A private label, also called a private brand or private-label brand, is a brand owned by a company, offered by that company alongside and competing with brands from other businesses.[1][2] A private-label brand is almost always offered exclusively by the firm that owns it, although in rare instances the brand is licensed to another company.[3] The term often describes products, but can also encompass services.
The most common definition of a private label product is one that is outsourced, in which a firm is contracted to make a product under another name.[4][5][6] However, it can also define products made in retailer-owned firms.[7][8] For example, in 2018, The Kroger Company had 60% of its private brands produced by third parties; the remaining 40% was manufactured internally by plants owned by Kroger.[9] Private-label producers are usually anonymous, sometimes by contract. In other cases, they are allowed to mention their role publicly.[10][11]
Etymology
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The term private label originated in retail,[12] but has since been used in other industries as well. Probably the best known private-label brands are store brands, which are managed by supermarket and grocery store chains. Examples are Simple Truth by Kroger and Great Value by Wal-Mart.[13] Store brands compete with national brands or name brands, like Coca-Cola or Lay's.[14][15][16]
The term private-label product overlaps with the term white-label product. They are sometimes used interchangeably, but they don't mean the same thing. A private-label product is created exclusively for a client, who sets specific demands on what the product or service must contain.[17] A white-label product is not created exclusively for one company, and although white-label manufacturers might offer customizations to their products, these are usually limited.[18] The specifications of a private-label product are set out by the client, whereas a white-label product is more generic and already designed.[19][20]
Store brands
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νώμα (noma, "remembrance, memory"), a private-label trademark of Lidl for its Greek branch. Around 80% of the products in a Lidl store are private labels.[21] Shelves in a Swedish grocery store showing both private label and international brands.In the supermarket and grocery store industry, the term private label/brand is almost always used, even if the same product is sold non-exclusively to multiple retailers with different packaging (white label/brand).
A store brand, also called a house brand[22] or, in British English, an own brand,[23] is a private-label brand trademarked and managed by a retailer.[1] This brand is almost always offered exclusively at the chain store that owns it, although in rare instances the brand is licensed to another company.[24] Examples of store brands are Simple Truth by Kroger, Great Value by Wal-Mart, Clover Valley by Dollar General, Market Pantry by Target, and Specially Selected by Aldi.[13][25] Store brands can also be eponymous, or named after the store, such as Joe's O's cereal by Trader Joe's.[26] Store brands compete with national brands, also called premium brands or name brands,[14][15][16] with its items sometimes being called brand-name products.[27] Examples are Coca-Cola, Lay's, and Kellogg's. The general appeal of store-brand products is that they are usually offered at a significantly lower price than their name-brand counterparts.[1]
Most private-label store brand products are manufactured by third parties, but some are made by companies owned by the retailer.[8] For instance, a vice-president of The Kroger Company stated in 2018 that approximately 60% of their private-label products are outsourced. The remaining 40% is manufactured internally: in 2018, Kroger owned 38 plants, including 19 dairy farms, 10 bakeries, and 2 butcheries, strategically spread across the US.[9] Similarly, Safeway Inc. owned 32 plants as of 2012.[28] Most retailers prefer to keep the identity of their suppliers private, and accordingly have non-disclosure clauses in their contracts, making it difficult to determine the producer of a private-label product.[10][11] In a few cases though, the manufacturer is allowed to mention it publicly,[29] is revealed through a product recall, or in rare instances, is stated on the product itself. For example, the bags of Kirkland Signature coffee by Costco feature the text "Custom roasted by Starbucks".[30][31]
Private-label brands emerged in the 19th century.[12] Until the early 20th century, their general focus was on delivering quality at a price below that of the national brands. In the first half of the 20th century, the quality of private brands diluted and their standards dropped. In their competitive struggle against national brands, low prices were considered more important than quality. In the second half of the century, this trend gradually reversed.[32] As quality and visual appearance improved, private labels rose to prominence in the 1970s and '80s.[33] By the 1990s, they were increasingly seen as a threat to the established brands.[34] Also, from the '90s onwards, a premiumization of store brands began to occur,[35] giving rise to more expensive premium private labels.[36][37]
