If you do goods business or want to start this kind of business, you would hear about something about the white label and private label, which is relevant to your business industry. So you should gain some understanding of these concepts and then help develop your business.
This article mainly talks about the differences, similarities, advantages and disadvantages of white labels and private labels.
Definitions of White Label and Private Label
1. What does white label mean in business?
White label in business means that you buy finished products directly from suppliers or manufacturers, and then stick your own labels to sell, which is in the way of directly selling products developed and served by the third party.
Sellers can rebrand these products and sell them as their own products, while they cannot reinstall the sizes or other parameters of products according to their needs. What they can change is only marketing, packaging and brands of products.
If sellers have their own popular brands, they can also brand the products bought from suppliers as their own, and then sell them as new products in the name of the brand with marketing and promotion. Meanwhile, sellers don’t need to develop new markets or spend a lot of time on plans of launching a new product line, so sales of white label products will help get lower costs and higher profits.
White label is not only limited to entity products but also used in software like service industries. However, for those sellers, it is hard to find white label products because manufacturers of these products are anonymous.
In history, the term “white label” derived from vinyl records and the music industry. In the past, if an artist wanted to publish his records, he must send a backup copy to the radio station or DJ. However, the backup copy had no label or any mark, so neither DJ nor competitors did know where the music copy came from. Later, it was replaced by “white labels” and this concept has gradually been used widely in other industries.
2. What does the private label mean in business?
Private label is also called private brand in the business. Its concrete process is that sellers sign contacts with suppliers or manufacturers and customize products according to sellers’ demand with sizes, parameters and design patterns, then stick private brands to sell.
The product with a private label is manufactured by a third party and sold in the name of the retailer’s brand. As a retailer, you need to describe everything about products in detail, for example, what is in it, what the brand or label is like, and how it is packaged. Then the manufacturer finishes the producing process and sends goods to you. It is different from buying products from other companies with their brand logo.
For example, a specialty retailer of private label apparel (SPA business model) is a typical retail business model of private label, which is close to the concept of “manufacturing retail”. Brands, including Uniqlo, Muji, ZARA, OZOC of World Group are all in this model. This model is from GAP Company, which is a type of vertical business integrated from merchandise planning, manufacturing and retail. It can connect customers with suppliers in an effective way, and through innovating supply chains to respond to the need of the market rapidly.
Products suitable for private label sales are physical commodities. Clothes and accessories, like women’s yoga pants, packsacks, cosmetics and skincare, packaged foods, hair products and so on are in great demand, so many of them are chosen as private label products. Diversified customer needs with a large market base are a key factor for private label products.
Take typical examples, like Adidas and Nike, they are well-known products but also private label products. Only reliable cooperative partners can they stick brand label, control quality and deliver products.
There are many similarities between these two types of sale forms and they are also confused easily. As sellers, you should be clear about their distinctions if you want to succeed. Then this article will tell you the differences and similarities between white labels and private labels for your reference.
Similarities between White Label and Private Label
As business modes, white label and private label have similarities in some aspects. Although they are two kinds of products manufacturing ways, it does not mean they are totally different. Also, their similarities may confuse you and influence you to make a decision.
First, white label and private label products are all produced by manufacturers but not sellers themselves. No matter you are a seller of white label products or private label products, you won’t participate in the process of manufacturing.
Second, sellers can control the process of sales in both types of business modes. You can manage all the activities of promotion and marketing on products; you can give the product in your brand name and you can buy those products without any logo of manufacturers.
Differences between White label and Private Label
For white label products, all products have been produced before coming to an agreement between sellers and manufacturers. So sellers can only customize product packaging. While for private label products, sellers can customize products; they can express their demands to control the size, design and other parameters of products.
2. Uniqueness of Products
White label products are not unique and exclusive because suppliers or manufacturers can provide products for different sellers. However, a seller who has its private label products can send all sizes or parameters of products to manufacturers, but it means other sellers won’t be able to sell similar types of products.
3. Cost and Return on Investment
White label products and private label products are different in business models, which also means the cost and return for sellers would have a gap.
If you want to sell white label products, you need to spend a lot of money on advertising to promote and popularize your products because many competing sellers sell the same products. If you can find and implement an effective marketing strategy, then you will succeed in your business.
