Recent research shows SMBs need to be aware of how white label and private label products perform in the marketplace. Small Business Trends contacted some experts to find out the differences between them.
What Is a White Label Product?
A white label product is a generic item produced by one company but branded and sold by another. This arrangement allows the seller to offer a product without investing in the research, development, and manufacturing processes. Essentially, the producer makes the product and sells it to different retailers or businesses, who then brand it with their own name, logo, and packaging. This practice is common in various industries, including food, electronics, and cosmetics. White labeling enables companies to expand their product lines quickly and efficiently, focusing more on branding and customer service rather than product development.
What Is a Private Label Product?
A private label product is a merchandise item manufactured by one company but sold under the brand name of a specific retailer. Unlike white label products, which are generic and sold to multiple retailers, private label products are exclusively associated with a particular retailer’s brand. These products are typically designed and packaged according to the retailer’s specifications, allowing for more control over pricing, marketing, and branding. This strategy is often used by retailers to offer unique products, differentiate themselves from competitors, and improve profit margins. Private label products are prevalent in various sectors, including grocery, apparel, and cosmetics.
White Label vs. Private Label
Brian Cairns, a seasoned industry leader who currently holds the role of CEO at ProStrategix Consulting based in New York. He explained it this way.
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Distinctions
“The distinction between white label and private label are subtle,” he writes. “That’s why these terms are so easily confused.
Private label is a brand sold exclusively in one retailer, for example, Equate (WalMart). White label is a generic product, which is sold to multiple retailers like generic ibuprofen (Advil).”
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Markets Matter
The magnitude and specificity of your target market are critically important elements that guide your business strategy.
The decision to sell in a single location or expand to multiple venues is a defining strategic choice that can significantly impact your bottom line. The traditional dichotomy between online and offline retail is gradually blurring.
Online marketplaces like Amazon, with its wide array of private label items and established sales process, offer a comprehensive platform to reach a global customer base.
Alternatively, working with resellers, either through your own website or physical store, can also help broaden your reach and diversify your sales channels.
“The key advantage of white label products is economies of scale,” Cairns writes. In other words, you’re free to sell your goods and services to a wider market of your choosing.
Cairns also emphasized that you can often charge a higher price for private label products due to their perceived exclusivity and the reputation attached to the brand.
Another considerable advantage of private labeling is the stability it provides.
Establishing a private label product often involves contracts with retailers that secure a certain level of sales and provide a consistent revenue stream, providing a degree of predictability in an often turbulent retail market.
“There’s usually a long-term contract or relationship with a large retailer.”
Other small businesses offered other insights.
Got A Unique Product?
“Small businesses should opt for private label services if they make a unique product,” Calloway Cook Founder Illuminate Labs writes. It’s a way to cut down on some production costs.
“Outsourcing the manufacturing to a contract manufacturer is cost-efficient. And quality can be ensured through third-party testing.”
Marketing Strategy Choices
When small and medium businesses (SMBs) are choosing between white and private label venues, they also need to consider the level of exposure their product can achieve. Striking a balance between the product’s visibility and the cost of marketing is crucial.
“Since white labeling takes a standard product and applies different branding, there needs to be a unique marketing strategy to make it successful.”
Fortunately, the advent of digital marketing has provided a cost-effective alternative to traditional marketing mediums like print, radio, and television.
SMBs can leverage social media, search engine optimization, email marketing, and other digital channels to reach a wide audience without straining their budget.
Stock Formulas
White label and private label products each have their unique characteristics and benefits, and understanding these differences is key to making an informed decision.
For example, for some small businesses, white label products are seen as a quicker solution to gain market entry with less initial investment.
Derek Du Chesne, Chief Growth Officer of EcoGen Laboratories, echoes this sentiment.
Du Chesne offers an industry insider’s perspective on the differences between these two strategies, elucidating their specific benefits and potential drawbacks, enabling businesses to make choices that align with their specific needs and capabilities.
“White-label uses our stock formulas and stock packaging to have it readily accessible. It’s a turnkey quick-start solution for brands that need products ASAP. “
He also says that white label products have a good history in their respective market and low minimums with short lead times. Private label products, on the other hand, allow for more flexibility.
“With the private-label program it allows for us to collaborate with the brands more in-depth with custom ingredients, formulations, packaging, and SKU’s.”
