We’ll take a detailed look at both white labeling and private labeling strategies, including the key differences between the two and the pros and cons of each, then help you decide which path is best for you.
Launching a new product can be an exciting yet daunting task, especially when it comes to deciding whether to go with private labeling or white labeling. Both allow you to sell products manufactured by someone else under your own brand name, but there are some key differences between the two approaches.
In this comprehensive guide, we’ll explain what private labeling and white labeling are, compare the pros and cons of each, and help you determine which is the better fit for your business goals and resources.
What is Private Labeling?
With private labeling, a retailer works directly with a manufacturer to create a product that is unique to their brand. The retailer typically has complete control over the product specifications, packaging, marketing, and more.
Some of the key characteristics of private label products include
- Exclusive to a single retailer
- Customized to the retailer’s requirements
- Produced and sold under the retailer’s brand name
- Allows the retailer to control pricing, design, features etc.
- Often higher quality and more expensive than white label goods
Private labeling takes more time and upfront investment but enables retailers to differentiate their offerings in a crowded market. It’s popular in categories like fashion, furniture, grocery, and health and beauty.
Examples of Private Label Products
- Target’s Threshold home goods line
- Amazon’s Rivet furniture and Stone & Beam home decor brands
- Trader Joe’s food products
- Kroger’s Simple Truth organic range
What is White Labeling?
White labeling refers to selling products manufactured by someone else under your own branding, without any customization. The products are generic goods created by a third-party and offered to multiple resellers.
Some key aspects of white label products
- Generic products sold to many different retailers
- No customization, retailers only change branding
- Allows for fast time to market as products already exist
- Retailers compete on price and marketing, not product differentiation
- Lower costs but smaller margins for the retailer
White labeling enables retailers to skip manufacturing and quickly sell proven products. It’s common for low-cost items like electronics accessories and generic household goods.
Examples of White Label Products
- Discount electronics and accessories under various brand names
- Store brand over-the-counter medicines and vitamins
- Generic HDMI cables and phone chargers
Private Label vs White Label: Key Differences
Now that you understand the core concepts, let’s compare some of the main differences between private labeling and white labeling:
| Private Label | White Label |
|---|---|
| Exclusive to one retailer | Sold to multiple retailers |
| Higher level of product customization | No customization, only branding differs |
| Slower time to market | Faster time to market |
| Higher upfront costs | Lower upfront costs |
| Higher margins potential | Lower margins |
| Easier to differentiate | Harder to differentiate |
| More control for retailer | Less control for retailer |
Some key points:
- Private label products are unique and exclusive while white label products are generic goods sold to multiple resellers
- Private labeling allows for product customization and more control but takes more time and investment
- White labeling gets products to market faster but offers less differentiation
There are clear trade-offs between exclusivity and control vs speed and lower costs. Next, let’s look at the pros and cons of each model in more detail.
Private Label Pros and Cons
Advantages of Private Labeling
Exclusivity – As a private labeler, you’re not competing with other resellers for the exact same product. This exclusivity makes marketing and positioning easier.
Customization – You can request specific product specifications, materials, flavors, scents, and more from the manufacturer. This allows true differentiation.
Higher margins – The ability to customize and differentiate allows you to command higher margins than generic white label products.
Build brand value – Private label products reflect your brand image and values. It enables building brand equity and loyalty.
Control – You dictate every aspect of the product, from development to pricing and promotion.
Quality – In some cases, private label products have higher production value than generic white label equivalents.
Disadvantages of Private Labeling
Time to market – Developing a custom product with a manufacturer takes more time, sometimes 6 months or longer.
Higher minimums – For the custom production runs, manufacturers typically require higher order volumes. This increases your risk.
Upfront investment – Between production costs and higher minimum orders, private labeling requires greater upfront investment.
Dependency – You are dependent on a single manufacturer for production and quality control.
Administrative needs – Managing custom product development requires dedicated personnel and oversight.
Regulations – For certain regulated product categories like food, cosmetics and pharmaceuticals, there are additional legal and compliance considerations.
When Does Private Labeling Make Sense?
