What Is a White Label Product, and How Does It Work?

What Is a White Label Product?

White label products are sold by retailers with their own branding and logo but the products themselves are manufactured by a third party. White labeling occurs when the manufacturer of an item uses the branding requested by the purchaser or marketer instead of its own. The end product appears as though it's been produced by the purchaser.

Understanding a White Label Product

White label products are manufactured by a third party, not the company that sells them or necessarily even markets them. The advantage is that a single company doesn't have to go through the entire process of creating and selling a product. One firm can concentrate on producing the product, another on marketing it, and another can focus on selling it, each according to its expertise and preference.

The major benefits of white label branding are that it saves companies time, energy, and money in terms of production and marketing costs.

Another big advantage of private label brands is that the average transportation expenses might be lower than usual and the company would benefit from distributional economies of scale if a supermarket has an exclusive deal with a manufacturer. The retailer could sell the product for less and still reap a bigger profit margin because of lower transportation costs.

Businesses That Use White Label Products

Retailers

White label products may technically appear in any industry or sector but large retailers have done quite well with them. Companies like Whole Foods and Walmart have benefited by selling their own branded products that have been created by other manufacturers. This strategy allows retailers to maintain control over branding, packaging, and pricing while offering consumers exclusive products that align with their brand identity. 

Private label branding isn't limited to the supermarket segment. Major electronics manufacturers of top-tier mobile phones and computers often put their brand names on cheaper-priced white label products to expand their offerings.

Beauty and Cosmetics Brands

Beauty and cosmetics brands usually leverage white label products. These brands can collaborate with manufacturers to customize skincare, makeup, and hair care products under their branding. For instance, skincare companies may white label anti-aging serums or moisturizers, tailoring formulations and packaging to appeal to their target demographics. However, the skincare company itself would not be responsible for manufacturing the product.

Health and Wellness Companies

Health and wellness companies often utilize white label products to offer a broad range of dietary supplements, vitamins, and herbal remedies under their own brand names. By partnering with reputable manufacturers, these companies can ensure the quality and efficacy of their products.

Food and Beverage Brands

Food and beverage brands often utilize white label products to offer a wide array of private-label goods such as snacks, beverages, condiments, and packaged foods. By partnering with manufacturers, these brands can maintain control over product quality as more stringent health-code compliant production plants can generate the food items.

Service Companies

White label products don't always have to be tangible items. Service offerings have also adopted white labeling. Some banks use white label services like credit card processing when they don't have these services in-house. Businesses that have no banking operations often extend branded credit cards to their customers and this is also a form of white labeling. L.L.Bean Inc. offers its consumers a branded Mastercard, and Macy’s (M) offers its customers a branded card. Theirs is provided by American Express (AXP).

Advantages and Disadvantages of White Label Products

The concept of white labeling comes with numerous considerations, both positive and negative.

Advantages

• Expanded product lines: Firms can use white label brands to expand their offerings and target customers strategically. This could in turn bolster their competitive advantage.
• Large contracts: Third-party producers get huge contracts and could come with guaranteed sales and revenue.
• Discounted sales: Stores can boost revenue by selling white label products at a discount relative to national brands.
• Quality: White label brands can be just as good as national brands because they often use the same producers. High quality creates satisfied customers.
• Reduced time to market: White labeling allows businesses to quickly introduce new products to the market. Since the manufacturing and development processes are already completed by the supplier, companies can focus on branding, packaging, and marketing. This speed to market is crucial in industries where consumer preferences and trends change rapidly.
• Cost savings: By utilizing white label products, companies can save on the high costs associated with product development, research, and manufacturing. These savings can be redirected towards marketing, distribution, and other areas that directly impact sales and customer engagement.
• Brand expansion: White labeling enables companies to expand their product lines and diversify their offerings without the need to develop each product from scratch. Without this option, some companies may struggle with this type of physical branding or marketing.

Disadvantages

• Copycatting: Using very similar packaging among brands is called copycatting and it can be illegal in some cases. Private label brands must differentiate themselves sufficiently so as not to mislead consumers.
• Monopsony: A powerful retailer could push out smaller competitors, resulting in a market condition where there's only one buyer.
• Barriers to entry: The growing dominance of white label brands could make it hard for new firms to enter the market, reducing overall competition.
• Quality control: Since the manufacturing is outsourced, businesses have less direct control over the production process. Inconsistent quality from the supplier can harm the brand’s reputation and lead to customer dissatisfaction.
• Market saturation: White label products can be sold by multiple companies, leading to market saturation. This can make it challenging for a brand to differentiate itself from competitors using the same products.
• Dependence on suppliers: Relying heavily on external manufacturers can be risky if the supplier faces production issues, delays, or changes in business operations. Any disruption can impact the availability of products and sales.

Real-World Example

The U.S.-based warehouse club operator Costco (COST) is one large retailer that's being creative with branding with its Kirkland brand of private-label products. Does this mean that Costco makes all the Kirkland products you see on the shelves? Not at all. They simply contract with various producers that have agreed to put their products into the Kirkland packaging.

A Kirkland-branded product often sits next to the national brand that makes the product on the shelf: identical products, different names, and the national brand selling at a higher price. Costco sells Saran Wrap. Saran is a trade name owned by S.C. Johnson & Son but Costco also sells its own Kirkland Signature stretch-tite plastic food wrap.

Costco has further blurred the line between national brands and private labels by using premium offerings and co-branding strategies with the likes of Starbucks (SBUX), Quaker Oats, a subsidiary of PepsiCo, Inc. (PEP), and Tyson Foods, Inc. (TSN).

The Bottom Line

A white label product bears the branding and logo of a retailer although it’s manufactured by another party. The manufacturer labels the product according to the retailer’s wishes rather than using its own brand or logo. These products are commonly labeled with the retailer’s name although the retailer didn't manufacture them. Both consumer product executives and retail executives tend to believe that co-branding between retailers and traditional national brands is a win-win situation.