The Pros and Cons of Private Labeling in E-Commerce

Private labeling

Whether we’re aware of it or not, we’ve surely all purchased private label products. Private labels have been commonplace in our supermarkets for years,  blending in with well-known brands on appearance while often standing out on price.

The prominence of private labeling is also becoming more and more prevalent in the e-commerce world. That is especially true on Amazon, the marketplace where an estimated 92 percent of online shoppers have made at least one purchase. (In fact, if your brand is dependent on selling via Amazon, the online retail giant’s private labels are probably already taking steps to push you out of the marketplace.)

Just so we’re clear with what is being discussed, private labeling is the practice of taking a product someone else manufactures and entering a licensing agreement to distribute it under your brand. Essentially, these are “phantom labels” that go just a step further than drop shipping.

If your e-commerce brand is considering turning to private labeling, make sure you’re aware of the pros and cons before deciding if it’s the best practice for you.

Private Labeling Pros

Private labeling certainly has appealing aspects for some brands. It can help generate revenue while also potentially building more trust with your consumers.

But here’s one of the most obvious reasons e-commerce brands would turn to private labeling going forward: drop shipping is dead. Facebook is constantly shutting down drop-shipping accounts centered around spam content. Drop shipping had its window of benefit, but it is and has always been an awful customer experience. The negative impact of such a miserable customer experience has finally caught up to the practice of drop shipping and is ultimately becoming its demise.

Private labeling is similar to drop shipping but separates itself by taking a step further toward fully owning the relationship with your consumers. Though you are not manufacturing the products, private labeling is actually building onto your own brand. You are still using the power of your brand to sell and thus enhance that power. And, like drop shipping, it also provides the brands the ability to be far less concerned with the risks of manufacturing.

Private Labeling Cons

With private labeling, your brand does not have total control. That’s easily the primary drawback. Your supplier can be found by anyone, their product used as a private label for that brand, and immediately become a direct competitor to your business. There’s very little action, if any, a brand can take to alter the quality of private label products.

It’s also important to remember a lot of manufacturers require a minimum amount of product be ordered before doing business with you. Some e-commerce brands may have to get quite creative to make the minimum quantity work for them. Other brands may find the cost isn’t going to be worth it as they won’t be able to move enough of a product within a reasonable time period.

Conclusion

Private labeling sits in the middle of drop shipping and manufacturing your own products. It’s can be great for brands that aren’t overly concerned with having complete control of the quality of a product. It can also be useful for those that may want to mitigate worries about manufacturing risks.

But before you dive into private labeling, make sure you understand the wants and needs of your customers. You have to make sure the approach you take with private labels matches with your consumer demands. Otherwise, a step in that direction can certainly backfire.

Written by
Trent Shadid is a senior copywriter and editor at Engine.