Competitive Markets
In the dynamic business landscape, start-ups find themselves better positioned by opting for white label products, primarily due to the intense market competition.
The advantage of white labeling is its readiness for immediate market entry, allowing new businesses to hit the ground running.
However, more established companies, having solidified their market presence over time, can afford the luxury of longer lead times and the option of extensively customizing their products.
For such established small businesses, private label products become a viable option, enabling them to create unique offerings that can further enhance their brand’s distinctiveness and appeal.
Bernadette Kelly is the Media Director for ActiveWin Media. She sees the differences in terms of legal requirements.
“The massive advantage is the white label provider typically has secured regulatory licenses or legal requirements to operate an e-commerce site. Unfortunately, many start-ups fail to consider the legal hoops they have to jump through to sell online,” she writes.
Internet Based Businesses
The decision between white labeling and private labeling carries unique implications for internet-based businesses.
“White label sites rest on very solid foundations. That means they rarely crash and can be found by search engines.
For these digital enterprises, white labeling can often present a trade-off in terms of website functionality. While the convenience and cost-effectiveness of white label solutions are attractive, especially for someone just starting out, there are certain limitations.
For instance, the content management system (CMS) for a white label site often lacks sophistication or might even be non-existent.
This can pose significant challenges when it comes to search engine optimization (SEO), a crucial aspect of digital marketing.
Therefore, it becomes a balancing act for these businesses to weigh the benefits against the limitations while deciding on the most suitable approach.
Impact on Brand Identity
The decision between white label and private label products has a significant impact on brand identity. White label products offer speed to market but may limit the ability to establish a unique brand identity. On the other hand, private label products allow for more control over branding, enabling businesses to create a distinctive image and stronger brand recognition among consumers.
Product Quality and Customization
Quality control and customization are crucial in choosing between white and private label strategies. White label products are typically standard and offer limited customization, whereas private label products provide opportunities for customization in quality, ingredients, and design, aligning more closely with customer preferences and enhancing brand loyalty.
Cost Analysis and Return on Investment
Understanding the cost implications and potential return on investment is essential when choosing between white and private label products. White label products generally require less initial investment but may yield lower profit margins.
In contrast, private label products can offer higher margins due to their unique nature and stronger brand association, though they often require a larger upfront investment.
Future Trends in White and Private Labeling
The white and private label product landscape is evolving, influenced by consumer demands, technological advancements, and market conditions.
Emerging trends include increased emphasis on sustainability, shifts in consumer preferences towards more personalized products, and the integration of advanced technologies for better product customization and quality control.
Choosing the Right Strategy for Your Business
Selecting the appropriate strategy depends on factors such as your target market, brand goals, resource availability, and long-term business objectives. Considerations include market demand, competition analysis, brand vision, and financial capabilities.
Evaluating these factors helps in making a strategic choice that aligns with your business model.
Making an Informed Decision
Choosing between white label and private label products is a strategic decision that hinges on understanding their respective advantages and limitations. Businesses must consider their market position, brand goals, and customer base to make an informed choice.
Ultimately, the right decision aligns with the company’s long-term strategy and market opportunities.
This table provides a concise comparison between white label and private label products, highlighting their respective characteristics and considerations, offering a quick reference to businesses when considering which route aligns best with their specific needs and capabilities:
| White Label | Private Label | |
|---|---|---|
| Availability | Sold to multiple retailers | Exclusive to one retailer |
| Economies of Scale | High, due to wider market reach | Limited, due to exclusivity |
| Pricing | Lower price point, due to generic nature | Higher price point, due to exclusivity and branding |
| Contractual Stability | Varies, as product is sold to multiple retailers | High, often involves long-term contracts with large retailers |
| Product Uniqueness | Standard product, same across all retailers | Customizable, can be unique to each retailer |
| Market Entry | Quick and less initial investment needed | Requires more time and investment for customization |
| Ideal for | Start-ups, businesses aiming for quick market entry | Established businesses aiming for exclusivity and brand distinction |
| Internet-based considerations | Quick and cost-effective, but limited functionality and SEO optimization | Requires more investment, but allows more customization and functionality |
Image: Depositphotos.com
There is always the confusion that they are the same. Thanks for the clarification about this.