What if we told you that several products of brands that you are loyal to are not actually manufactured by the brands?
Sounds confusing, doesn’t it?
Wait. It only gets interesting.
Welcome to the most comprehensive Ecommerce and Retail Guide, where we discuss the most prominent business models you could implement for your retail or Ecommerce business.
In our previous post, we saw what wholesaling and warehousing meant and their shared features, challenges and solutions. Today, we decided to present a business model that is most ideal for new businesspeople.
We call it Private Labelling and Manufacturing
What Is It?
In our daily lives, we use products of all kinds. From the salt that goes into our food to the shoes that slip into our feet, we use products from different brands. We are very specific about the brand of certain products and would prefer them any day to their alternatives.
We call them brand loyalty. This loyalty could be because of the product quality like its shelf life or long-lasting attributes, value for money, emotional connection or anything that is specific to a customer.
We show this loyalty towards particular brands but what if we told you that several products that you buy of your favourite brands are not actually manufactured by them?
For the uninitiated, this could be a new perspective but for those who have been in business for a while, you know the drill.
This scenario is what we exactly call private labelling.
In simple words, private labelling is when a manufacturer decides to sell their products to a different brand. The manufacturer gets paid for the products sold to the brand.
The brand that buys the products has no obligations to reveal any details about the purchase and retains its own branding and logo when it comes to the sales of the product.
From your coffee powder to t-shirts, private labelling is prominent in every business segment you can think of.
Reports from the Private Labels Manufacturers Association reveal that private labelling is growing at exponential rates in the US and that its market share has reached almost 25% of the entire sales in the country.
Private labelling is a fantastic opportunity for businesses to get their products and produce into the market to the masses. Sara Nesbitt, who is the chief executive officer of Coastal Carolina Soap Co and owner of three private-label accounts, shares that private labelling is one of the best ways to put products in consumers’ hands. She adds that this model gives manufacturers a chance to produce products under a brand name that would not be possible otherwise.
How Does It Work?
If you intend to start a private labelling business, you need to talk to brands and businesses and secure a deal to sell your goods under their brand name. Once the contract is signed, the brand would stock its inventory with your products relabelled under its brand image, tone and name.
When we are talking about private labelling, we should also discuss another important aspect of this which is called OEM.
What is an OEM?
Original Equipment Manufacturer (OEM) is a prominent concept, where your product is used by a different brand to increase the value of that particular brand’s product.
If this sounds too complex, let’s visualize the electronics segment for instance. Look at your smartphone in your hand. Apart from the brand name and value it carries, it has in it tons of spare parts and materials that are from other small and medium-sized businesses.
The chipset, like the Snapdragon, is from Qualcomm which is used to add value to your phone’s speed and performance. The screen of your phone has an OEM element, where Gorilla glass is designed and manufactured by a different company but is used to add value to your phone by making its screen unbreakable.
OEM entities are everywhere in most products and goods.
Why You Should Go For Private Labelling
Private is one of the best ways to ensure you receive more sales for your business. Also, if you are someone who is new in the world of business, this is ideal as consumers would be more than willing to shell out cash on brands that have a recognition and standards than a new venture with less credibility that has just started out.
If reaching your customers is your end goal, private labelling is one solid business model you could implement.
Besides these, here are other crucial advantages of private labelling:
- It allows you to build a loyal consumer base for your brand and reach people you wouldn’t be able to otherwise.
- Profit margins are significantly higher in private labelling as brands tend to spend more on procuring products from manufacturers than producing their own.
- Your products are exclusive to your brand alone and this is vital to stand out from your competitors.
Challenges In Private Labelling
Despite the advantages, there are several challenges business owners face in private labelling. These challenges are persistent regardless of which side of the table you are in – the manufacturing side or the procuring side.
Let’s look at some of the most prominent challenges faced by private labelling companies.
Inventory management : where you don’t have a digital interface or a centralized visualization in place to give you a comprehensive picture of your stocks and inventory.
Real-World Scenario : You have a retail apparel store and you have limited ideas on which apparel to procure and from which manufacturer. You also don’t have enough information on your fast-moving apparels, the ones to stagnate and the ones to get returned. This makes your inventory go haywire.
