What Is a Private Label? How Private-Label Products Work

Private-label products are produced for retailers by third-party manufacturers, then sold under a retailer brand. Here’s what private labeling is and how it works.

Starting a business is hard work. It can feel like there's a never-ending to-do list, from building a website and hiring employees to managing inventory and producing products.

But what if you could outsource that last step to a supplier that’s already set up to create your products? In fact, this is what many retailers do—in a type of supplier relationship called private labeling.

Private-label products are produced by a third-party manufacturer based on specifications provided by the retailer, who then markets and sells those products under their own brand.

Read on to to learn what private labeling is and how to create a private-label line of products for your own store.

What is private label?

Private label refers to a product manufactured by one company and sold under another company’s brand name. Retailers often use private-labeling to offer exclusive items, expand their catalogs, and undercut competitor pricing.

Private-label products can be similar to items that already exist on store shelves, but the exact manufacturing formula of the product must be original. For example, if a private-label business sells a box of chocolate chip cookies, the precise recipe won’t be found under any other label. The same applies to private-label brands selling goods like consumer electronics, jewelry, or clothing.

How does private labeling work?

The private-label business model involves two types of companies: 

1. Private-label manufacturers, which work with businesses to design and produce a product.
2. Private-label retailers, which brand, market, and sell private-label products to customers.

A reliable private-label manufacturer helps ensure a profitable pricing model.

Private labels vs. white-label products

Private-label goods are often confused with white-label goods. White-labeling also involves a third-party manufacturer making a product on behalf of a retailer. However, white-label products are not custom-designed for a seller.

A white-label manufacturer makes large amounts of generic product, then sells it to individual retailers. Each retailer sells those products to consumers under a brand name.

In other words, private-label product lines are unique and sold exclusively through a single retailer (think: Costco’s Kirkland Signature or Amazon’s Amazon Basics collection). White-label products are generic and sold under the brands of multiple retailers.

5 benefits of private labeling

The private-label business model offers advantages to both manufacturers and retailers. These benefits include increased profit margins and control over branding, as well as:

1. A unique value proposition
2. High profit margins
3. Customized pricing control
4. Customized marketing control
5. Adaptability

1. A unique value proposition

Private labelers get to design and sell their own, distinct products that are different from established brands, store brands, or other private-label brands. As a private-label entrepreneur, you can develop original product ideas and become known for a signature item.

Some (often larger) retailers use private labeling to create value product ranges and undercut competitor pricing. However, smaller businesses may choose private labeling to develop premium products that they wouldn’t be able to produce alone.

2. High profit margins

Private-label products often have higher profit margins than resale products. Retailers may choose to set a high price point for their unique private-label products—or leverage their existing brand power to cut marketing costs for private-label product lines.

Depending on the type and quantity of items produced, as well as the level of customization, manufacturers may be able to offer private-label products for less than resale products.

3. Customized pricing control

Private-label sellers and producers can tweak manufacturing costs and price points on their product lines. They can experiment with different pricing strategies to maximize profit margins.

4. Customized marketing control

As a private-label retailer, you can choose the marketing campaigns you use to promote your branded products. You don’t have to adhere to the campaigns run by national brands.

5. Adaptability

It can take months or years for an established brand to change its product formula, pricing, or marketing strategy. Private-label sellers, on the other hand, can pivot quickly. They can respond to negative reviews or low sales and adjust to make the best product for the best price.

Private label drawbacks

Despite the benefits, private labeling also has its drawbacks. There's the possibility of product inconsistencies, less flexibility for innovation, and the challenge of building a brand from scratch.

Dependence on third-party manufacturers

One of the main drawbacks of private labeling is the dependence on third-party manufacturers. If the manufacturer runs into problems, such as production delays or quality issues, it can directly impact the private-label seller. This can lead to stock shortages, customer dissatisfaction, and potential damage to the brand’s reputation.

Less flexibility for innovation

When you’re working with private-labeling services, there may be limits to the level of product customization available. Depending on suppliers and product categories, retailers won’t always have as much control over the product design process as they may want.

However, issues with product design can be mitigated by developing a close working relationship with your manufacturer, which opens the possibility for bespoke research and development.

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6 examples of private-label products

You may be surprised to discover how many consumer products and national brands are made by private-label manufacturers. In fact, the private label model exists across most product categories, both in online and brick-and-mortar stores.

Store brand private-label products are an increasingly popular approach to private labeling. WSL retail

Private-label products

1. Coffee
2. Pet food
3. LED lights
4. Phone accessories
5. Apparel
6. Personal care products

1. Coffee

Private-label coffee has exploded on the internet. Many of these coffee brands use coffee dropshippers that send out batches to customers as soon as they’re ordered.

