A Complete Guide on Private Labelling: How Does Private Label Work?

Every business undergoes a supply chain network from the raw materials stage, through the production process and the eventual distribution of products to the final consumer. Private Label serves as a middleman between the production and the final consumer. Although it allows you to take ownership of the product you choose to sell.

Launching a new business/ product can be daunting when one can easily serve as the bridge that connects the product from the manufacturer to the consumer.

Private Labelling helps you to own a product line without manufacturing the product yourself. As a smart business owner, you can partner with manufacturers while focusing solely on marketing and how products get to the final consumers.

One advantage of private labelling is that your brand takes credit for the product as the manufacturer becomes unknown to consumers.

This article contains a complete guide on private labelling and how private labels work. Read along as Incorpuk helps you start and grow a global business from the comfort of your homes.

What Is Private Labelling?

According to Rob Terenzi, co-founder of Vega Coffee, Private labelling is the practice of taking an ingredient or component supplied and produced by a secondary company and using it to benefit another brand’s product, often without explicit attribution.

Private labelling involves one company selling another's items under its name and packaging. In most cases, a retailer purchases a product from the manufacturer, who then sells it to customers displaying the manufacturer's packaging and brand. On the other hand, a shop selling under its brand may use products made by an outside manufacturer for private labelling. As a result, the producer serves as a private label and does not identify itself to customers as a brand.

Private labelling gives room for repackaging and rebranding the items, the retailer then takes ownership of the product. For example, you can choose to own a clothing line, create a fashion niche you want to identify with your brand then outsource the clothes. All that is needed from you is to repackage and attach your brand name as the cloth label.

Types of Private Label

The complete guide on private labelling also includes a variety of private label brands which depends on the niche, quality and type of consumers.

1. Generic

Generic brands are the most basic type of private label. They are usually cheap with minimal branding and packaging. They focus primarily on price-conscious consumers.

Examples include backpacks, LED lights, phone accessories, coffee, pet food and water.

2. Copycats

Copycat brands are frequently more affordable products that imitate the look and placement of popular brands. These companies want to offer experiences and quality that are on par with well-known ones.

Examples are Oreo, Tesco, SuperValu, and Dunnes.

3. Premium store brands

Premium private-label brands are promoted as superior alternatives to national brands. They are produced with quality ingredients, good packaging, and they cater to particular consumer trends like gourmet or organic goods.

Examples are Marks & Spencer's St. Michael, Albert Heijn's AH Select, and Wal-Mart's Sam's Choice.

4. Value Brands

Value brands are focused on providing basic, functional products at the lowest possible prices. They are unique and cost-efficient.

Examples are Smart Sense (Kmart) and Essentials.

How Private Labelling Works?

Establishing a private label business model requires two key participants. They involve the Private Label Manufacturers and The Private Label retailers.

1. Private label manufacturers are concerned with the item's production from its raw form to its final stage of production. Hence, they are the manufacturer of the item to be sold.
2. Private label Retailers are responsible for marketing and selling the manufactured item under their brand name.

Reputable private label manufacturer makes cost-effectiveness and product quality their top priorities. A skilled private label retailer, on the other hand, concentrates on creating a distinctive brand identity, putting successful marketing plans into practice, and setting the product's price to maximize profits.

Pay close attention to the term ‘Private labelling’ as people often confuse it with the word white labelling. White labelling is quite different from Private Labeling. White labelling is when a third-party producer makes goods that aren't tailored specifically for a single retailer. Rather, the producer produces a generic good and distributes it to other stores, each of which sells it under their brand.

White-label products include things like office supplies, generic medications, and bottled water that are offered under multiple brand names but are otherwise unbranded or generic.

Benefits of Private Labelling

The private labelling business model has numerous benefits, including cost-effectiveness, brand control, higher profit margin and supply chain control.

1. Brand Control

Private label retailers can create distinctive product lines under their brand names using private labelling. This helps businesses stand out from rivals and cultivate brand loyalty among clients who value upscale goods. The retailer now identifies as the owner of the brand and can control the image or value that the brand represents.

