Bed Bath & Beyond, JCPenney, Nordstrom, CVS and Dollar General all have private label brands.
Note that in addition to the thousands of private or generic label products currently selling on Amazon, the marketplace also has several it privately owns. This includes its famed frontrunner Pinzon and AmazonBasics brand.
Why Create a Private Label Brand
With the opportunity for increased revenue and positive consumer sentiment towards private label brands in recent years, more and more retailers are investing heavily in creating their own store brands across a variety of product categories.
As a retailer, starting a private label brand requires three key decisions:
Choose a product
Identify a niche market with low competition and market saturation. Use your own data analytics to identify gaps in product offerings that fit into your good-better-best product strategy and target consumer segments not reached by national brands.
Find a supplier
Locate a supplier with a low price point that also has strong communication, quality and service. Then, negotiate contracts with bulk orders and terms that make sense for your audience. To avoid scams, look for reputable manufacturers with at least two years of experience and trade insurance.
Select a fulfillment strategy
Build a resilient fulfillment operation whether that’s through using your own warehouses, third-party third party logistics (3PL) providers or drop-ship distributors. No matter which option you select, you’ll need to ensure your fulfillment process is optimized for fast and cost-effective delivery to your customers.
The Pros and Cons of Selling a Private Label
Selling a private label is not a quick and easy way to make money. It takes time and careful planning to see the rewards. But it still has many advantages that are worth the effort.
Advantages of Private Label Selling
- Improved profit margins: With control over pricing, the product development cost and promotions, you’re in a better position to see strong margins.
- Greater exposure: Consumers can easily recognize a new private label brand with its own logo and packaging, increasing the chances of repeat purchases.
- Price differentiation: Generic products are known to cost less because they don’t require elaborate branding or advertisements like name brands. This means you can position your private label products to sell easily in the market against pricier well-known brands.
Disadvantages of Private Label Selling
- High upfront costs: Selling products you don’t make means buying them up front — and manufacturers demand bulk orders. You’ll also have to spend money developing branded creative elements and shipping products to either the customer or fulfillment warehouses.
- Longer time to value: The longer it takes you to identify a product, supplier, branding, packaging and fulfillment, the longer until you finally launch. Once your new private label is in the market, consumers must get to know your products first in order to review and recommend them to peers.
Get Started with Private Label Selling
Ready to start selling a private label brand? Follow these steps to ensure a successful launch:
- Do your research — Identify a niche product with low competition and high sales.
- Have a plan — Find out freight and shipping charges and calculate your profit margin.
- Secure a supplier — Locate a manufacturer with strong products/services and request a quote and samples.
- Brand it — Choose a memorable label name, decide on a color scheme and design a logo. Use it to customize packaging.
- List and sell — List your products with detailed content, including keywords, descriptions and images.
- Monitor and optimize — Ensure you offer the best price with regular page monitoring and an automated repricer.
Private Label Best Practices
Once you’ve launched, continually optimize your presence with best practices for private label brands.
- Stay away from seasonal: Seasonal products (e.g., Christmas trees or Halloween costumes) only sell for a few months, leaving you with stagnant inventory the rest of the year. Choose products that either sell year round or provide staggered, yet continuous demand from different regions (e.g., cold weather items in regions experiencing low temperatures at different points of the year).
- Optimize product pages: Continually review your listings to ensure clean, accurate content. Regularly review and correct vague or misleading descriptions, address negative reviews and optimize advertising to attract more buyers.
- Save on shipping: If possible, choose products that are lightweight and easy to ship.
- Be different: Unlike national brand sellers, you have the power to create differentiation from similar products. Appeal to buyers with better packaging, clearer product descriptions and greater selection. Identify and augment the product features that make your brand shine. eMarketer reports that 33% of consumers who switched to a private label brand say they were drawn by the packaging/display, and 25.8% didn’t even realize they were buying private label at first.
Blaze Your Own Path to Private Label Success
While creating a private label brand has its risks and requires significant upfront work, the potential for healthy revenue streams makes it worth it. With a well-researched plan and regular optimization, you can reap the benefits of high profit margins.