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What is Private Label Manufacturing?

By Jesus David Cano Romano
March 23, 2016
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The Definition

According to Wikipedia, Private Label products or services are typically those manufactured or provided by one company for offer under another company’s brand. Private-label goods and services are available in a wide range of industries from food to cosmetics to web hosting.

Private Label Products are more common than you might think, just take a look next time you go to any supermarket from WalMart to Costco or Tesco, all these retail stores for sometime now, have been selling a vast array of products from food to household goods and even spirits under their own brands, e.g Great Value, Kirkland, Simply Basic, Tesco, etc.

When is the concept of Private Label Manufacturing used?

The Concept of Private Label Manufacturing can be used in two scenarios, either selling or buying.

The Selling scenario, in this case Private Label Manufacturing will refer to licensing your product to another company to sell under its own name, rather than under yours. In this case you’ll be responsible to provide the products either manufactured by you or a contract manufacturer.

Related: Contract Manufacturing vs Global Manufacturing in China

The Buying scenario, here is the other way around, and the most common one, companies or entrepreneurs that are looking to expand their businesses normally use Private Label Manufacturing to acquire off-the-shelf products and add their own “Labels” or Branding, for selling the items under their name.

Quite simple no? but which are the advantages of this?

The Advantages of Private Label Manufacturing

When Selling Private Label goods to private-label buyers:

Ease of manufacture: As we are referring to products that can be easily re branded, we are talking about products that are easy to manufacture in large quantities and inexpensive to produce.

Good profit, low effort: As you’re selling generic items, most of these have a great demand and are easy to sell, which means a greater sales volume translated into a bigger sales turnover. And as normally you’ll sell the products directly to the retailer, this means no extra costs involved, which reduces the level of extra work needed to reach your customers.

Low related operational costs: As the related marketing costs reduce due that you’re not promoting a brand itself, you can have huge savings on this regard. But this does not mean that there’s no marketing involved at all. Note that you need a product that can be sold up to 5 or 6 times its manufacturing cost so you can have room for discounts based on the quantities purchased.

When buying Private label goods to sell under your name:

No need to commit to long term manufacturing contracts: Private Label goods as we mentioned before are easy selling items, so there’s no need to commit to long term contracts, so if you’re looking to introduce a new brand or product to your business line you can opt for a private label one.This will give you allow you to run some tests and in case the product hits successfully the market you can either buy greater volumes to the Private Label Manufacturer for getting a lower price, or hire a Manufacturer to produce your goods from scratch, under your own specifications.

Adapt to Customer preferences: Related to the previous advantage, as this products offer the easiness to be easily re branded, you can conduct A/B tests to identify your customers reaction and even conduct focus groups tests, so you can get to know what needs to be changed or adapted for getting a bigger market share.

Low MOQs: If you’re new in the market and you’re not sure about manufacturing large batches, you can approach to a Private Label Manufacturer to acquire the goods. Take into account that normally the sellers will have discount schemes based on the quantities purchased as their main business will be the wholesale. But no doubts this is a really good market entry tool, for SMEs and entrepreneurs.

Easy Compliance: Private label products are generally sold in many different locations around the globe, so it is essential that all products comply the most common standards required in the final markets. Nowadays this includes also sustainability and environmental standards. But for ensuring full compliance with the local regulations, we advice to conduct the pertinent tests.

Final Word

We have mentioned the different advantages carried along with the use of Private Label Manufacturing either fro selling our buying products. No doubts China will be the No.1 destination to do it. So if you’re sourcing  products or looking for manufacturing partners, contact China 2 West, we have a decade of experience doing business in China.

Read more:

Five Steps to Successfully Buying in China

The skill set required for Sourcing in China effectively

Corporate Social Responsibility (CSR) standards when sourcing in China