2. Cost Effectiveness

Creating a product from scratch may be costly and time-consuming. Retailers can take advantage of pre-existing product formulas and manufacturing capabilities through private labelling, which lowers upfront costs and accelerates time-to-market.

Private label retailing helps to sum up all costs from production to marketing to give the consumer a finite price.

3. Higher Profit Margin

Private-label products usually fetch larger profit margins because they are exclusive to the brand. The retailer chooses a profit that covers the cost of repackaging and branding which are usually way higher than the purchased price.

The profit margin is usually dependent on the type of products and the level of customization.

4. Supply chain Control

Retailers have better control over the whole supply chain from procuring raw materials to production and quality control when they work directly with manufacturers. This lowers the possibility of supply chain interruptions and guarantees consistency in product quality.

5. Adaptability

An established company that takes sole responsibility for the product from manufacturing processing to marketing, may take time to regulate and make changes to the product. Any new changes are influenced by the product mix, cost price, and marketing.

On the other side, private-label retailers can make adjustments to create the greatest product at the best price in response to unfavourable reviews or poor sales.

6. Flexibility

Retailers can opt to design whole new products or alter already-existing products to suit their individual needs because of the flexibility that private labelling offers in terms of product creation. This flexibility enables businesses to react quickly and effectively to changes in the market.

Challenges of Private Labelling

Private labelling has quite some challenges one may encounter while starting as a retailer. These challenges include:

1. Delays

Finding an honest supplier doesn’t guarantee their work ethics and dedication. Many retailers experience delays in product supply and business timelines with the manufacturer which may be detrimental to your business. While there’s huge demand from the market, manufacturers may delay supplies or experience a default at the factory, hence, affecting sales and profitability.

2. Product Quality

It can be difficult to maintain uniform quality across private-label items, especially when collaborating with several suppliers or manufacturers. Variations in production standards, sourcing of ingredients, or manufacturing procedures might result in problems with quality that impact the functionality of the product and the happiness of the customer.

Also, consumers do not trust private label products due to the assumption that private label business owners use a product of lesser quality at a good quality price to make enough profit for themselves.

3. Price wars

Competition in price and pressure on margins resulting from the market assumption that private label products as affordable or value-for-money substitutes for branded goods. To be competitive, retailers may demand lower prices from suppliers or engage in price wars, reducing the profit margins for private-label goods.

4. Legal Risk

Private label companies are responsible for adhering to some legal and regulatory obligations, such as rules on intellectual property, labelling requirements, and product safety standards. Failure to meet regulatory obligations can result in fines, product recalls, or damage to brand reputation.

Step-by-Step Guide To Implement a Private Label Business

After understanding how private label works, follow this complete guide to help you implement a private label business. Our professionals come in handy in helping founders establish and manage their online business in the United Kingdom.

Do research and Choose What Product to Sell

When starting any business either as a manufacturer or retailer, the importance of research and deep study cannot be overemphasized. Conduct research based on trends and events to select what consumer needs you want to solve.

Founders or business owners may already have a niche in mind, however, research gives you full data on your operational industry, the market opportunities and consumer needs. Do not embark on implementing a private label business without thorough research. Then select the product of your choice.

Find a Supplier

Once you’ve decided on your choice of product, the next step is to locate potential manufacturers or suppliers of your desired product. Find suppliers who share the same value as you, who have integrity to maintain the quality of products and honesty in dealings.

Negotiation

Start a conversation with the manufacturer and make the intentions of your business known to him. Negotiate pricing and minimum order quality.

Clarify product specifications, packaging requirements, and branding guidelines. Draft an agreement or contract between you and your supplier, outlining each person's terms and responsibilities.

Identify your target market

Identifying those who are most likely to purchase your product or services is the first step of marketing. While you’ve selected the service or product you choose to sell, locate those who need the item the most.

This will help you choose the things you want to offer and the best way to market them. Customers are the key to selling; by identifying your target market, you can focus on the products that will most likely be sold.

Create Your Brand

Creating a brand involves selecting a business name, logo or trademarks that align with your business and the business industry. Branding helps your business to stand out and be uniquely different from your competitors.

After obtaining products from the supplier, the product is repackaged with your labels and branding materials.

