Do you love the idea of selling branded products, but don’t want to go through the process of product development and manufacturing? White labeling, also known as private labeling, is an option to consider if you’d like to shortcut the system.
So what is white labeling? White labeling is when a provider creates non-branded products or services, and then contracts with resellers to rebrand and resell the items or services to end consumers. Businesses can access these non-branded items without the hassle of working with product manufacturers. They then create a customized appearance for the white-label products, attaching their company name and logo to each item.
The result: a rebranded product sits on a retail shelf next to a product from a national brand. Since the national brand makes both products, consumers see identical products with different packaging and names. The national brand sells at a higher price than the white-labeled alternative. Companies find that these co-branding strategies create a win-win situation since the national brand expands its reach and sales for both price points.
How it works
Companies that specialize in white labeling create products for other companies to rebrand and resell to their customers. For example, batteries are commonly white labeled. When consumers shop at Costco and buy the Kirkland brand of batteries, they are actually buying products manufactured by Duracell that have been rebranded for Costco. Same batteries, different brand names, different prices.
Shoppers can spot white-labeled products on store shelves by looking for the store brand or generic items. Big-box retailers often use this strategy to source more branded items.
It’s a win-win B2B deal, with benefits for both the white-labeling company and the buyer:
- Reseller: By working with a white-label provider, resellers gain access to products without the need to go through research and development. As a result, resellers save significant amounts of time, money, and resources on production costs. Since these companies don’t have to create products from scratch, they can expand their services and product lines quickly. The end product appears as though the reseller manufactured it.
- Provider: White-label providers also benefit because resellers offer access to a bigger distribution network. Instead of selling to consumers directly, providers sell products to resellers. These providers benefit because they can concentrate on producing the product without working on marketing to reach the end consumer.
Anonymity is key to the success of white labeling. When the end consumer purchases the item, they don’t know that the product came from a white-label provider. This agreement is more common than consumers realize, with many recognizable brands reselling white-labeled products.
Types of white-labeled products
White labeling started to gain traction in the 1990s with physical products, such as store brand options at the supermarket. Over the years, these private label brands have increased in popularity because customers can buy the same quality products without paying the premium for a name brand.
Here are some of the most common types of white labeling.
- Retail products: Most large retailers offer white-label products in their retail stores, like Target (up&up brand), Costco (Kirkland brand), and Walmart (Great Value brand). These store brand options include everything from food to household goods and personal care products.
- Electronics: You might be surprised to learn that many significant electronics brands sell white-labeled products. Cheaper computers and cell phones can sell at a higher price when they have a well-known logo.
- Services: Businesses can offer white-labeled services through a third-party provider. One notable example is when banks or retailers outsource credit card processing. When you have the opportunity to sign up for a branded credit card at your favorite department store, it’s often a white-label credit card processing service.
- Software: Major companies share certain software products through a software as a service (SaaS) arrangement. The white-label software developer provides access for other companies to rebrand the software with their own logo. Often, companies sell rebranded software to end users through monthly or annual subscriptions. JotForm is an example of white-label software available for Enterprise users, who rebrand the software for their organization.
White labeling vs private labeling
Is there a difference between the terms “white label” and “private label?” People often use these terms interchangeably, referring to the rebranding of products, software, and services.
“Private label” is most common when referencing physical products. On the other hand, “white label” is used more often for software and services.
Pros and cons of white-label products
Learning about the advantages and disadvantages of white labeling can help you decide whether it’s right for your company. White labeling could be a profitable venture under the right circumstances, but there are several things you should consider.
Advantages of white labeling
- Expanding product offerings: By providing customers with a broader variety of products and services, your business can create a competitive advantage in the industry.
- Scaling a business: White labeling makes it easier for businesses to scale without getting caught in product development and manufacturing logistics. This allows business owners and executives to focus on what they do best, helping companies grow.
- Reducing unit costs: When buying white-label products in bulk, businesses can negotiate a lower price per unit. The company can then pass the savings onto customers, giving the end buyer a discount compared to the name brand products.
- Maintaining quality standards: Often, white-labeled products come from the same manufacturers as name brands, which means the white-labeled products are just as good as the recognized brands. Customers can’t tell the difference.
Disadvantages of white labeling
- Diluting the market: When rebranding uses similar packaging, it can dilute the niche. Copycatting, which is illegal, is the strategy of mimicking the packaging of another brand. Private label brands must be proactive in differentiating their offerings, so as not to mislead consumers.
- Reducing the number of unique products available: When multiple brands sell the same products, consumers have fewer choices. Customers might think they can choose from two or more products when the store shelves actually have the same products repackaged under different brands.
- Pushing out smaller competitors: When a white-labeling provider gets too big, it can push smaller providers out of the market. This results in a monopoly and creates a larger barrier of entry for those entering the market.
Done right, white labeling can create profitable opportunities for both providers and resellers. At the same time, customers can benefit from access to quality products at lower prices.
White labeling in the software industry
There’s no question that software development can be expensive. Even after launching the software, you must provide ongoing updates and bug fixes. A lot of time and money goes into software development, making it a risky endeavor.
Instead of bearing the burden alone, white-labeled software gives you the benefit of a proven system without the hassle of updates and maintenance. Companies like to white-label software solutions to tap into the developer’s resources and experience.
Organizations can either use white-labeled software or start selling the software as their own, giving them a digital product without the extra work to develop the program from scratch.
One of the main benefits of SaaS is the revenue model, which provides steady income through customer subscriptions. Consumers are willing to pay a monthly or yearly fee for access to the right tools and resources.
In the past, software companies charged for software licenses for an indefinite time period. Now, the licenses have time limitations.
These ongoing payments give the provider the cashflow necessary for updates and continued development. At the same time, resellers and customers benefit from the ongoing updates, which maintain the software’s performance.
Considerations when choosing a white-label partner
Here are some things to consider when choosing a white-label provider:
- Product quality: The satisfaction of your customers will depend on the quality of the products they get. Make sure you’re working with a white-label provider that prioritizes quality at all times.
- Contract agreement: Choose a partner willing to sign a contract that benefits both parties. Include policies that assure the provider won’t try to sell to your customers directly.
- Track record: Well-known white-label providers offer years of experience in the industry, which means they know how to navigate anything that might happen in development and production.
- Customer support: If something goes wrong with the product or service, will you have access to appropriate support to resolve this issue? Ask the provider about their customer service.
Any business investment has inherent risks. But white labeling is a great way to minimize those risks by investing in proven products. As you learn more about the industry, you’ll find the products and services that are a good fit for your business model.