Private labeling tends to work best when:
- Your products require customization to differentiate in the market
- You are establishing a new brand in the market
- You can commit to larger order volumes to obtain exclusivity
- You want maximum control over the finished product
- You have strong brand equity that you want to leverage
It’s popular for retailers creating flagship brands in categories like grocery, furniture, apparel, and health & beauty.
White Label Pros and Cons
Advantages of White Labeling
Low investment – You can start selling quickly without upfront product development and inventory costs.
Low minimums – For popular products, white label vendors allow orders as low as 1 unit.
Speed – With existing products ready to label and sell, you can launch in days or weeks.
Simplicity – You don’t have to manage product design or production. The vendor handles it all.
Flexibility – It’s easier to test new product categories and switch vendors if needed. There are no long-term supply contracts.
Wide selection – Thousands of products are available to choose from, often with the ability to mix and match.
Disadvantages of White Labeling
No differentiation – You compete directly against other resellers selling the identical product.
Low margins – The exchangeability of white label products limits profit margins. Competing on price is challenging.
Lack of control – You can’t dictate product specifications, manufacturing standards or delivery schedules.
No brand equity – Generic white label goods don’t reinforce and build your unique brand identity.
Uncertain quality – Some white label vendors have quality control issues and product consistency problems.
Scalability issues – Reliable white labeling partners who can scale with your growth are harder to find.
When Does White Labeling Make Sense?
White labeling tends to be attractive when:
- You want to minimize upfront investment and time to market
- Your products don’t require significant differentiation or customization
- You need flexibility with small order quantities and product selection
- You are selling commodity type goods with thin margins
- Your brand name and marketing will be the differentiation
White labeling can be ideal when testing new product lines or selling generic consumables that don’t need to be customized.
Key Questions to Determine the Best Strategy
When deciding between private labeling vs white labeling, some important questions to ask yourself include:
- How important is product differentiation and exclusivity for my offering?
- What level of control do I need over product specifications and manufacturing?
- How quickly do I need to get to market with initial product line?
- How much can I afford to invest upfront in inventory and development?
- How large is the minimum order quantity I can commit to?
- How important is flexibility in order volumes and lead times?
- Do I have strong branding to promote commodity white label goods?
- Will a generic white label product reinforce my desired brand image?
Carefully analyzing responses to these questions will guide you towards the better solution. Every business has unique needs and constraints. Define your priorities and must-haves to make the right decision.
While the pros and cons highlight the trade-offs, most businesses use a hybrid model. Retailers may private label hero products to anchor their brand while complementing them with supporting white label items.
Ultimately there is no one size fits all answer. Depending on your business strategy and type of products, the best approach can utilize elements of both private labeling and white labeling.
Examples of Brands Using Private Label and White Label
Let’s look at some real-world examples that illustrate effective uses of private label and white labeling:
Amazon Basics – Amazon’s massive white label brand with over 1,500 generic tech accessories and household items. Fast market entry and rock bottom pricing.
IKEA – Many core furniture lines are private label, enabling customization and Scandinavian styling that reinforces brand identity. They white label commodity products like light bulbs.
Target – Flagship brands like Room Essentials (home) and Cat & Jack (kids apparel) are private label. They differentiate and boost margins. Basic grocery items are white label.
Drawbacks of white labeling
A white label strategy can work great for giant corporations and national brands that can purchase white label products, brand and package them, then sell them by means of their easily-recognizable brand name and sophisticated marketing strategies.
However, if you’re an SMB or Fortune 5000 company, you may want to consider these drawbacks before adopting a white label strategy.
When you rebrand and sell white label products, there’s a genuine possibility that your competitors might be selling the same product. And with nothing unique about your product compared to your competitors, it’s only a matter of time before they begin eating into your market share.
Your supplier of white label products may not have good quality control measures in place. Hence, customers might have different experiences every time they buy your product. Moreover, what do customers see every time they receive a poor quality product? Your precious brand logo.
Improved profit margins
Private labeling can produce significantly greater margins compared to traditional manufacturing where a retailer does all of the heavy lifting themselves.
In fact, retailers often see gross margins on private labels that are 25–30% higher than those on manufacturer brands, largely due to lower cost management efficiencies.
