Selling Your Product Under a Private Label Agreement

on May 21 at 03:39 PM
Would you like a big name company to sell your product under its own brand? It might not be as hard as you think. Licensing seems like a good option for inventors and entrepreneurs, but getting licensing agreements in place is difficult for many, but private label arrangements can be almost as affordable and much easier to implement.

In a OEM/ODM distribution arrangement, you manufacture a product, then another company buys your product and sells it under its own brand. This happens all the time, most people just don't realise it. New products are expensive for companies to develop, so often instead of developing complementary products or products that don't make millions, companies either license them or sell them on a private label basis to save money on product development.

When selling under private label, the product has to be sold at a lower price because there is one more middleman: the private label company that sells the product to customers, retailers or distributors. However, in a private label arrangement, you are not doing consumer marketing, your product is likely to reach a larger audience than you could sell on your own, and your product gains credibility because it has the brand and label of an established company. You can even sell your product on a private label basis to several companies, each of which will resell the product under its own brand.

Not all products are good candidates for private label agreements. Since companies generally do not want to market products that do not make them as much money (private label and licensed products make less profit than products developed in-house), the product has to sell itself. This means that it cannot differ significantly from previous products, consumers must know they need it and the product must meet a clearly defined need. The product does not need to attract media attention, but people need to see the product in its packaging, understand the product and its benefits and buy it.

Products that complement a company's successful products have the best chance of being sold under a private label agreement. This means that the appeal of the product should be similar to that of the products already sold by the company. Finally, only mid-priced or high-priced products do well in private label because the profits have to be shared between several people, and if the product is too cheap, there is not much profit left.

The inventor's story

Private labelling was not part of Michael Levin's original game plan. The idea for his innovation, a clear plastic coating to treat broken nails, which attaches with a nail-friendly adhesive, first came to Levin in 1989 when his then-girlfriend broke a nail. At the time, she couldn't find a product to repair the nail - and she complained to Levin that cracked nails were a common problem among all women. Sensing an opportunity, Levin decided to hire a market research company to assess the market. The results were staggering. Levin, now 42, reported that '60 per cent of the women [surveyed] broke a nail once a month and 35 per cent once a week'.

Levin finished her clear plastic top coat in 1992 after searching for and trying dozens of different plastics and adhesives. But when Levin tried to sell the product directly to retailers, he ran into quite a reality check: Levin found that "drugstore chains were not willing to add a single product from a vendor for a cheap, low-volume product" because the product retailed for only $3 to $4.

That's when Levin considered all his options and decided to start selling products under his own brand. "A lot of coins is better than a few dimes," Levin reasons. Professional Solutions, the most consistent of the three private label clients he has worked with, signed the deal in 1994 and has been selling Levin's product as Instant Nail Repair ever since. The decision proved to be a smart one for Levin: since 1995, his Danville, California-based company, Custom Solutions, has sold about 1.5 million units of Instant Nail Repair per year.

Entering into a private label agreement

To build successful relationships with private label buyers, here's how:

by making things easy

Ask the buyer for a purchase order, stating that you will deliver the product in the buyer's packaging or that you will modify your packaging to meet the buyer's requirements. If necessary, you can also provide training for the buyer's sales staff, and you can even offer to maintain the product's website. If you're selling to a retailer, you can offer to display your product, and you can even show a diagram of which complementary products your product should be displayed alongside.

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