EXPOSING THE ADVANTAGES & DISADVANTAGES OF PRIVATE LABELS VS AMAZON

EXPOSING THE ADVANTAGES & DISADVANTAGES OF PRIVATE LABELS VS AMAZON

There are likely advantages and disadvantages in any situation. The same holds when, as a business owner, you want to decide which route to take whether to go for private labeling or use Amazon’s platform to sell your brand and expand sales.

The fact is neither private labels nor Amazon can claim to be the best across the board these days. Depending on your business aims
and objectives, you may be more suitable for private labels or Amazon.

Some advantages and disadvantages apply to the two business models. In this post, we are going to unpack the benefits and challenges so you can decide on the one that most suits your product or brand.

AMAZON

Amazon is probably the largest marketplace that allows sellers (including third-party sellers) to put up their products for sale to global customers.

Getting started on Amazon is easy, but more straightforward in some categories compared to others where you must be approved and meet
specific selling requirements.

The idea of listing your product(s) for sale on Amazon can be a little scary for business owners.

While it may benefit some retailer, don’t be surprised if it does not work for others.

You may get increased exposure for your brands or products, and the marketplace gains an extended product range without the need to increase inventory.

On closer evaluation, there are mutual benefits, but the fact is more nuanced.

There are many variables you need to consider, like the intensity of competition in your category, the type of products you sell, Amazon fees and restrictions and others.

Whether it is advertising or selling, you have to figure out your relationship with Amazon to increase sales, control your brand or be ready for competition.

Let us consider some of the advantages of putting your brand products on Amazon and the challenges it creates for your business as well as see what steps to take to be successful in the eCommerce business world.

Advantages of putting your brand on Amazon

  • Access To Million Shoppers Daily

Amazon has over 700 million active mobile users let alone desktop users and the Amazon App. While it may be necessary for every business to build and maintain their website, you simply cannot compete with the number of eyes that can find your product on Amazon. The e-commerce platform offers an unimaginable customer reach than any other marketplace, including the potential for international distribution. With this in mind, you should think about using Amazon in conjunction with your website. This will help with international reach, but will also allow you to remain in control of your website.

  • Amazon Does The Work & Sends You The Check

As one of the online marketplaces that understand the principle of mutual benefits, Amazon has put several measures in place to help market your product, and increase sales and revenue. They do all the work for you and send you a check once you make any sales. For instance, Amazon’s product cataloguing system ensures your inventory ends up in the most suitable place for any shopper to find your product. You benefit from the huge investment the marketplace puts into paid Google search. There is Amazon Prime membership used to incentivise online shoppers with free 2-day shipping as repute for fast order fulfilment. There is also fulfillment by Amazon. It entails sending your items in large quantities to Amazon and allowing them to take care of the shipping and fulfilment.

  • Amazon Handles Customer Service & The Logistics Side Of Your Products

Amazon can help to grow your business immeasurably. It takes the heavy lifting of logistics off your shoulders, allowing you to focus on building great products and servicing your customers.

THE CONS OF SELLING ON AMAZON

While there are significant upsides to selling on Amazon, there are also some drawbacks that need to be considered.

  • They Collect All Your Data On Your Customers

Amazon may be a way for businesses to sell more products to online shoppers, but ultimately they own the customers. They collect all the data on your customers, and you cannot remarket to the customers or actively sell to them in the future. Generally, marketplaces do not exist to help you but themselves. For instance, Amazon focuses only on the products and not you, the sellers, which imply they might restrict the degree to which you can brand your presence, communicate with your existing customers and so on.

  • They Can Cancel Your Partnership At Any Time

Amazon can suspend or cancel your partnership or selling account anytime if you violate any of their policies, therefore it is not a secure business. It can also be tricky to restore your seller account, making it a delicate situation for your business.

  • You Are Giving Them % Of Your Sales

Even though Amazon gives you an increase in sales, you will have to part with a percentage of your sales. Apart from the general monthly fee for listing products on Amazon, there are also referral and other fees, known as commissions that are deducted as a percentage of each sale. It varies between 15-20% and depends on your product category. Thus if you are selling products with a relatively low margin, it makes no sense at all to list your products on Amazon. Before selling your products on Amazon, ensure you have a good understanding of your margins and a firm sense of its fee structure.

