Have you ever heard the statement: “The purpose of a business is to create a customer who creates customers”. A business owner indeed creates a business to make a profit and create more customers.
When you create a business the main goal is to make profits, acquire customers, have a large client base, and make your brand a household name.
In the light of this, most production companies have devised a means to not only create customers but also to distribute the process of production to others creating more relationships. This is the concept of white labeling. This might sound strange, but it’s quite common today, so let’s discuss better what white labeling is and what it entails.
What is white labeling?
Simply put, white labeling refers to when a business or company A creates a product or service but keeps it unbranded and sells it to another company B, the company B has the liberty to customize the product with their own identity, brand, and logo, so customers associate the product to the company B. The product in this case is called a white-labeled product.
So, white labeling allows manufacturers to focus on core aspects of production and cost-effective methods to create their products while they leave the marketing and branding for the company B they sell their products to.
How does white labeling work?
As with any form of a business partnership, there has to be some form of agreement. Hence, white labeling involves a consensus between two parties. They are:
- Manufacturing business: This is the original producer of the product. Their main job is to create top quality, on-demand products for the market and keep them unbranded.
- Reselling business: This is the business that buys the product from the manufacturing business. It is in charge of branding, promoting, marketing and sales of the new product. The reseller customised the newly acquire product, brands it and offers it to their consumers or customers, thus creating the idea that the product is made by their brand.
Those are the two parties involved in white labeling, it is important to note that the consensus between both parties is a legal one with terms and conditions that in the right sense is meant to be in favor of both parties.
The agreement could involve details such as:
- Intellectual rights
- Product pricing
- Guidelines for product packaging
- Relationship of the involved parties
- Responsibilities of both parties and other terms.
Benefits and Disadvantages of White Labelling
When it comes to white labeling, there are advantages and disadvantages. Let’s take a look at some of the advantages:
Benefits
- Established Market: For the manufacturing business, it usually selects a niche that is already booming, something that is in demand. This automatically means what he produces has a market that would purchase it.
- Cost of marketing: For the white label manufacturers, this arrangement makes it possible to care less about marketing, advertising and promotion.
- Cost of manufacturing: For the reseller, a white label agreement means he does not have to think about the cost of manufacturing such as: buying equipment, hiring staff, renting space and the like.
- Entrance to market: For a white-labelled product, if bought by a known brand, entrance into the market is not difficult and because of this, consumers find it easy to accept the product because of the brand it’s associated with.
- Time and money: The white label strategy saves the time of the entrepreneur from producing solutions to huge financial responsibilities or human capital resources.
Everything has a disadvantage as they say, so let’s see some of those disadvantages.
Disadvantages
- Duplication: It is important that the white label manufacturers carefully separate their products. If two brands have similar products or packaging it would be termed copycatting and such duplication is illegal.
- Monopsony: This is an economic situation in the marketplace where there is only one buyer. If a particular brand is influential, it might buy white labelled products for a wide range of goods, pushing small businesses out of the market and dominating the marketplace.
- The difficulty of entry: For other new businesses, if they don’t have a strong brand identity it would be difficult to come into the market as it is already dominated by white-labelled brands hence there will be no competition.
- No credit to the manufacturing business: Well, because of what the arrangement entails, the manufacturer of white-labelled products does not get credit for the quality of his work, the reselling company that brands do.
Well, the pros and cons of white-labeling have been discussed, so it’s left for an entrepreneur or business to select which option means more to him. Let’s see a real-life example of white labeling.
A real-world example of white-labeling
An example of white labeling is seen in Fenty Beauty. Fenty Beauty is a cosmetic fashion brand owned by Rihanna, it has a consensus with the company Kendo holdings that produce white-labeled cosmetic products for Fenty. Kendo also has similar business dealings with companies like Marc Jobs, Lip Lab, etc.
Another good example of white-labeling is Aliexpress dropshipping. Aliexpress is a China-based eCommerce platform where resellers use their brand name to sell white label products. In this case, the Chinese company focuses on manufacturing and shipping the white-labeled product while the reseller is focused on product branding and sales generation.
In this space of white-labeling, there is a similar but uninterchangeable concept known as private labeling. This should not be confused with white labeling as they are not the same thing.
The private label refers to an exclusive contract between a manufacturer and a reseller, where the manufacturer creates products according to the needs of the reseller only, who then brands and sells the product under its name. The manufacturing business does not manufacture for anyone else. Unlike White labeling where the manufacturing business can provide the same service to other resellers.
What to look for when choosing a white label product
Look out for these attributes when choosing a white label product:
- Similar Strategies: When it comes to partnerships both parties must have a form of alignment, in essence, the goal of the manufacturing business and the branding business has to be the same. To ensure mutual growth and foster long term partnership.
- Values and ethics: It is best to choose a company that fits with your work values or culture whether as the manufacturer or reseller, that way communication styles, corporate culture and the likes are in line.
- Experience: Ever heard the saying “experience is the best teacher”? Well, when choosing a reseller or manufacturer you might want to go for one that knows its onions. Make an in-depth study of the company, its innovative track record, expertise and knowledge. You would not want to go for a mediocre brand as this would affect the sole aim of production which is making sales while filling a need.
- Evidence of Customer success: Select a partner that has good feedback or customer success stories, where possible ask for references to follow up on how the company relates with its customers and how it handles each project. Remember if the customers keep coming back, then they must be doing something right.
- Partnership growth: You want to select a selfless company, that is to say, it focuses on the growth of both parties, not just itself. Your choice of partner should be able to make decisions that benefit you both moving forward.
At this point, we have spoken a lot about white-labeling. If this is something you see yourself going into, weigh the pros and cons. Hopefully, this gives you the insight you need about white-labeling your business.
In order to mitigate the business risks, always create a new separate company for the implementation of a new business idea. You can register a new company quickly and cheaply BuyCompany.com.
