White label and private label are two terms that are generally considered to be interchangeable with one another. However, in reality, there are some subtle variations between the two categories that relate to the sale of things that are produced by another company. These differences are related to the fact that a wholesaler sells their products to retailers. In this post, we will analyze the meaning of the two phrases, explain the parallels and key distinctions between them, and discuss the significance of the differences. Our post on some of the main challenges of private label production can help you with your decision.
Remember that these procedures require an agreement to be reached between two different parties:
- A retailer or reseller who is attempting to make a profit by selling a product that was manufactured by another party.
- A manufacturer is someone who provides the retailer with the service of making a product for the retailer to sell.
Manufacturing under a White Label
White labelling, also known as private label manufacturing, is a process in which a retailer who wants to purchase a product for resale enters into a contract with the product’s manufacturer, who agrees to sell the product to the retailer for rebranding using the retailer’s own distinctive brand and packaging designs. White labelling can also be referred to as private label manufacturing. The following are included as part of the white label manufacturing agreement:
The qualities, components, and ingredients of the product, as well as the manufacturing specifics, are all under the manufacturer’s control.
In most cases, the merchant will settle for a generic product from the manufacturer and will have no input over the development of special variants of the product.
The design of the product’s packaging as well as its branding is under the control of the merchant (which the manufacturer may provide as a service)
When adopting white label manufacturing, there is a larger danger of competition from other shops because the manufacturer is permitted to offer the same generic goods to those retailers under the distinctive brands of those other retailers.
When it comes to the white-label products that they sell to retailers, the manufacturer does not hold any trademarks and does not maintain any of its branding or identity.
As an illustration, let us assume that a retailer wants to sell a generic brand of pain medication, which they intend to brand in their own distinctive manner by employing their own logo, colour scheme, fashion, and packaging design. They would enter into a contract with a white-label manufacturer of pharmaceutical products, who would then take their generic product in pill or capsule form, for instance, ibuprofen, and work with the retailer to implement a packaged and labeled version of the generic product for sale to the retailer. This process would take place over the course of several runs of the generic product. The manufacturer’s primary manufacturing line continues to operate in the same manner as before, with the exception of the process of packaging and labelling the products.
In certain circumstances, there may be a reseller in the middle who acts to create the branded white label product by taking the generic product from the white label manufacturer and handling the packaging and labelling process in order to create the final branded product, which is then sold to retailers for the purpose of sale to end customers. In other words, the reseller acts as the person who creates the branded white-label product. Instead of going through a reseller, a larger retailer may choose to deal directly with the manufacturer of the generic product in order to develop a white-labelled product. This is an alternative to working through a reseller.
It is generally agreed that the record industry was where the term “white label” was first used. Before the advent of digital music, records made of vinyl were produced and distributed through retail establishments. Before a record company began manufacturing new music on records in large quantities, they would first create promotional copies of new recordings. These copies would then be distributed to radio stations, disc jockeys, nightclubs, and other venues as a method of determining the level of interest in the new recording. Because of this approach, record companies were able to make an educated guess as to the number of records they needed to produce based on the popularity of the white-label promotional copies.
In addition to physical products, white labelling is a common practice that has been adopted by technology companies. This practice enables the reuse of technology platforms that have been developed by technology companies while maintaining the look and feel of a third party’s brand and the elements of their design aesthetic. White labelling is a business practice that applies to a variety of licensed programs that are distributed using the software as a service (SAAS) paradigm. Therefore, a company that specialises in the development of software technologies may produce and market a software product that is capable of being branded for use on a client’s website. An online shopping platform is a good illustration of this type of platform. If a retailer wanted to implement an e-commerce channel on their website to sell products online, they could avoid the large upfront development costs by using an existing technology platform that they licenced from a software development company. This platform would already come pre-made with the necessary functionality, and it could be branded to match the look and feel of the retailer’s website style elements. If a retailer wanted to sell products online, they would need to implement an e-commerce channel on their website. The currently licenced software would be considered the equivalent of a generic physical product in the sense that the retailer accepts the software “as is” or “out of the box” without any customization other than style elements. This analogy holds true because the retailer does not have the ability to alter the software in any way. The software development company sells their generic software to a variety of retailers. All of these retailers use the same fundamental product functionality to power e-commerce on their respective customer websites, and there is very little difference between these sites other than the look of the UI (user interface) or website.