Generic brands are often associated with store brands. Generic products were first introduced in the United States in 1977,[38][39][40] quickly winning market share from national and private-label brands.[41] A 1981 academic article described them as products "without brand names, in very plain packages with simple labels and usually sold at prices below both the national and private brands with which they compete".[38] Packages of generic products often feature only the name of the type of product it contains, e.g. "Beer" or "Batteries".[39] Nowadays, the terms generic brand and store brand are sometimes used interchangeably.[14][42][43] The term generic can be used as a pejorative toward store brand items that are perceived as bland or cheap.[44][45]
A private-label brand is often produced by the same company that manufactures the national brand of that product.[46] Different brands target different consumers. For instance, Kimberly-Clark makes Huggies diapers, but also produces a Walmart budget version.[47] Allegedly, some store-brand items are identical to their name-brand counterparts: they are said to be literally the same product, except for the packaging and price.[42] In other cases, a manufacturer can have multiple formulas for one product, creating a private-label version using one method and the national-label version using another.[48] In 2007, a mass-recall of contaminated pet food products brought to light that more than 100 different brands of pet food, both premium- and private-label, were in fact produced by a single company: Menu Foods Inc. in Ontario, Canada. The ingredients and recipes they used differed substantially among brands, depending on what their clients specified.[47]
In the United Kingdom, supermarkets have been criticised for "fake farm" private label brands.[49][50]
In fast food
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Fast food restaurant chains sell their products under their private-label brands. Their core items are usually fries and meat-based items, but they might also offer brownies, muffins, cookies, and salads. These private-brand products are offered alongside national-brand products, such as soft drinks by Coca-Cola or Pepsi, and ice creams co-branded with Oreo or M&M's.[51]
In finance
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A private-label credit card (PLCC) is a type of credit card that can only be used at a specific company or chain of companies. Since this is virtually always a retail business, they are also called store cards.[52][53] The retailer partners with a bank that issues the cards, funds the credits, and collects payments from customers. The cards themselves are branded with the logo of the store, but not the bank.[54] Examples are the Target Debit RedCard (issued by TD Bank, N.A.),[55] the Walmart Reward Card (issued by Capital One),[56] and the Amazon Store Card (issued by Synchrony Bank).[57] PLCCs also do not carry the logo of the payment network (e.g. Visa or Mastercard), but they do use that network for transactions.[52]
Private-label store credit cards are sometimes compared to but not the same as co-branded credit cards. These cards usually feature the logo of the payment network, and sometimes the logo of the bank.[58] Unlike PLCCs, co-branded cards work like 'normal' credit cards, usable at any place where that type of card is accepted.[59] For instance, warehouse chain Nordstrom offers a Nordstrom Store Card (private label) and a Nordstrom Credit Card (co-branded), both issued by TD Bank, N.A. and using Visa's network.[52]
Benefits of private label
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See also
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References
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Thinking of selling your own products? You’ve probably heard that private and white labeling are popular solutions.
But while those two terms are sometimes used interchangeably, white labeling and private labeling are actually very different propositions.
In this article, we’ll define private and white labeling (and provide real-world examples of both), sum up the differences between these two approaches, and help you decide which is right for you.
Let’s get into it…
Private labeling is when a retailer has the exclusive rights to sell a product made by a third-party manufacturer, while also controlling various aspects of the product — like its size or color, or the way it’s branded, packaged, and promoted. It’s big business, making up almost 18% of total retail sales in the US.
If you’ve ever stepped foot in a grocery store or supermarket, you’ll have come across dozens, or maybe even hundreds, of examples. That’s because their house brand products are almost always private labeled.
While private labeling is commonplace in the grocery industry, Trader Joe's uses it more than most. Almost everything it sells is a private-label product.
The retailer works with a massive range of private label manufacturers, including Enjoy Life, McCain, and ConAgra. But you’ll never see those names on a Trader Joe’s shelf (or on its website).
White labeling is when a generic product made by a manufacturer is sold by multiple retailers. Each retailer can choose how to package and label their “version” to appeal to their audience, but the fundamentals of the product — size, weight, color, etc. — remain the same.
One of the most common use cases for white labeling is dropshipping, a form of retail fulfillment in which a store owner sells white-label products without ever getting their hands on the stock.
Notebook Therapy is a popular dropshipping store specializing in Japanese and Korean stationery.
You can tell it’s a dropshipping store based on the lengthy shipping times.
Because products are shipped by a third-party manufacturer rather than being dispatched from the retailer’s own warehouse, estimated delivery times range from seven to 35 days.
