Private Label: A tried and tested how-to guide

What is Private Label?

First things first. Private Label refers to the very common practice of a company delegating the production of its product(s) to a specialized manufacturer.

The manufacturer puts together the product to the specifications of the client company, and then ships them out to them for distribution.

Simple enough.

Why is this a thing?

We have the “what”, but how about the “why” of it?

Why do companies delegate the manufacturing to a Private Label company?

There can be numerous reasons for this, but I’ll cover the most common ones, none of which is trivial.

Expertise & Know-How

The main reason Private Label is how many products are manufactured today has to do with specialization.

In simple terms: not all companies are equipped to handle their own manufacturing, and in fact, it is quite expensive to even start. The barrier to entry is significant, as not only are manufacturers required to adhere to a plethora of rules and laws (regulatory and certificatory burdens), but the machinery itself is incredibly cost-prohibitive in nature.

And even if a certain company does have the deep pockets required to purchase and set-up a manufacturing operation for their own product, achieving mass-production (let alone with high enough quality) is not exactly a skill-set people are born with or taught at school—it is learned, almost always by first failing a bunch. This gives companies specialized in manufacturing a significant advantage, as they have been failing for a long time. Failure is always a gigantic learning opportunity, and those that have had to fail more usually end up better equipped to handle the myriad complex processes of manufacturing.

Besides, even if a company with a great product is capable of the feat, an important question still hangs in the air: should it?

The importance of specialization

So should a company, even if it were capable, attempt to do everything—from manufacturing, through distribution, down to marketing and sales?

Depending on who you ask, you’ll get different answers, because there isn’t one universally correct answer. What I can answer is why I think they probably shouldn’t.

You may think that having direct control over manufacturing would always be desirable. That sounds intrinsically correct, but you’d be failing to account for important factors.

First and foremost, in a globalized world economy, business has to be highly specialized in order to survive and hopefully thrive. Said otherwise, the reason Private Label works is because it allows one party to focus completely on what is essentially a two-sided equation, where you have production on one hand, and distributions, marketing, and sales on the other.

All of these activities are complex enough that there are many companies specialized in doing just one of them. A marketing agency is generally focused on… well, marketing. Distributors are mostly involved in finding markets for their goods. Manufacturers are usually looking for new clients and products to produce. And salespeople are mostly interested in making sales.

That is why Private Label works—because it compartmentalizes these aspects, allowing for higher specialization and, therefore, efficiency. Yes, if you were able to produce your own goods, you’d have better costs control and likely cut a few cents from the price of your product. But that would have come at the expense of splitting your focus into two distinctly challenging fields.

For companies like ours, we prefer to focus on what we do best, which is mass-manufactory. The perfect Private Label partner for us is one that excels at marketing and sales, and such an arrangement allows them to focus on what they do best.

Location

The location of your Private Label production partner relative to yours can be an important factor.

Examples of this include scenarios where a company from, say the United States, wants to enter the European Union market, but either doesn’t know how or even wants to bother with the nitty-gritty of trans-ocean logistics and distribution.

Or, it could simply be cheaper to produce remotely so that the goods are closer to the target market.

In fact, cost is a significant consideration. It’s not a coincidence that most of the world’s industry operates from markets that are usually geographically distant from the parent company. If you’re a product owner or have a product idea, but live in a highly developed country, producing locally can be quite a bit more expensive compared to outsourcing the work to a cheaper location—even when you factor in transport.

Because of all of the above arguments, Apple designs the iPhone in California, but delegates its manufactory to Foxconn in mainland China. This approach capitalizes on all the areas of competitive advantage discussed this far: Foxconn is highly specialized and knows exactly how to produce hundreds of millions of complex electronics, is based out of a much more affordable market, and lets Apple focus on what Apple does best: designing delightful, coherent experiences for their customers, and sales.

How does Private Label work?

I’ve written on this topic fairly extensively and invite you to check out the typical steps that get you from product idea to a physical product in the hand, at least in the context of beverages and supplements, where my expertise lies.

But since we’re here: a quick recap.

It all starts with a product idea. The genesis of those is usually rooted in an entrepreneur’s desire for a solution to a certain problem, or an improvement over the available competition. The exact shape of the product isn’t yet solidified in their head, and so they start thinking about the various factors that help fill in the blanks, and how to even mass-produce the product itself in the first place. This is usually where they start thinking about Private Label companies capable of delivering on their vision.

In our line of work, this usually means a beverage or supplement that aims to offer a health benefit to customers, and so the needed formulation is often loosely understood. What follows next is actually translating that idea into a working recipe/formula.

Once that’s done, the next step is usually to consider the container in which your product will be housed. There are a lot of choices today, and more will be available tomorrow.

Now that you have your concept and the desired container in your head, it’s time for design. From labeling, through packaging materials, to tiny details that delight customers, great design is not something you can skimp on.

Finally, all the other details need to be ironed out: ingredients sourcing and logistics, transit packaging, dealing with customs and documents, etc.

Obviously, this is a simplified overview. Ideally, all of these steps are considered together, as your ultimate goal should be to arrive at a coherent product that has been holistically considered

Chris

Hi. I'm Chris and I'm the Product Manager at our family-owned business, AMATA Ltd. Since 2016, I've been focused on expanding our Private Label presence. It took a while, but I've now helped more than a dozen international clients to manufacture their products—some of which quite complex. I made this site to hopefully interest you in joining them.