A quick look around at many of the national “big box” stores, or at the large e-commerce distributors in our industry, will tell you how prevalent private labeled products are today, both in industrial and retail markets. As competition for the customer’s dollar increases, companies have figured out how to leverage their own brands to ensure they capture as much of that dollar as possible.
To help understand how distributors and manufacturers can benefit from selling their own branded product, we can turn to Industrial Distribution’s recent 67th Annual Survey of Distributor Operations.
- 53 percent of respondents identified their primary concern as “Price Competition,” followed by “Distributor Competition” with 33 percent. The distribution landscape has changed dramatically in the past few years. There are now fewer distributors fighting for the same business; large e-commerce distributors have entered the market; and many products once sold only through our traditional distribution channels can now be found at the big-box hardware stores. One of the most effective ways to protect yourself from these disruptions is to sell something that no one else can: product with your name on it. Selling your own branded product minimizes opportunity for a customer to price-shop, and ensures that re-orders come back to you.
- 64.6 percent of respondents said “Sales Increased” this past year, but only 51.5 percent said “Profits Increased.” This emphasizes increasing downward pressure on price and margins. Once again, selling private-labeled product allows you to sell something that no one else has, thereby minimizing price shopping and protecting your margins.
- When asked which tactic they would consider very important for growth and business development, 51.9 percent of respondents answered “Advertising/marketing.” If much of advertising centers around awareness and impressions, then a lot can be said for increasing the frequency with which your company’s name is in front of your customers. Each time they reach for cutting fluid, having your name on the product label reminds them of where they purchased that product.
- The idea of branding is also an important component of any marketing effort. What does your company stand for? Chances are, it stands in part for quality and dependability. Selling a high-quality cutting fluid with your name on it – rather than a budget version – is an opportunity to reinforce those notions of quality and dependability, and to remind your customers why they do business with you.
- Additionally, it is not uncommon for manufacturers to sell direct to end users. In fact, 28 percent of distributor respondents indicated this was their primary concern. Rather than sell a brand that is now your competitor, you may be much better off selling your own brand.
In today’s landscape, when an end-user has so many options for buying a given product, the need has never been greater for the distributor to protect themselves and differentiate themselves from anyone that end-user may purchase from.
Where Do You Start & How Do You Decide Which Products to Private Label?
There are several approaches that private label manufacturers may recommend:
1. Look to your most popular product lines. Which product is most-often in your customer’s hands? That product is the one that provides you with the highest number of opportunities to make an impression.
2. Look to your products with the highest volume and lowest margin. Are there certain product lines in your portfolio that have become commoditized? If so, there is a strong chance that a customer would accept a substitute with your name on it, assuming you can articulate an advantage to your product over the existing.
3. Identify a gap in the market. Is a particular product in your line working okay, but not exactly what the end-user would really prefer? Consider modifying an existing product to meet that demand, or even building something from scratch. In either case, you can expect your private label manufacturer’s minimum production runs to be higher than for simply private labeling an existing product, but the payoff of having a product that no one else has may far exceed the initial investment.
4. Finally, consider using private label to extend your current product line. For example, if you sell a brand of liquid lubricant that a customer cannot live without, it might make sense for you to introduce a private labeled companion aerosol. Or, you may be having success selling a chemical for degreasing, but you’re missing out on revenue by not selling a wet wipe for cleaning hands.
What Should You Expect from a Private Label Manufacturer?
1. A manufacturer should have a clear understanding of your market and customer base. This understanding will allow them to make recommendations of products that you should private label, but also which products not to private label.
2. A manufacturer should be an actual manufacturer. This sounds obvious, but not all manufacturers are making the product they’re selling you. Working with an actual manufacturer provides better control over quality, often allows for R&D capabilities, and allows for better responsiveness when the inevitable problem occurs.
3. In general, minimum production runs have come down in recent years. While some manufacturers choose to work only with very high-volume customers, others will put your name on a high-quality product for a minimal number of cases or units. Upfront costs tend to be minimal.
The barrier-to-entry is small, and the advantages are only growing for distributors considering private labeling. The time is now for distributors to explore the possibilities of developing a branded program.
Beau Walter is Sales & Marketing Manager at Athea Laboratories | Packaging, a 50-yr old manufacturer and private labeler of specialty chemicals and wet wipes. Athea partners with distributors and OEM manufacturers to develop profitable products and private label programs. Questions? Email Beau at firstname.lastname@example.org.