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Pros and Cons of private labelling

Introduction

The term ‘Private Label’ has become quite popular among online retailers, especially after online marketplaces started selling products under their own brand name. If you are an online store and use premium fulfillment options like the Amazon FBA (Check the step by step guide for Amazon FBA here), setting up a private label must have caught your attention if you don’t already have one. No matter if you are already selling under a private label or looking forward to using one, this article will help you in making the right decisions. Dive in deeper to learn more about private labels, their pros and cons as an online retailer.

Having your own brand name sounds beneficial for business, but there are many aspects to consider. For example, while selling on Amazon as a private label seller, the first and foremost thing you should worry about is inventory management. Private labeling requires highly efficient and optimized inventory automation for sellers to make the most out of their business.

Private label products carry the name of the seller but are manufactured by a third party. The manufacturers and suppliers of such items sell those products as a white label to online stores. They don’t share marketing costs and don’t share any direct responsibility for customers’ product quality or complaints.

Private Label

Selling private labeled products is a big decision for any eCommerce store. In the previous blog post, we talked about 5 simple steps to create a private label product for Amazon. It gives a unique identity to your products. Before you make your mind, let us have a look at the pros and cons of private labeling in the following sections. Here, we will discuss mainly selling through Amazon FBA, but you can always use these tips for other marketplaces.

Pros of Private Labeling

In this section, we will have a look at the advantages of selling under your private label. We have included the benefits applicable to a broad range of products to suit over the diverse audience:

 

# Upper Edge Over The Competition

Having private labels allows you to market your products independently, and it allows you to select the customer base on your own. For instance, if you are selling decorative items, you can focus on the cream market exclusively or go for product bundling, which isn’t possible every time when it comes to unbranded items or selling some else’s brand. Despite sourcing these products from the market, you have complete power over the pricing models and even ask your suppliers to make changes in the product in case of bulk orders. 

 

# Better Control Over Pricing

Selling products with private labels has absolutely zero impact on their cost price, but it provides great control over pricing as we discussed earlier. Having private labels allows you to price your products on the basis of your marketing strategy and run your sales independently. A lot of suppliers are unwilling to spend money on marketing, which is a big incentive for private labeling as you focus on branding with adequate supply available.

Comparison of prices

 

# Get Brand Driven Benefits

One of the biggest benefits every brand seeks to enjoy is customer loyalty. With private labeling, you can build your brand without extensively investing in the infrastructure or HR costs. The only major investments come in the form of marketing and packaging costs. Brand loyalty ensures that you have an idea of how many units you can sell, and it also helps in laying down a road-map for on-boarding new products.

Cons Of Private Labelling

This section discusses the disadvantages of using a private label while selling on Amazon FBA or any marketplace. Have a look at them:

 

# No Real Control Over Quality

As you are not the original manufacturer of the item, any defects in the product quality will make you liable for the lapse. In the customer’s eyes, you are the producer or the owner of the brands, and thus they will register complaints against you despite you having no role to play in the event of a quality lapse.

 

# Unknowingly Sourcing Through Unethical Sources

If you unknowingly source your products from unethical businesses or firms violating laws, the customers will still hold you liable for your suppliers’ actions. Hence, you have to stay vigilant to avoid such actions. This can potentially result in boycotts and major setbacks for your brand.

 

#Procurement And Inventory Control Constraints

As a private labeler, you still need to manage minimum order quantities (MOQs), backorders, deadstock, and inventory turnover ratio. To keep your bottom line healthy, you will have to keep an eye on these metrics and also ensure that you don’t over-purchase or undersell the stock. Private labels do slash off a lot of production-related issues, but procurement and inventory control costs still need to be managed.

 

# Competition

Just like unbranded products, there will be tough competition for privately labeled products. And chances are, your competitors will have deeper pockets. The competition will become a major driver for your pricing game, and you will have less control over your marketing strategies when competing against major brands. Complying to the market sentiment would become a must.

Private Labeling On Amazon

Personal care, beverages, cosmetics, dairy items, and frozen food are quite popular for private labeling. If you are looking for the items that can be labeled, follow the simple mantra: Inexpensive, frequently bought, and easy to ship.

Private Label

Before selling your products on Amazon, it is necessary to register for a trademark and authorize your private label. If the same logo or name is already registered under somebody else’s name, you can check on the Trademark Electronic Search System Database (TESS).

After making sure the availability, you can register for a trademark on the U.S. Patent and Trademark Official Website. You can read our detailed article on selling and creating private label products on Amazon.

Summing Up

You can decide whether to sell under a private label or not with these points, but we would like to highlight two things for our readers: Go for it only if you see enough margin as that is the primary factor for private labeling. Secondly, even if you start selling items under your own brand name, it is advisable to keep selling the products from other brands as it will allow you to tap a wider customer base. We hope you find this article on the pros and cons of private labeling insightful for your eCommerce store.

Darshi Shah
WRITTEN BY

Darshi Shah

Darshi Shah joined Orderhive as a Content Writer who is very enthusiastic when it comes to writing. In her spare time, she enjoys reading books, painting, baking and writing about life and experiences.

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