In the manufacturing industry, the concept of ‘product’ once meant that all the processes would take place under a single company’s banner. This process had a lot of advantages as it reduced the manufacturing cost and reliance on others. But over time, the manufacturing concept has undergone multiple changes adding to the benefit of the multinational organizations.
Today, the product may be produced in one country by a different brand and sold by another company with its logo attached to it. It has not only enhanced the production of international brands, but it has also increased the growth of small-scale manufacturers in the market.
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What is White Label?
White label is a business model in which one company produces a finished product but is sold by another company with its name attached to that product.
Another way around, in this model, the manufacturing and the selling of a product is carried out by two different brands. The manufacturer makes a profit by making the product, whereas the seller makes a profit by marketing and selling the end product in the market.
White labeling (Process)
It is a process that often involves an agreement between two companies. The finished product can be rebranded and sold at a higher price by the selling company depending upon the market value. The end product appears as though the seller has produced it.
Some marketing companies allow the manufacturer to retain its logo on the brand. However, most of them rebrand the product in their own name. Such labeled products can be found easily in stores with a retailer’s logo known as “store brand” on the product.
One of the most beneficial aspects of white labeling is that one brand can focus on one aspect of production, such as manufacturing. Simultaneously, the other brand can use its expertise to market the same product with greater efficiency.
How White Labeling Works
White labeling involves a legal agreement between the manufacturer/provider and the seller. The provider produces a high-quality item that can be rebranded and then sold in the market to the end-user.
The reseller business focuses entirely on marketing and selling the manufactured product. The seller can modify the product according to its policies and sell it as if it were produced by it. In short, the basic funda of white-label is anonymity, and the customer who buys it doesn’t know about the original producer of the product or service.
Typically, the White Label Agreement contain the following terms and not limited to.
- Relationship between the manufacturer and reseller
- Rights and obligations of both parties
- Product manufacturing details
- Packaging and documentation
- Marketing and promotional material
- Product or service warranties
- Quality control
- Fees, pricing
- Payment terms
- Record keeping
- Limitations, liabilities and insurance
- Division of profit between parities
- Repair services
- Customer support
- Intellectual property rights i.e. force majeure, confidentiality, terms of termination, government laws
White Label VS Private Label
There are several differences between the white label and the private label products. Both of these processes involve a marketing or selling company working hand in hand with a manufacturing company.
The most important difference between these two approaches is that the retailer cannot re-sale the product to a third party in a private label agreement. While in a white label agreement, the manufactured product can be re-sold to other retailers as well.
Other important differences include the extent of allowed customization. In a white label agreement, the retailer has to accept the finished product and cannot control the product details.
A comparative analysis of the two agreements is shown in the table below.
|Consideration||White Label||Private Label|
|Exclusiveness for Retailer||No||Yes|
|Manufacturing Process Rights||Manufacturer||Manufacturer|
|Applicability||Products and Technology||Product Only|
|Manufacturer Trademark Ownership||No||No|
|Relative Speed to Market||Faster||Slower|
Some companies and retailers buy a product from a producer, and after customization sells it under its own brand name. This whole process has pros and cons for manufacturers and resellers.
Advantages of Private Label
This is a modern era of specialization, and private labeling has several advantages for both manufacturers and resellers.
Suppose a brand with no manufacturing experience fails if it tries to manufacture the product on its own. In the case of white labeling, the manufacturing firm has to manage all the problems arising out of a product by testing it.
Best Reward for Investment
Investing money in an existing experienced team will be a more efficient option. Although trying to do everything on your own can cost a lot of money, but the amount of profit is much higher.
In this rapidly developing age of technology, time is as important as money. Getting a product developed through an experienced team can be quicker and easier rather than doing it yourself.
No Prior Skills Required
Suppose an investor has no prior experience in developing a product, no problem at all. Everything can be manufactured using the while labeling process by a skilled team of professionals.
It doesn’t matter much who manufactured the product because a customer only needs a high-quality end product. The most important aspect is that no one can guess or cares much whether the product is a white-labeled one or not.
Without a doubt, it is the age of specialization, and different entities have different expertise. When an experienced team manufactures the products, quality and durability are enhanced.
Disadvantages of Private Label
Following are some of the disadvantages of white labeling for manufactures and resellers
Limits on the Manufacturer
The agreement signed by the two firms can limit the manufacturer from entering into a similar agreement with the seller’s competitors. This can limit the growth of the manufacturer.
High competition for the seller
Sometimes, the manufacturer supplies products to more than one seller; this results in tension and competition in the market.
No Market Name for the Manufacturer
The manufacturer may be unable to develop its own market value because it cannot interact with the end-user.
The manufacturers and the sellers are dependent on each other for their mutual benefit. Though this is good for both, the dependency may prove lethal if one of them is not available.
Low Return on Investment
The amount of profit for the manufacturer and the seller is marginal as both have to use the same product for their benefit.
White Label Examples
White-label products or services are using in many industries like the SAAS industry, retail, and food and fashion industry. Here are a few examples for better understanding.
Costco Kirkland Signature Batteries
Duracell actually manufactures the Kirkland trademark batteries sold by Costco. These batteries are while labeled by Costco, which sells them under its name.
Credit Card Process
Many banks worldwide depend on white label service providers for gathering the field information.
Email Marketing Software
The email marketing companies like HubSpot sell their white-labeled services to the marketing companies aiming at diversifying their network. The software provides a customized dashboard to the companies, who can then add their own branding into it.
Mobile Application i.e. LevelUp
A lot of mobile applications perform almost similar tasks with just a slight change in the brand name. LevelUp is a classic example in this matter. They do not design their own mobile apps but also white label their services for restaurants.
The white labeling business model has gained massive popularity lately. This has allowed multinational brands to expand their network. It has also encouraged specialization in the business with more defined roles. The manufacturer can maximize its effort in designing a quality product while the seller can focus solely on developing the market for his brand.