AC Nielsen’s 2018 report on the global scenario of private labels in the food industry showcases how this business segment has been growing.
This report also reflects consumer perceptions about private labels, which are indicative of the growth prospects of this market segment. Given that the survey included consumers across 60 countries covering all the major global regions, these consumer perceptions are of tremendous value.
- 70% of the respondents buy private label products to save money.
- 67% of responding consumers believe private labels to be a good value for money.
- 71% of the respondents believe that the quality of private label products has improved over time.
Given this market expansion scenario, digital marketing agencies now have a choice between offering white label and private label services. It is not an easy choice as there are pros and cons to both.
We present an in-depth analysis of both the models to help you make an informed decision.
About White Label
White labeling is a B2B business model. A white label service provider sells unbranded products and/or services to other companies. The purchasing companies brand and resell those products/services as their own.
A Bit of History
The name of this business model comes from the era of vinyl records. Producers literally circulated some white-labeled records among DJs. The aim was to assess public demand before producing the final version with the printed details.
The practice helped music producers to estimate the number of records to produce.
The Advent of the White Label Business Model
The emergence of a globalized economy has been a major driver behind the growth of the white label business model. So has the growth of IT and the digital world.
Producing generic software to sell them to companies for branding and reselling became a profitable business model especially for emerging economies with high IT skills. Conversely, for industrialized countries, it continues to be a cost-effective means of accessing specialized software.
Features of White Label Marketing
- The white label business model belongs predominantly to the tech world. That, however, is not to suggest that it does not exist in other industries at all.
- White label products/services are generic, implying that the same solution can be sold to different resellers.
- The generic nature of white label also means that they allow limited customization.
Advantages of the White Label Business Model
- For an entrepreneur, the white label business model offers greater scope for scalability. Selling the same product/service to several resellers makes it a scalable business model.
- For resellers, partnership with a white label solution provider comes with three key advantages:
- Easy access to specialized expertise at a relatively low cost as overhead and R&D costs get eliminated.
- Diversification of products and/or services to offer without needing to have the expertise for all of those.
- More time to concentrate on core business processes and functions.
About Private Label
This model exists primarily in the world of retail business and has to do with products rather than services more often than not. That’s not sacrosanct, however.
Private labeling is also a B2B business model where one company produces and sells a unique unbranded product and/or service exclusively to another company. The second company sells it under its own brand name.
Private Label Features
Very often, the branding company has the idea and goes ahead to hire another company to manufacture it. Subcontracting is another name for it.
Suppose you are a botanist. You have successfully experimented to produce a unique variety of hybrid rose that’s blue. You hire an established nursery to grow these plants for you to sell in the market under your brand name.
Your contract with the nursery is that they sell these plants exclusively to you as the formula is yours. That would be a private label agreement.
The Evolution of the Private Label Business Model
The beauty and fashion industries have been major sectors of private labeling. Cleaning products, certain varieties in the food and beverage sector, paper products, etc. have been other traditional areas of this business model.
However, this business model has also grown exponentially with the advent of digital technology and online business. Globalization is a factor, of course.
Mobile phone accessories, physical and digital party games, tracking devices, etc. are some of the items added in the kitty of private label business options in recent times. The backdrop of globalized economies and digital marketplaces.
Advantages of the Private Label Business Approach
- If you are an entrepreneur with a unique idea, subcontracting an efficient manufacturer is a smart business move. You’ll be able to market your product/service without needing to invest your time and resources in a manufacturing unit.
- As an entrepreneur, finding a private label supplier allows you to scale your business without needing to invest in overheads and infrastructure.
- If you have a manufacturing unit for a particular product like bags, let us say, getting private label contracts will help you grow your business without needing to invest in designers and marketing experts.
White Label vs. Private Label: A Comparison
Both of these are B2B business models that involve generating unbranded products for branding and reselling by another company. The two models share certain similarities, though they are not interchangeable concepts.
Similarities
- In both models, the manufacturer/producer does not brand what they generate.
- The producer/manufacturer in both the models remains known only within the B2B sphere. Consumers do not get to know about them.
- Both private label and white label businesses depend on third-party contracting.
- Both of these models facilitate business growth and scalability.
- Both white label and private label agencies have a relative cushion against market shocks because of the reselling approach.
Differences
- The private label business model is more prevalent in the retail sector while offering white label is more common in the technological sector.
- In private labeling, the reseller has the relevant expertise for the product/service. It is the reverse in the case of white label agencies. The producer has the expertise, not the reseller.
- Private label partnership offers considerably greater scope for customization, which is limited in white label partnerships.
- The reseller has greater control over product/service quality in a private label partnership than in a white-label one.
Comparative Pros and Cons
- The white-label B2B model offers greater scalability for both the producer/manufacturer and the reseller.
The white label marketing agency can sell its product/service to several resellers to grow its business. The reseller can buy several goods/services to diversify the range of items to sell without needing to be an expert in all/any of those.
- The flipside for the producer/manufacturer is that they have to focus equally on selling their product/service.
The con for the reseller is that competitors can offer the same product/service. The scope for customization is limited.
- The advantage of the private label approach for the manufacturer/producer is the comparative stability of their business. Private label contracts are usually long-term and the reseller has to absorb market shocks.
The advantage for the reseller is the degree of control they can have, which makes customization that much easier. There is no need to compete with any other brand selling the same product/service.
- Another advantage for the producer/manufacturer is that they can charge a higher price in exchange for responsibilities the exclusivity they offer to the reseller/s.
- The flipside for the producer/manufacturer is that their business growth remains dependent on the reseller/s for whom they work exclusively.
For the reseller, the limitation is that their own expertise determines the range of what they can offer.
Another disadvantage for the reseller is that private label partnerships are usually more expensive than white label ones.
When Choosing A White Label Partnership Is Advantageous
- As an entrepreneur deciding on the business model: When you have a wide range of products/services that you can sell to multiple resellers.
- As an entrepreneur looking for a partner:
- When you want to hit the market fast
- When you want to diversify your products/ services without needing to/wanting to be an expert in all of them
- When you want to reduce your overhead costs.
When Choosing A Private Label Partner Is Beneficial
- As an entrepreneur deciding on a business model: You have designed a unique product that is superior to any similar offerings by a white label agency and you want to continue designing similar unique products only.
- As an entrepreneur looking for a partner: When you want to penetrate a customer segment you had not targeted before, but with products similar to your already-established product line.
A Parting Suggestion
If you are looking for a white label partnership, choose an agency to offer you a dedicated team for White Label Services. You will never need to compromise your scope for scaling through product/service diversification.
The experience and expertise will be at your service as per your needs, minus the overhead costs and admin responsibilities of having an in-house team.