What is Private Label?
A private label product is manufactured by a contract or third-party manufacturer and marketed under a retailer’s brand name. As the retailer, you define everything about the product – what goes in it, how it’s packaged, what the design looks like – and pay to have it manufactured and distributed to your store. This is in contrast to buying products from other corporations with their brand signatures on them.
Hair salons often create their own branded line of shampoos, conditioners, and styling products for their clients to buy and take home. Restaurants often decide to private label sauces or mixes that have become widespread with customers.
Private Label Categories
Practically every customer product category has both branded and private label offerings, including:
- Household cleaners
- Condiments and salad dressings
- Dairy items
- Frozen foods
- Personal care
- Paper products
While individual label products are in the minority, comprising 15% of U.S. supermarket sales, according to the Harvard Business Review, some private label categories are seeing strong growth, according to a Nielsen Report.
Picture 1. Examples of products
Retailers interested in filling their shelves with products featuring their brand name have a good reason. Some of the significant benefits of private label products include:
- Control over branding – Private label products bear the brand name and packaging design created by the retailer.
- Control over profitability – Thanks to control over production costs and pricing, retailers can control the level of profitability its products provide.
- Control over production – Third-party manufacturers work at the retailer’s direction, offering complete control over product ingredients and quality.
- Control over pricing – Thanks to control over the product, retailers can also determine product cost and favorable pricing.
- Adaptability – Smaller retailers, can move quickly to get a private label product in production in answer to rising market demand for a new feature, while larger companies might not be interested in a niche product.
The problems of adding a private label line are few, as long as you have the financial reserves to invest in producing such a product. The main issues include:
- Manufacturer dependency – Since the production of your product line is in the hands of a third-party manufacturer; it’s crucial to partner with well-established companies. Unless you could miss out on occasions if your business runs into problems.
- Difficulty with building loyalty – Authorized household brands have a higher hand and can often be found in a variety of retail outlets. Your product will only be sold in your stores, restricting customer access to it. Of course, limited availability could also be an asset, giving customers a reason to come back and buy from you.
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