2. Pet food

Many pet stores sell private-label pet foods made by big manufacturers that serve many clients. This is particularly common with online pet stores.

3. LED lights

Online marketplaces are filled with private-label LED lights, each with a slightly different design but sourced from a few manufacturers.

4. Phone accessories

Chances are the third-party accessories you buy for your phone—chargers, phone cases, etc.—were made by a private-label manufacturer and sold under another company’s brand name.

5. Apparel

Many online clothing retailers use private-label garment manufacturers for shirts, dresses, skirts, shoes, handbags, and more. These clothing manufacturers can print custom designs on apparel. They may also offer custom tailoring and leatherworking.

6. Personal care products

Lots of personal care products, from mouthwash to makeup, come from manufacturers that serve private-label sellers. The formulas for these products will be customized for specific clients, but they’re produced on the same assembly lines.

3 examples of private-label brands

Here are three examples of large retailers that have launched successful private-label brands.

(It’s worth noting that you don’t necessarily need to offer private labels under a separate brand. Smaller businesses may choose to incorporate private-label products as part of their existing product line.)

1. Kirkland Signature

Launched in 1995, Kirkland Signature is Costco’s private-label brand. It includes a wide range of products produced by various national manufacturers, and is known for offering impressive value for money to customers.

Take Kirkland Signature vodka, for example, which has been compared favorably to high-end brands like Grey Goose. Or Kirkland Signature extra virgin olive oil, which is USDA-certified organic.

Kirkland is an example of a private-label product line that has grown to national status and become synonymous with its retailer. As of 2023, sales of Kirkland products account for 23% of Costco’s total revenue.

2. Amazon Basics

Amazon Basics launched in 2009 and allows Amazon to compete for sales with other retailers on its own marketplace.

The private-label line under its own brand name offers electronics, home goods, pet supplies, and other affordable items—often at the lowest price points in a product category.

Some of the most popular Amazon Basics products are device charging cables. These cables are praised for affordability compared to those from official manufacturers such as Apple, which place high profit margins on their accessories.

Another well-known Amazon Basics private-label product is the Microfiber Sheet Set, which has been reviewed by customers more than 380,000 times.

3. Harrods Own Label

Unlike Amazon Basics and Kirkland Signature, which harness private labeling to lower consumer prices, luxury UK department store Harrods uses its private-label brand to offer a range of premium goods.

Harrods’ own brand covers a range of products, including gourmet food and beverages, plus high-end fashion, accessories, and home goods.

Its selection of teas, for example, is sourced from around the world, packaged in distinctive Harrods-branded tins, and sold for higher prices than similar products from other retailers.

Key takeaways: What is private label?

• Private-label products are produced for brands by third-party manufacturers.
• The business model is popular among large retailers, who use private labeling to create in-store brands with value-for-money products.
• Increasingly, private-label manufacturers are also working with smaller businesses to produce unique products and premium branded items.

What is private label FAQ

What does “private label” mean?

A private label is a branding arrangement where one company manufactures a product and a different company brands, markets, and sells that product. The private-label seller designs, markets, and prices the product, but it’s the manufacturer who produces it and ensures quality control.

What is the difference between private label vs. branded products?

A traditional branded product is one in which a company manufactures the products it sells. These companies often spend years cultivating a strong brand identity, and their products must meet their established standards. By contrast, the private label business model involves one company making a product and a different company branding and selling it. These products may not inspire the same brand identity and loyalty.

Why would a store have a private label?

Many stores turn to private labels to focus on retailing and branding while avoiding the complexities of manufacturing. For example, many of the most profitable products that grocery stores sell are private-label goods, from pasta to jelly to eggs, all under the same store brand. The store isn’t burdened with operating a wheat refinery, jelly factory, and hen house. Instead, different suppliers provide the goods while the retailer concentrates on sales and marketing to generate bigger profit margins.

What is an example of a private label?

The Costco house brand Kirkland Signature has become a world-renowned private label. Costco offers various items of similar quality to competitors for lower prices. For example, Kirkland’s diaper is made by the same company that makes Huggies diapers.

How do you start your own private label business?

Starting a private label begins with brainstorming private-label product ideas. Once you’ve found a promising product category, you’ll need to research private-label manufacturers in that sector. Contact manufacturers directly, learn about their pricing and manufacturing processes, and determine whether you’ve found a fit. You’ll handle branding and marketing separately, either on your own or with the help of a professional who specializes in this aspect of the private-label economy. With your manufacturing and branding teams in place, you’re ready to launch your own private-label products.