In today’s market, with so much competition in stores, a brand’s packaging draws as much attention as the product inside. Millions are spent on product packaging for just that reason. It is becoming more and more common for large and small sellers to outsource their products and packaging through a contracted manufacturer, called private labeling.
The practice of private labeling is in front of us in our local Target, Sam’s Club, Wal-Mart, and other big box stores. Even your local grocery store has a few private label products down each aisle. Companies who choose to private label can find great success if they navigate and make sure they practice smart private label practices. Today, we will take a look at what exactly private labeling is, as well as our list of the biggest, must-avoid mistakes for your private label business.
What is private labeling?
A private label product is manufactured by a contracted or third-party manufacturer and sold under a retailer’s brand name. As the retailer, you delegate everything about the product, such as what the label looks like, what goes in the product and how it’s packaged. You then pay to have your product produced by the manufacturer and they deliver it to you.
Many companies do this, the largest being Amazon. Target is another company that enjoys the benefits of private labeling — their Up & Up brand and their Archer Farms brand are both private labels. Restaurants have been known to private label condiments that have gotten popular with their customer base. Hair salons and spas create branded cosmetics and hair products, such as shampoos from another company. The list goes on and on, as it’s profitable if done correctly.
Mistakes to Avoid with Private Labeling
1. Not Having Competitive Prices
Setting competitive pricing is a must and not doing so at the start can really hurt your brand. Make sure to do plenty of research before you send your product off to the manufacturer. Researching trends, competition and having competitive pricing are all on the path to you having a successful private label and optimized profits.
Find products similar to yours that you’ll be in direct or indirect competition with and identify what makes yours special and what will stand out about your brand. Always set competitive prices to ensure your brand will take the lead on the shelf.
2. Entering Too Broad a Market
Getting your new private label mixed into an oversaturated, overpopulated market, especially a mainstream one, is something you will want to avoid. Consumers are very loyal in these markets and rarely switch brands once they’ve become dedicated to their preferred product.
3. A Poor Relationship with Your Manufacturer
Before you begin contracts with any manufacturer, make sure to adequately vet the factory and visit the warehouse or manufacturer's place of business to make sure you can inspect it thoroughly. Ask for product samples if you have time. You may be in a rush to get started, but selling an inferior product that hasn’t been tested could cost you thousands of dollars and perhaps even some business relationships and customers. That would be a huge mistake, so always make sure to have a trustworthy relationship with your manufacturer and be on good terms with them. Good terms means good business as miscommunication can lead to a bevy of issues you can’t afford.
4. Inadequate Inventory Management
The simple fact is, if you don’t have a product for a company that needs it, they will look elsewhere. Making sure you are stocked with your hottest products is always a must and being sold out constantly is a mistake to avoid at all costs. Sometimes it cannot be avoided, but making sure your needs sync up with your manufacturer’s turnaround will help avoid mistakes like this.
5. Not Promoting Your Products Adequately
Having a high-quality product that delivers on what it promises means nothing if no one knows about it. Great pricing and a stocked inventory won’t help if you don’t have the right outreach to those who would want your product. Make sure you put a good portion of time and money into product promotion. Branding, advertising and marketing can make or break a product, or even an entire business.
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