If you want to sell private label products, you should pay high fees for them, including fees for product research, development, marketing, advertisement and so on. What’s more, you also need to employ extra professionals to finish these works. Although sellers need to pay high fees, they can make exclusive sales, so the rate of return on investment is high as well.
4. Product Itself
White label products include physical commodities as well as some nonphysical goods, like services or software. It is a kind of business model widely used in the IT industry, like some white label platforms providing services. They are distributed to retailers and then retailers sell them as their own products.
Private label products are the main physical commodity, like clothes, household supplies without complex production. These products are produced by manufacturers and then sold by retailers with special logos or brands.
5. Brand Effect
A significant difference between white labels and private labels is about a brand of products. Sellers choose white label products but do not focus too much on the uniqueness of products. Although they stick their labels on the products, they share the same products with other sellers. In this way, products won’t help enhance their brand effect.
Meanwhile, some sellers choose private label products and attach importance to their own brands. The products are customized with a private label different from others. With gradually accumulated product sales and market, it will help enhance the brand effect. When customers buy this product, they will remember the brand, which improves the brand’s influence in a silent way.
For example, you are a new seller of bottle products and you don’t have enough money and qualification to finish the whole process of producing a bottle. In this circumstance, you need to find a bottle manufacturer and buy its products at the most reasonable prices. Then you can stick your own brand or labels on these products to sell.
After developing your bottle business, you have accumulated certain money and strength and then you want to occupy a larger market of bottles. It’s time to form your private label products. You need to design and develop bottles with your own styles and purposes, which means the brand and the product belong to you and only you can sell it.
In consideration of the differences listed above, it can be concluded that white labels and private labels are suitable for different businesses and companies. You should choose under your condition. For some new beginners on business or some based on the Internet industry, the white label model is a good choice. For some competitive companies or those focusing on customizing their own products, private label mode can bring more benefits for them.
Advantages and Disadvantages of White Label
If you are a new starter without abundant experience and a client base, choosing a white label will save you a lot of time, energy and money on researching and developing products. This mode is easy to start and run without too many resources, and the profit may be higher than you develop and sell a product from zero to full.
If you have a certain foundation of clients, the white label will have more potential for you. What you have to consider is only about how to make a strategy of promotion and marketing. When something goes wrong with products, you can ask suppliers to help you solve it effectively.
White label business mode can bring many benefits for those startups, and help them make stable development.
Every coin has two sides. The white label also has some limitations.
First, it limits your choices of brands and products. Precisely, suppliers and manufacturers produce products for you but you cannot decide what products to be produced. Your design of brands and labels also depends on the product itself, which limits your choice to some degree.
Second, you cannot decide the price of products. Manufacturers and supplies decide the product price, so you may not get the most reasonable price sometimes, which increases your cost and competency disadvantage in a way.
Third, this business model is bound to bring competition with other sellers, even if you don’t want to compete with others. For the reason that you sell the same product from one manufacturer, it is inevitable and uneasy to compete with them and occupy the market.
Advantages and Disadvantages of Private Label
If you choose private label products, it means you take the most control of the product business. First, you can control the production process of products, and guide manufacturers to work under the guidance of your sellers with controlling product qualities and quantities.
Second, you can control the product price and materials. In this way, the costs of products are very clear to sellers and help them make reasonable prices. In other words, it also means sellers can control the profit levels of products.
Third, private label products help you form your own product brand effect. Your customers will remember your products with your brands and labels, which are unique with market potential.
First, if you are a new beginner in business, choosing private label products won’t return you in a short term. You need to make sufficient preparation to face everything in the process of developing a new product, which costs a lot at first.
Second, it is hard for a new brand of a new product to open and occupy a part of the market. It needs an accumulation of customer base and promotion. Some small businesses may give up halfway easily. So for small businesses, choosing private label products should be prudent.
Third, the product only belongs to you, and cannot appear in other stores. In some way, it limits its popularity.
Above all, information about the white label and private label has been explained. What’s more, you must have heard about ODM and OEM. Here I want to add one thing that ODM and OEM are included in private labels to some extent; they have more requirements than the white label.
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