Pro tip: Like the sound of dropshipping? Learn more in our guide on how to efficiently dropship on Shopify.
There are plenty of similarities between white and private labeling.
After all, both involve selling someone else’s product and branding it as your own.
But there are also some crucial differences that will determine which solution is the best fit for your own e-commerce store.
First up, here’s an at-a-glance view of the main differences between white labeling and private labeling:
White label Private label Products created for multiple retailers Products created exclusively for a single retailer. Retailers can only change the branding, not the product itself Retailers can customize specific product features, plus the branding and packaging, to create something unique Products come to market fast because they already exist Products take longer to come to market as the manufacturer makes the retailer’s desired changes Products are (usually) cheaper Products are (usually) more expensiveNow let’s take a more in-depth look at the differences between the two…
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White-label products are generally priced cheaper than their private label alternatives.
That’s simply because it’s more expensive for manufacturers to produce private label products, which are exclusive to individual retailers and may require significant customization — not just to the packaging and labeling, but to the product itself. It’s substantially cheaper (and quicker) for them to mass-produce generic white label products, then simply apply different labels for each retailer.
And those savings can be passed on to the consumer.
Because the branding is the only element of a white-label product that features any customization, it’s faster to get these products from the manufacturer’s production line to the retailer’s shelves.
This makes white labeling a good fit in trend-driven niches where being one of the first to market can have a huge impact on sales.
In other words, if speed is the most important factor, white labeling is a better choice than private labeling.
Pro tip: Not chosen an e-commerce niche yet? Check out our guide on what to sell on Shopify.
Sure, white labeling comes out on top for speed and price.
But when it comes to promoting a product, private labeling wins every time.
Fact is, it’s extremely difficult to differentiate a white label product because it’s generic. Multiple retailers are selling exactly the same item, and the margins tend to be tight, so there’s not much room to compete on price.
That means branding is your only unique selling point (USP) — and if you’re competing with household names, it’s a tough battle to win.
Because private label products are exclusive to each retailer, they’re way easier to differentiate, which makes for easier and more effective marketing and advertising campaigns.
With white labeling, there are precisely zero unique features (unless you count the product name, label, and packaging).
Private label products offer far greater scope for customization.
For instance, imagine you want to sell private-label scented candles. Great idea, the world definitely needs more scented candles!
Your private label manufacturer will give you the freedom to play around with various characteristics, like the size, shape, color, and scent. Just hand over your preferences, and they’ll turn them into something unique to your brand.
Some niches are better suited to white labeling, while private labeling is more common in others.
For instance, private labeling is popular in industries where the products are comparatively simple and require significant differentiation, such as the fashion market.
Because it’d be tough running an e-commerce store that only sells generic white T-shirts, right?
Meanwhile, white labeling works best in markets where unique features just aren’t that important. The tech niche is a good example: brands often use white labeling to sell important-but-dull products like batteries and TV remotes.
White-label products typically require less upfront investment from the retailer because they’re generic and mass-produced. Theoretically, that means you can turn a profit fast.
But it’s not quite that simple.
While the products are generally cheaper with white labeling, the lack of differentiation might force you to invest more in marketing and advertising to drive sales.
And the competition is high because you’re selling a generic product stocked by multiple other retailers, which might force you to sell at a lower price point — thereby eating into your margins and limiting your ROI.
The opposite is true of private labeling: you’ll likely have to spend more buying and customizing the product. But once you do, you may be able to sell at a higher price point, resulting in a higher return once you recoup the initial costs.
Typically, retailers selling white-label products don’t have to worry about complex legal issues because the manufacturer has already obtained all the necessary licenses for their generic goods.
That may not be the case with private labeling, as the retailer might have to go through lengthy legal processes before they can start selling their unique, customized products.
Still not sure which approach is best for your e-commerce business? Let’s look at some of the scenarios that are best suited to either white labeling or private labeling:
A private label denotes a product that has been exclusively made for a retailer by a third-party manufacturer and that has been customized based on the retailer’s requirements. For instance, a retailer selling private-label candles might ask for the product to be of a specific size, color, and scent.
There are countless examples of private-label brands, some of which have become household names in their own right. Examples include:
The phrase “white label” derives from the practice of manufacturers placing blank labels on the packaging of generic products. Retailers can then add their own branding to these products, making it look like they produced them in-house.
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