Designing Your Product Packaging and Labelling

Customize packaging materials and labels to reflect your brand and product value. Every label or packaging material must identify with and align with your brand tone. Ensure packaging material complies with regulatory requirements and safety standards.

Set Up Your Online Store

Select an e-commerce website of your choice. Set up your store to suit your style and brand.

Launch Your Business

After you've followed the step-by-step guide on private labelling, you can go ahead to launch your business. Incorpuk help founders scale up from start to global brand from the comfort of their homes.

Examples of private-label brands in the UK

Here are examples of common private-label brands in the United Kingdom:

1. Tesco

Texco is one of the largest retailers in the that offers a diverse range of private label products under various brand names such as:

• Tesco Finest: Known for premium-quality food and beverage products.
• Tesco Everyday Value: Offers budget-friendly essentials.
• Tesco Healthy Living: Focuses on healthier alternatives.
• Tesco Clothing: Provides affordable clothing and apparel options.

2. Boots

Boot is a leading health and beauty retailer and pharmacy chain that operates in the United Kingdom. Boot offers over-the-counter medicine and healthcare products, baby essentials and cosmetics.

It also operates internationally, including Ireland, Italy, Norway, the Netherlands, Malta, Thailand and Indonesia.

3. ASDA

ASDA is a British supermarket chain, acquired by Walmart which deals with essentials, premium quality foods and home accessories. Its subsidiary brand is “Just Essentials” with offers from groceries to household necessities, catering to budget-conscious consumers.

How To Choose The Right Manufacturer For Your Private Label Business

Choosing the right manufacturer for your private label business cannot be overemphasized. To ensure quality, reliability and long-term products, here are things to consider when choosing the right manufacturer for your products:

1. Product Specifications

• Outline the product specifications, including materials, dimensions, packaging, and any regulatory requirements.
• You must locate someone who has a track record of success in creating products with your specifications and requirements. As you approach any manufacturer or supplier, they should be able to provide production samples, documentation, and testimonials from previous clients who asked for comparable goods or services.
• If the manufacturer has a website or an online presence, check for reviews or locate people who have ever sourced items from them and ask necessary questions.

2. Evaluate The Quality of Their Products

• Enquire about their manufacturing materials, technologies used, and health and safety measures. Visit the factories as well. If your products are sensitive items like foods, chemicals or any edibles, you need to take proactive measures to ensure the products are safe for consumers.
• Check for production capacity: the volume of product they can produce at a stipulated them. Can their equipment and resources cover the volume of your request?

3. Check Their Pricing Structure

Private-label products are usually cheaper and quite competitive in the market. You have to go for the pricing structure that covers for cost price and a good profit margin without going above the competitive price.
Negotiate with your manufacturer and obtain quotations to close the deal. Most times, it is the higher the quality, the lesser the price.

Manufacturers would tell you their minimum order quality (MOQ), this will determine their pricing structure.

4. Logistics and Location

Consider geographical location when choosing a manufacturer for your private label business. Verify the manufacturer's delivery history if you want your private label product supplied on schedule. You must research shipping rates for large quantities, order turnaround times, customs policies for international shipment, and other related topics.

5. Legal Consideration

Ensure they have the legal requirements and license to operate as a manufacturing company.

Have a clear contract outlining terms, conditions, intellectual property rights, confidentiality clauses, and dispute resolution methods.

Frequently Asked Questions (FAQs)

What is Minimum Order Quantity

Minimum Order Quantity is the smallest amount of a product that a supplier is willing to sell to a customer in a single order. MOQs are commonly used in various industries to ensure suppliers cover their production costs and achieve profitability.

What is Intellectual Property Rights?

Intellectual Property Rights (IPR) is the legal right given to authors and inventors for exclusive control on the usage of their works. These rights are intended to encourage innovation and creativity by ensuring that creators can benefit from their work. Examples of these rights are trademarks, Copyrights, Industrial designs and geographical indications.

Conclusion

As a young entrepreneur, venturing into private labelling helps you record swift business growth and sufficient profit. At Incorpuk we will help you set up, manage and scale up your online business from the UK to any part of the world.