Some of the world’s most iconic brands sell items that might not be as unique as you think. Their branded products are actually manufactured by an outside company that makes identical products sold under other brand names. This widely recognized business model is called white labeling, and it is used in many categories of consumer products.
What is white labeling?
White labeling is the process by which third-party producers make identical products that are sold by multiple retailers under different brand names. These white label products undergo a degree of differentiation before they’re sold to consumers. This includes using different brand names, different packaging, and even different prices.
White label manufacturers may offer discounts for high-volume orders, and for this reason some retailers order in bulk from white labels. Other retailers lack shelf or warehousing space, so they order white label products on demand, and the manufacturer ships the product directly to the consumer once it’s been ordered. This is called dropshipping. In these scenarios, it’s the brand’s job to establish new markets, shape the customer experience and build strong relationships. It’s the white label manufacturer’s job to make and ship the actual product.
Example of white labeling
The coffee industry offers a real-world example of white labeling. A number of large-scale coffee producers roast beans in industrial facilities and ship batches of those beans—each of them containing an identical product—to retailers. Some of these retailers sell them via online businesses. Others grind and roast the beans in local coffee shops. The coffee is presented to consumers as custom products, but in truth, it all originates from the same white label manufacturer.
You can find white label brands in many different industries. T-shirts, cosmetics, metal water bottles, tote bags, LED lights, batteries, and mugs are among the products made by bulk manufacturers and sold under white label brands. There is even white label software, where companies add their own branding to a software application made by third-party programmers. In many cases, the retailer adds its own branding at the last minute.
What are the benefits of white labeling?
White labeling provides benefits to both manufacturers and end sellers. Each can focus on their areas of specialization while offloading other work to partners. Specific benefits include:
- Lowers barriers to entry. Sellers benefit from being able to enter new markets without learning the intricacies of manufacturing products. All they need is a product idea based around branding and marketing.
- Diversifies the market. Markets benefit from entirely new products, but they also benefit from variations on existing products. Perhaps an existing product functions well but has no visual flair. White labeling can fix this by adding custom packaging to a mass-manufactured product.
- Offers economic efficiency. Manufactured goods tend to generate higher profit margins when they’re made in bulk. A white label manufacturer can bring down per-unit costs with large production runs of a particular item, and then selling batches of that item to many retailers.
What are the drawbacks to white labeling?
White labeling does come with a set of drawbacks. You must work within the constraints set by your white label supplier, and this limits your opportunities to fully customize your product. You may find yourself competing in a price war with other manufacturers that sell the exact same product under a different name. You also subject yourself to the whims of your supplier when it comes to order fulfillment. If something goes wrong at their factory, or if shipping times lag, you have very few options. In worst-case scenarios, you may have to switch to a different supplier.
White label vs. private label: similarities and differences
Private label manufacturing is a close cousin of white label manufacturing. They follow similar processes, with a few key distinctions.
What are the similarities?
At their core, private labeling and white labeling use the same business model. A third-party producer makes a good for a retailer, who sells it to a customer under their own unique brand. Sometimes the retailer handles the actual branding process. In other cases, the manufacturer ships the product with the branding requested by the retailer. Both private label companies and white label companies can focus entirely on manufacturing, while the retailers can focus entirely on branding and customer relationships.
What are the differences?
The difference between private label items and white label items comes down to customization. Traditionally, a white label brand makes the exact same product for all its retail clients. The distinction comes in branding, logos, package size, and pricing. Private label brands, on the other hand, customize the products they make for retailers. These specially made products may not be available anywhere else. Trader Joe’s grocery stores offer a classic example of private label branding. The vast majority of goods in the stores are sold under the Trader Joe’s brand name, yet the company does not make its own food and consumer goods. Rather, it contracts with private label companies to craft specially formulated items to be sold using Trader Joe’s branding. In most cases, you cannot find an exact facsimile of these products in other stores.
White label branding FAQ
Why is it called white label?
White label branding is so named because it conjures the image of a blank white package or sticker upon which anything can be printed. While the product has already been made, the seller has a blank slate as far as branding is concerned.
Do you need permission to white label products?
To legally sell white label products under your own brand name, you must craft a manufacturing, branding, and sales agreement with a white label manufacturer. Like all business contracts, these agreements should be crafted with the help of a specialized lawyer.
It is unethical, and frequently illegal, to take an existing product, relabel it, and resell it without the permission of the original manufacturer. Such a practice violates the spirit of white labeling and may expose you to a lawsuit if you’re found to have violated a manufacturer’s terms of use.Is white labeling profitable?
White labeling can be profitable for both the manufacturer and the seller. The manufacturer benefits from doing large-scale product runs, which lowers their per-unit cost of making a particular item. The seller can also profit because they can enter a market without needing to buy equipment, source raw materials, or hire specially trained manufacturing staff. They can operate with a lower overhead cost and jump into new markets more easily.