Sales Order Fulfilment : where you have a disorganized workflow management from manufacturing and stocking to packing and shipping causing a delay in order fulfilments.
Real-world Scenario : Your shipments to a particular brand are delayed because of lags in your manufacturing or logistics and they have been returned or denied because of poor service.
Production planning and forecasting : are crucial challenges as private labelling requires brands to be volatile about the number of units or volume they require in a particular batch. This order is influenced by market and consumer behaviour, seasons and more and directly impacts your manufacturing process.
Centralized Operations : where you don’t have an enterprise software in place to track marketing initiatives and activities, supply-chain and logistics, selling and sales states, manufacturing and more on a single screen.
Real-world Scenario : You have to rely on team heads or department heads to give you individual and offline reports on the status of each division’s operations. Compiling them is a task and inferring from the compilation is another task.
Pricing Calculator : where you overquote or underquote your prices, gradually leading to a loss.
Real-world Scenario : When quoting, you need to consider costs such as manufacturing costs, packaging costs, taxes, delivery costs, operational costs, profit margins and more and fix a price that does justice to what you quote.
Customer Engagement : where dedicated time and resources are required to manage each and every social media handle and other avenues from where lead generation and customer interactions are possible.
Real-World Scenario : You have a poor engagement rate online as you post updates and announcements but fail to interact with your audience. This shows your brand as static and you eventually end up losing followers and presence because of monotony.
Marketing Expenses : where you consistently spend an increasing amount of money for lead generation. However, they fail to convert because of an optimized process in place.
Real-world Scenario : you are at the wrong place on the internet driving irrelevant traffic from sources to your website leading to enhanced bounce rates and minimal conversions.
How To Turn Private Labelling Challenges Into Opportunities
We have identified several tested solutions to the challenges we just discussed. Let’s look at them.
Enterprise Resource Planning : it is one extensive tool you should deploy in your private labelling business to streamline a range of processes. This includes sales, inventory, supply-chain, payroll, marketing and more into one. This allows you to get a bird’s eye view of processes and take organizational decisions accordingly.
Omnichannel Sales and Inventory Management System : that takes care of the sales and inventory requirements stemming out of your business’ diverse channels and social profiles. With segmented information, you could prioritize, differentiate, manage quantity, and ship to each distinct channel with zero delays.
Project Scheduling System : where you could schedule the manufacturing process for each different brand you are associated with and specify distinct parameters and conditions bound by different contracts. This ensures you have the activities planned for an entire month or quarter with all information available in one place.
Pricing Calculator : which allows you to quote a fair price (apart from giving you good profits) based on the requirements of different brands.
A CRM : A CRM allows you to manage your marketing expenses better by giving you a comprehensive insight into your audience’s details and expectations. With segmentation and targeting, you could implement different methods like email marketing, content marketing and more to pull and convert visitors.
Social Media Automation : allows you to schedule your posts and updates for an entire month and let your resource spend quality time on reputation management and customer engagement.
Case Study
Those who have been to Costco would’ve come across this unique brand called Kirkland Signature. This brand offers a range of products from food to apparels. Not many of us realize that Kirkland Signature is a private-label brand that accounts for a quarter of sales at Costco.
Another interesting example of private labelling is Vega Coffee. Vega Coffee is procured by several ice-cream parlours and manufacturers to be used as an ingredient in their ice-cream selections. They are also used by popular brands and rolled out into the market.
Vega Coffee experiences increased demands in the market and good profits.
Future Of Private Labelling And Manufacturing
This space is consistently evolving with manufacturers increasingly looking to incorporate advanced tech into their operations. Private labelling is a segment that could witness a dead inventory if manufacturers don’t pay attention to consumers’ needs in the first place.
With no demand, they could end up with stocks that could perennially just lay stagnant. And if you didn’t know, private-label products cannot be returned as well. This poses another threat to manufacturers.
So, the future will involve them implementing data analytics and business intelligence tools to optimize their manufacturing processes, analyzing market requirements, getting an ERP developed, fixing supply-chain concerns and more.
If you are a business looking to venture into private labelling, we recommend getting in touch with us. We have the best team of developers with us who would roll out an extensive tool that completely manages your private labelling venture and helps you bring in automation as well.
Reach out to us today.