Private Labels: A Closer Look at the Pros and Cons

Many brand owners and marketers have questions about private labels.  However, there are no easy answers. What is right for your product depends on the situation.

It’s easy to define what private labels are.  It’s when marketers put their own name brand on products they did not manufacture.

Many times, consumers are aware of this. Other times, they may not.

For instance, Costco introduced its Kirkland Signature label in 1995. Today, the label appears on everything from household goods to cleaning solutions, making up 25% of all the products sold at Costco and generating significant profits. Although sold by Costco under their private label, these goods are produced by a variety of manufacturers.

And Costco is not alone. Private labeling has become a booming industry worth more than $230 billion, according to the Private Label Manufacturers Association. In some cases, these products have sold well because they are discounted. In other cases, cost is not the deciding factor. Consumers trust specific brand labels, such as Kirkland Signature, and look for it when shopping at the store.

Key Benefit/Key Drawback of Private Labels

The key benefit of private labeling is that it helps an established brand or marketer sell products they do not make, have no interest in making, or have no way of manufacturing. However, the keyword here is “established.”

Using our Costco example once again, Kirkland Signature is not only an established brand but also a trusted brand. Consumers and purchasers assume that Kirkland Signature products have been evaluated, proven effective, and are of high quality.

A new or lesser-known brand or marketer may not have that advantage. To build their brand, they may have other manufacturers make their products and then put their own private labels on them. However, if consumers are not familiar with that company, private labeling may not work. What really sells the product is the established name behind the product.

Many times, an established manufacturer wants to add a new product line. This can turn out to be a financial boost for both parties.

To illustrate, an international ice-cream company wanted to enter the coffee marketplace. It partnered with a coffee company to provide the coffee products but put their own ice-cream company’s label on those products.

Both companies profited handsomely from this undisclosed arrangement. Additionally, the ice-cream company could use a claim on its private label that the original coffee maker also used, indicating that the coffee supports farmers in countries in which it is grown.

Here are two more benefits – and two more disadvantages – to private labeling.

Advantages

Brand Connections. Suppose a manufacturer of professional cleaning solutions needs help marketing its products. This company is not known well enough to whole-sale distributors to carry the brand. However, if Costco carries the brand under its private label—voilà—it suddenly becomes an overnight success.

Major Cost Savings. As referenced, it can be a significant financial undertaking for a manufacturer or marketer to introduce a new line of products. It is far more cost effective to have another company, that already makes similar products, to make the product and put a private label on it.

Disadvantages

Must Think Big. The original manufacturer may have a minimum order for its products. Invariably, these are large minimums. If the private labeler cannot successfully market the product, the product may have to be sold at a discount, eliminating the profits they were hoping for.

Dead Product Lines. Earlier, we mentioned that the international ice-cream company wanted to introduce a line of coffees, assuming their customers would purchase them. So, they private-labeled the coffee made by another coffee manufacturer.  But:

• What if they were wrong?
• What if their loyal customer base was only interested in their ice cream and not a new brand of coffee?

If this happened, the ice-cream company would be stuck with an entire product line, packing the walls of their warehouse and tying up working capital.

The bottom line is that private labeling carries many benefits but can carry with it some inherent risk. At GENFlex Labeling Solutions, we recommend that our customers consider all the pros and cons and discuss these with our experts.  We have extensive experience in producing private labels across a wide array of products for many brand owners.  If this is the right path for your company, we stand ready to deliver you a private label that makes your product stand out against the competition!

Genflex Labeling Solutions has been a leading provider of packaging and labeling solutions for over 90 years. We are dedicated to helping your brand and your products succeed. Discover more about General Paper Company here.