Private Label Manufacturing
Private label manufacturing, sometimes known as private labelling or just private label, is a way to manufacture that is conceptually comparable to white label production. When it comes to private label manufacturing, the most important distinction is that the product that is being private labelled is only offered for sale to a single retailer by the private label manufacturer, and it is not available for sale to any other retailers. A private label manufacturing agreement has the following terms and conditions:
The retailer is the one that decides what kind of product they require, as well as any alterations or variations to that product that diverges or depart from the manufacturer’s standard offering.
The producer collaborates with the retailer to make the product that meets the customer’s requirements, making any necessary adjustments to the product’s ingredients, composition, package quantity, or other particular qualities.
The design of the product’s packaging, as well as its branding, is under the control of the merchant (which the manufacturer may provide as a service)
Because the manufacturer is prohibited from selling an identical product to other retailers, the private label product is more distinctive and, as a result, is less likely to be subject to competition from products sold by other retailers. The manufacturer controls the entire production process that is required to produce the private label product.
When a manufacturer creates a product under their own brand name and then sells it to retailers or resellers, the manufacturer does not possess any trademarks on that product and does not maintain any of their branding or identity.
A private label brand of a personal care product, such as a bar of soap, or a household product, such as a scented candle, is an example of something that a merchant might attempt to develop. After that, they would collaborate with the maker of the private label to determine the aspects of the product that will set it apart from similar products on the market and give it a competitive advantage. In the instance of the bar of soap or the candle, perhaps the size, the form, the colour, or the fragrance of the product is unique in comparison to the generic options that are available. After all of the particulars have been worked out, the private label manufacturer creates the item for the merchant according to the parameters that have been established. As is the case with white label production, the store is in charge of all aspects of the goods, including branding, packaging, and marketing.
Differences Between the Manufacturing of White Label and Private Label Products
There are a few key distinctions to keep in mind between white label manufacturing and private label manufacturing, despite the fact that both involve a retailer or reseller working with a manufacturing company to manufacture a product that will be sold by the store.
The most significant difference is that under white label agreements, manufacturers sell generic products to retailers and can sell that same generic product to multiple retailers, whereas under private label manufacturing, the arrangement is exclusive with one retailer. This is the case because white label agreements allow manufacturers to sell the same generic product to multiple retailers. Another important distinction is how much room there is for individualisation within the parameters set. Because white label manufacturing gives the retailer very no influence over the specifics of the goods, the merchant is essentially forced to accept the generic product that is produced by the manufacturer. Items sold under a retailer’s own brand are known as private label products. These products allow for a greater degree of customisation and collaboration between the retailer and the manufacturer, resulting in a finished good that is more distinctive and has less direct competition in the market.
When one is a retailer or a reseller, choosing between the two choices requires first determining what aspects of the business are prioritised higher than others. Private labelling is an option that can provide a product with a distinct identity and the capability to be tailored to specific customer requirements, but it calls for a greater investment of both time and financial resources in order to conduct market research, define customer requirements, and collaborate with manufacturers to develop the product. However, as a result of those expenditures and the subsequent customization of the final product, there is the possibility of greater margins and a better level of profitability in comparison to white label items.
The white label alternative allows for a quicker entry into the market with a ready-made generic product; nevertheless, this product would be subject to increased competition from other alternatives that are comparable, and its margins may be lower as a result. It does offer potentially lower production costs, which can help compensate for the requirement of a lower price point brought on by the presence of higher levels of competition.
Offloading the production details to the manufacturer allows the retailer or reseller to keep their primary emphasis on the components of the product that pertain to marketing and sales. This is one of the many ways that the retailer or reseller benefits from collaboration with the manufacturer. And from the point of view of the final consumer, there is no perception of the manufacturer that was responsible for producing the goods because the branding is consistent with the designs of the retailer. They see a comparable product that is available at a price that is typically more affordable than the offers made by well-known brand names and that possesses the same features or possibly some distinctive qualities.