The terms private label and branded products are quite popular in the e-commerce world. Although there are now more private labels on the market than ever before, creating a private label isn’t right for every company.
At some point, every business owner needs to decide what type of name they want their product(s) or service(s) to carry. The promise of more sales and success that often follows private labeling is alluring, but jumping in too quickly can cause margins to shrink.
To figure out whether or not private labeling versus selling branded products is right for you, it’s essential to understand the benefits and drawbacks of each model.
Private Label: Pros
When you purchase your products from a manufacturer and then put your logo on them before you sell, you have a private label. Doing business this way can lower product unit costs and lead to higher profit margins.
Another great upside of using a manufacturer is that you can determine the quality and exact specifications of your products. In some ways, this control leads to unmatched exclusivity. If you want to separate yourself from your competitors, creating a private label is one of the easiest ways to do so.
Assuming everything goes right with your label, you can also build a strong customer base.
People become dedicated to brands that provide the products they love. As long as you make a label with helpful products that have sound quality, chances are customers will grow attached to your brand and prefer doing business with you instead of your competitors.
Private Label: Cons
In the words of Warren Buffett, “It takes 20 years to build a reputation and five minutes to ruin it.” It takes a lot of time and energy to create a brand name that resonates with consumers. If at any point your logo, packaging or product isn’t top-notch, the reputation you’ve worked so hard to create can be harmed beyond repair.
Undoubtedly, one of the largest drawbacks of private labeling is that your success depends mostly on your manufacturer. You need to be sure that your production line knows what you need and will work tirelessly to help you achieve your goals.
A lot of businesses trip up when their manufacturer becomes unreliable or fails to create products with consistent specs. Of course, this is where Sourcify can come in and ensure your e-commerce band avoids the biggest pitfall of private labeling.
Matching your product with the right overseas factory is hard, but it’s where we thrive. Sourcify works tirelessly to ensure our customers can build the best private label products with the help of consistent and trustworthy manufacturers.
Branded Products: Pros
There are several upsides of building a company that sells products from other brands.
When you sell products that are already branded, you can benefit from established customer recognition. So, when a customer is looking at your offerings, they’ll be more likely to do business with you because they’ll be able to choose a brand they recognize versus something unfamiliar.
Each time you want to expand your product line, you’ll probably have an easier time if you’re using branded products already. It’s generally easier and less costly to introduce new products if you already have a loyal brand following.
Strong, well-known brands have superior credibility with customers. Consumers generally assign higher values to new products from established brands and are less likely to question their quality and usefulness.
Branded Products: Cons
Sometimes using an established brand is risky.
Big brands can experience adverse events, and if this happens with your branded product owner, the negativity will become attached to your company, too. When this happens, trying to differentiate your company from a tarnished brand image can be tricky—if not impossible.
Sometimes working with a strong brand identity can also harm your company if you need to pivot. Over time, the market you operate in will change. If the brand you sell doesn’t adapt, your business might fade.
As time passes, established brands can also become boring. Being number one in the minds of consumers is a good thing, but sometimes it can mean you’re too established. When the brand you work with fails to innovate and stay current, their products can become drab and out-of-date.
Since established brands are already popular, chances are you won’t be the only business selling their offerings. So, when you actually put their product up for sale, you’ll need to pay particular attention to what your competitors are doing.
There will likely be intense pressure to provide the product at the lowest price in an attempt to improve sales numbers. When you don’t have exclusivity, you’re regularly required to defend your place in the market rather than working to elevate your business.
Test the Water Or Jump In, Headfirst?
Deciding what type of products you want to sell is a monumental decision. Ultimately, your choice should take the pros and cons of private labels versus selling branded products into account.
Depending on the amount of time, money and drive you have, developing your own branded products may be a viable and worthwhile pursuit. However, companies that are not willing or ready to build their own brands can benefit from reselling products indefinitely, or at least until they’re strong enough to take on building and maintaining their own image.
Creating a product brand is risky, but it can grant you higher returns if you do it well. When you sell another’s product, getting to market is generally more straightforward, but it’s often less lucrative, and you have little control over your sold brand’s reputation.
The last thing brands need to keep in mind when considering their offering is that they don’t necessarily need to go all in with one strategy or the other. Many vendors sell multiple brands alongside their house brand.
For example, if you visit Target, you’ll find their private label, Archer Farms, right next to well-known brands. Testing your own private label is a sound idea that could tip you off to your company’s next cash cow.