Welcome back to our Sourcing 101 series.
In this series we break down the basics and arm you with actionable intel to help you source products from China like a pro.
In this post we’ll answer a question that causes a lot of confusion in the sourcing world; what is the difference between white label and private label products?
White label and private label are both terms you’ll hear a lot in the world of sourcing and eCommerce, and if you’re a budding eCommerce entrepreneur looking to source products from China, understanding the difference is super important.
Knowing how each works will help you make an informed decision about which is best for your business.
So, without further ado, let’s look at white label vs private label products.
The ‘old-school’ method
Before we dive into the subtleties and intricacies of white labeling and private labeling, let’s journey back to the good old days. If you wanted to sell a product back in the day, you did it the hard way. You designed it, manufactured it yourself, marketed it, and sold it to your customers. Twas’ A simpler time.
Then along came the wonderful world of low-cost manufacturing, and through a few twists and turns, we’ve reached the age of white label products and private label products.
What is a white label product?
White label products are made by a manufacturer and then sold to resellers (or retailers) who then sell them to their customers. They are generic products and you’ll usually find many indistinguishable examples for sale in a particular market.
Let’s say you’re selling gym accessories online and want to add a protein shaker to your product catalogue. You could pull out a pen and a pad and start designing one from scratch, but you’re a small startup and want to keep costs down. You’re not trying to reinvent the wheel with this protein shaker, so investing in designing and prototyping really doesn’t make sense.
You need a White label product
A quick peruse on a B2B marketplace like Alibaba and you’ll find a manufacturer selling just what you need.
Here is a pretty cool one we found!
Order some of these stylish gym companions and you’re ready to go, with minimal investment. It’s so easy you could start doing it today. Heck, send us an email and we’ll help you do it!
Origin of the term ‘White label’
The term white label comes from a term given to promotional records sent to radio stations. A band would have a record release coming up and want their tunes spun on the radio. So, the label would fire out promotional copies of albums or singles with a basic white album sleeve (presumably to keep costs down). True story (maybe). No source for this, but it’s a cool story.
Customisation - the overlap
A lot of the confusion around white-label and private-label products stems from the overlap between the 2.
As a general rule, White label sourcing means buying products as they are. Standardisation is what allows suppliers to streamline their manufacturing process, which is why these products are so affordable for resellers and retailers.
Returning to our protein shaker for a second, you’ll notice that you have the option of a customised logo and custom packaging. You can often customise white label products in small ways, but as a general rule you’re buying a generic product as advertised. If you want the shaker to have a different size or shape for example, then the manufacturer will need to create molds and change their manufacturing process. This pushes up the cost of manufacturing (often significantly), undermining the biggest advantage of white label products (their low cost).
So where is the overlap?
If you start making significant changes to a white label product, you’re heading in the direction of private labeling.
This grey area actually represents a very interesting sourcing hack in itself.
Sourcing Hack #7:
Find a generic white label product
Learn what features this generic product lacks
Make meaningful customisations that differentiate it from similar products in the market
Sell a custom product no one else is selling
Win win win.
It just so happens that here at Epic we offer the perfect service for this type of sourcing, and we call it Reverse Sourcing. Reverse Sourcing allows you to find out exactly who manufactures the products you want to sell.
But we digress...
What is a private label product?
So, we know what white label products are, what about private label products?
A private label product is where a reseller (or retailer) uses a 3rd party manufacturer to produce a product for them. The main distinction here is that you (the reseller or retailer) specify all aspects of the product. You’re essentially designing the product yourself, and then outsourcing the manufacturing.
Take Apple as an example. Apple designs their products (obviously) but they do not manufacture them. They use 3rd party manufacturers like Foxconn to produce or assemble their products.
Apple is a clear cut example, but there are a few grey areas here too. For example, the private label entrepreneur.
Homebrands and the private label entrepreneur
Anyone who has been to a supermarket in the last 20 years will be familiar with the home brand. It’s that cheaper option on the shelf that bears a striking resemblance to the big-brand product you know and love. The success of home brand products gave rise to what we like to call the private-label entrepreneur. Those opportunists looking to cash in on the popularity of ‘like’ products.
As we noted above, the investment required to design, develop, market, and sell a brand new product is hefty. An alternative to this however, is to find an existing product (preferably one that is selling well), identify the aspects of that product that make it popular, and have a similar version of it manufactured in a low-cost country like China. This product might be positioned in the market as an affordable substitute to a leading brand, or an alternative with additional features.
The ethics of this are up for debate, but we’ll save that topic for another post.
The cosmetics industry is no stranger to this practice, and we’ll use a fantastic article written by Joe Pinsker that featured in the Atlantic to show you how it works. Check that out here, it’s definitely worth a read: The two most mysterious words in modern shopping.
The Atlantic article looks at knock-off versions of a popular skin care brand called Cetaphil. Cetaphil is a brand developed by Galderma Laboratories and it’s a huge seller of simple but science-backed skin care products. Galderma Laboratories does the research, develops the formulas, and sells their product to retailers (like pharmacies) under their Cetaphil brand name.
Naturally, the competition noticed how popular these products were and thought they would quite like to have a piece of that tasty pie. Scan your eyes over the face-wash section of your supermarket or pharmacy today and you’ll find some strikingly similar alternatives to Cetaphil, at affordable prices.
So, what has happened behind the scenes here? In many cases a competing company has sought out a manufacturer and basically said “Ya know this Cetaphil face wash, we want to sell something like this… so, could you make it for us?”.
“Sure!” - says the manufacturer.
The end result is a product that falls somewhere between straight knockoff of the original, and ball-park approximation. Close enough is often good enough though and voilà, you’ve got your budget alternative. It doesn’t have the brand recognition but it’s a product that looks similar and costs half as much (or less) to produce.
From Private label to white label
So, private-label entrepreneurs identify opportunities to sell ‘like’ products and position them next to well-known brands at lower prices. What happens next is, manufacturers in China (or any low-cost manufacturing country) pick up on this trend too, and they start producing generic versions of these products themselves.
Jump on Alibaba and you’ll find endless numbers of these ready-to-sell, un-branded, generic versions of products we all know. We call these… you guessed it.
WHITE LABEL PRODUCTS
Hey look, we’re back to the start. Lesson complete :)
So there you have it; white label vs private label products. Hopefully we’ve cleared up some of the confusion around exactly what white label and private label products are.
The key takeaway here is that these products provide a huge opportunity for budding entrepreneurs looking to break ground on their own business idea. We’ve worked with a lot of kiwi entrepreneurs who have done exactly that (and you can check out some of their stories here) .
In the next post, we’ll take a deeper dive into the pros and cons of white label and private label sourcing. This will further help you decide which is the right option for your business venture.
Stay tuned, and as always…
Better sourcing everybody!