But what is the value of private-label brands, and why are they becoming increasingly popular? We uncover why retailers should consider creating their own private-label products — and provide some actionable steps to get started.
What Is a Private-Label Brand?
Private-label brands sell products that have been manufactured by a third party but are sold under their own name. For example, a retailer might sell shampoo that’s been made by another organization but use their own logo and product name to make it their own.
Retailers who sell private-label products are able to customize the products to fit their needs — including what ingredients go into them, how they’re packaged, and what the labels look like — before paying for the product to be manufactured and delivered to their store.
Some of the biggest retailers sell private-label products — take Costco’s Kirkland Signature line, for example.
The Rising Popularity of Private-Label Brands
As Forbes reports, more consumers than ever are turning to private-label products in times of economic uncertainty. More than 45% of customers buy private-label products because of the price.
In the U.S., private-label sales hit $199 billion in 2021 and are set to rise even further by the end of this year, according to the Private Label Manufacturers Association’s (PLMA) “2022 Private Label Report.”
In Europe, it’s a similar story. Statista research shows the prevalence of private-label brands in Germany; and European Supermarket Magazine reports that sales of private-label products in France increased by 2.1% last year.
McKinsey states that consumers are trending toward private-label brands because they’re often cheaper — something that’s important as financially strained shoppers continue to tighten their purse strings.
Whatever the reason, it’s clear that private-label products and the organizations that sell them are here to stay. Investing in this business model can reap big rewards for retailers since they face less risk selling products that are made by tried-and-tested manufacturers.
Why Create Your Own Private-Label Brand?
So what are the values of a private-label brand? Price and flexibility are two of the major advantages, but the benefits don’t stop there.
Merchants who sell private-label products may well be reliant on third parties, but those third parties work at their discretion and offer retailers complete control over their products, including the ingredients and packaging used.
Because they have complete control, retailers can also choose the price of their products to ensure they’re making a decent profit.
Adaptability for Small Retailers
Small organizations are able to move quickly by working with third-party manufacturers — allowing them to pivot to the demands of fast-paced markets.
Low Operating Costs
Manufacturers are often stocking the shelves of multiple retailers at once, which means they can reduce the costs of creating products across the board.
Increased Customer Loyalty
Private-label products are essentially own-label products, which give retailers the chance to raise awareness with their own product packaging and branding.
4 Steps To Creating Your Own Private-Label Brand
1. Research Your Niche
The first step to starting a successful private-label brand is research — you need to figure out where there is demand and which products are flying off the shelves.
Part of this involves understanding who you want to target and the kinds of products those shoppers invest in on a regular basis. For example, you might want to sell high-end fake tan to busy moms, but if there’s no demand for it, you’re going to struggle.
Once you’ve identified your target audience, consider information like their:
- Biggest challenges;
- Passions and interests; and
- Goals and dreams.
This information will give you a good understanding of the products that will make their lives easier. Then, it’s a case of running some research to figure out which products are the most in-demand with your target market.
2. Choose Your Products
Creating a private-label brand usually involves choosing more than one product. You need a variety of options in your product catalog to suit the different needs of your target market.
If you don’t know where to start, follow these three steps:
1. Identify High-Margin, High-Ranking Units
Start with products that are highly profitable and popular.
2. Choose Smaller Products
Go for small-sized, lightweight products to start with, as this will reduce the amount you need to spend on warehouses and shipping.
3. Consider Complementary Products
An organization that sells clothes, makeup, dog toys, and vegan snacks is all over the place. It’s important to think about products that complement each other or that are similar. For example, you might choose to sell travel mugs, suitcases, and camping equipment.
It’s unlikely you’ll choose the right product mix right away. You can always switch out products that aren’t performing well; just remember to check your sales analytics to stay on top of what’s selling and what’s not.
3. Source a Reliable Manufacturer
The partnership a private-label brand has with its manufacturer is everything. It’s so important to choose the right third party as they will be the ones developing your product and ensuring you have a healthy stock supply at all times.
Be sure to do some research, get a handful of quotes, and ask for recommendations from other retailers. You might find that you need to bring on board a couple of different manufacturers for different products in your catalog.
That’s fine, but just ensure the quality lines up and you can still remain profitable. It’s often more cost-effective to work with one manufacturer than multiple because they may provide discounts for bulk orders.
4. Create Your Brand and Launch
The final stage is the fun part. This is when you get to choose your branding and design your product packaging. Your branding will help you stand out on the shelves, position you in the market, and encourage awareness, so it’s important to get it right.
Make sure the brand name you choose is available, memorable, and resonates with your target audience. Then, run some research on your competitors to see how they present their products.
From there, you can draft some logo and packaging designs that reflect how you want shoppers to see your brand.
Start Your Private-Label Business Today
Private-label brands are on the rise as shoppers become increasingly money conscious. It’s a bonus for retailers too since the business model is often low-cost and low-risk while still providing the opportunity to grow a memorable, sustainable brand.
Learn more about the latest consumer trends and preferences in Salsify’s “Consumer Research 2022” report.