  • Amazon Can Compete With Your Business With The Same Product

Amazon is one of the biggest marketplaces you can never do without a sky-high and fierce competition. You should expect your brand or product to compete with thousands of other sellers. Even if you refuse to sell your items on Amazon, you will be surprised that someone will eventually buy the product wholesale and sell it on Amazon, keeping the profit that would have otherwise been yours. You may have no way to stop them unless you control your brand from the beginning. You must have a long-term strategy. Otherwise, you may fall for the race to the bottom in terms of pricing. The built-in comparison-shopping on Amazon will also pit you against other sellers.

You cannot control the look of your shop.

You cannot control how your store looks on Amazon, and there is virtually nothing you can do about it.

No customisation or arrangement as it is already designed generically. There is also no visible branding except your name.

To be honest, it can be tricky for potential customers to search within your Amazon shop.

Before you make your mind up to sell on Amazon, let us consider private labeling, its pros and cons.

PRIVATE LABELING (PL)

Private labeling is when your product or brand is sold under a different label, usually your customer’s private label.

It is available in a wide range of industries from cosmetics to food and everything in between. Private labeling is very significant and is a great way for manufacturers looking to reach new markets.

For instance, most of the store brand products sold nowadays are produced under private label agreements. Likewise, the majority of private label orders are large, which makes them more attractive to manufacturers.

With private labeling, product development is hardly an issue as your private labeling customers are usually going to purchase
the brand or products you are manufacturing.

If you are going to pursue private labeling, it is a great idea to start small before you move to larger customers.

You also need to work closely with your customers on the exact label. Create a checklist of everything that must be on the product – warnings, contents, weights, etc.

Provide them to your customers so they can design their label since you will have no right over the label or brand. Individual customer will have to decide on the logo, packaging, labeling and all other creative elements.

If the product would be exported, then you need to work with your customers to ensure the labeling meets the requirements of the destination country.

PROS OF PRIVATE LABELS

  • You compete with yourself

Private labeling may put you in competition with your brand at the retail level. This is inevitable as some businesses who buy your products to sell under their label are going to do it. Consequently, you have access to a market share you would ordinarily not have. Instead of competing against someone else’s brand, you will be benefiting from those sales.

  • Full control

Private labeling gives you greater control over several factors – marketing, sales and distribution. You control the supply chain and can decide how many units you want to produce after your initial order, when you want to begin production, and if you have any changes for future orders. Retailers can acquire your products, and personalise the product by including their information, titles, logos, additional materials, etc. to create value and reputation. This can be done in less time than it would take to manufacture the product from scratch.

  • High-profit margin

The profit margins can be exceptionally lucrative if you find an untapped product niche with high consumer demand. – If your private labeling becomes popular, you have a loyal PL customer base dependent on your retail outlets for that label.

  • No product limitation

There is no limitation on the available products. If you have the cash flow, you can add additional products to your private label line.

Cons of private labels

  • New business model

You would be moving into a new different business model, acquiring new PL customers or new relationships with customers, and doing a different sort of marketing. This is almost like starting a new business, and it has its fair share of risk. It takes time to build up a functioning brand, so it is not a get rich quick process

  • Huge capital required

A considerable amount of upfront capital is required to start private labeling, and it can take up to 6 months before your product begins to make a profit. It is also riskier as it demands a big investment and many things can go wrong, like problems in production, toll, no demand, difficulties in shipping, etc. If you get a large order from different PL customers but do not have the resources to manufacture the items in time, it may affect your reputation and your business as a whole. This is more reason why you need to start small.

  • High experience required

Private labeling requires knowledge of selling online. The process is quite complicated, and there are some factors to note from deciding on which products to market to listing the product online. The key point is to be patient when you are selling private labeling brands.

  • Highly depended on the manufacturer

Retailers with private label products depend greatly on the manufacturer in terms of production and quality. Except there is a quality assurance process or detailed vetting in place, you may end up partnering with an illegitimate or low-quality supplier, which will lead to low-quality products.

HOW TO FIND PRIVATE LABEL CLIENTS

Private label marketing is done discretely, mostly via direct contact with companies that utilise private labeling sources.

One crucial thing about private labeling is confidentiality. You should expect your PL customers to request for a high degree of confidentiality along with a comparable quality level.

Furthermore, your employees must also subscribe to keeping the details of your private label customers confidential.

Make sure you do not compromise on the products quality standards. Since you would not put a substandard product under your brand, do not think it is okay to do that for your customer.

Final thought

As you weigh the pros and cons to help you decide between Private labels and selling on Amazon, one major thing to consider is the scale of your operation.

Each system has its procedures, processes, limitations and quirks. In summary, I would say that private label has a higher risk and a high-profit margin compared to Amazon or other e-commerce websites.

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