5 min read
Opinions expressed by Entrepreneur contributors are their own.
The private label business model has been around for decades. And just as business trends have shifted due to technological changes, economic changes and changes in consumer behavior, private labeling has also evolved over the years — especially these past few years.
If you plan on pursuing a private label business, make sure yours is founded on facts. Let’s explore the misconceptions surrounding private labels and debunk them with the reality of the current times.
Myth 1: All private labels are inferior in quality
Though this claim used to have some basis, it doesn’t hold true for all private-label brands anymore. Gone are the days when knock-offs comprised most of the private-label goods sold in physical and digital stores. Today, high quality and premium private labels are the trend.
During economic downturns, consumers typically opt to buy private label products — a trend that was particularly evident during the coronavirus pandemic. Consumers turned to private label products mainly because of supply shortages in consumer packaged goods (CPG). This shift also goes to show how well private label products can fare against their more popular counterparts.
Additionally, because consumers are now more conscious of their buying decisions, most private label distributors have become more conscious of the quality of their offerings — even if it means higher sourcing costs.
Fact: Most private label products have impressive quality. In some cases, they can even be of a comparable caliber to larger national brands.
Myth 2: Private label products are cheaper than their national brand counterparts
Private label brands usually spend less on manufacturing and marketing, which is why they can keep their retail prices to a minimum. However, some private label products aren’t exactly affordable. These include items that have undergone rigorous customizations or were made with premium materials, naturally resulting in higher prices.
Plus, many private label brands are investing more in marketing and customer service to be on par with big brands, strengthening their brand equity. This allows them to command competitive prices, even amid well-established competitors.
Fact: Not all private label products are cheap. Some brands are stepping up their game so that they can price their products more competitively.
Myth 3: Only huge retailers can sell private label goods
This is not the case anymore. While there are large-scale manufacturers that only accept bulk orders from huge retailers, more manufacturers are now teaming up with small businesses to produce goods in small batches.
Small-scale production can actually have plenty of benefits. For one, it allows manufacturers to use superior materials without the risk of expensive dead stock. As for retailers, they can position their products as limited editions that can be priced at a premium.
Fact: More manufacturers are willing to work with small businesses these days.
Myth 4: Private labeling requires orders of large quantities
Mass production is a common method used by private label manufacturers. But as mentioned in the previous section, a shift in consumer behavior gave rise to more manufacturers decreasing their minimum order quantity (MOQ).
Plus, with the growing number of business owners opting for the dropshipping model, some suppliers do not impose any MOQ requirement at all. Dropshippers will only have to invest a little more in customizing their product packaging, and they can run their business without risks of surplus inventory lying around.
In some cases, ordering huge quantities can help retailers maximize profitability. But if you haven’t strategized a strong and profitable market position yet, then it might be best to start with a smaller inventory.
Fact: Some private label manufacturers accept small order volumes. Others may also accommodate a dropshipping setup where you pay for products only after they’ve been sold.
Myth 5: Every business will reap more benefits when they switch to private labeling
As appealing as private labeling can be, it isn’t the best setup for everyone. For instance, hand tools and fastening tools can be sold without any fancy labels. Consumers won’t care what brand their nails and bolts are — they just need them to work.
Also, entrepreneurs have to consider the significant amount of work (and resources) that goes into private labeling. Especially now with an ever-expanding range of products in the market, businesses have to work with a robust marketing strategy and aim for product differentiation to ensure survival.
Fact: Private labeling doesn’t guarantee huge profits. As with any business venture, it takes a good amount of resources and expertise to yield significant revenue.
The changing economic climate and shifts in consumer behavior have changed the trends in private labeling. And with consumers being more receptive to private label products, it’s safe to say that this business model now has fewer barriers toward entry.
Private labeling comes with its set of risks and challenges. If you want to succeed in this industry, you should arm yourself with a strategy that can help you make a mark and stand strong against other brands.