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Also known as private labeling, private branding is the process of purchasing goods and services from a provider and selling them under the seller’s own name brand, rather than the product name of the provider. Business activities of this type are very common, with many larger corporations establishing active distribution channels with smaller businesses as a means of bolstering profits from their production efforts. Generally, the process of private branding requires that the private label reseller generate a certain level of business volume in order for the supplier to consider the branding effort to be worthwhile.
There are several advantages to private branding for both the provider and the distributor. For those who wish to sell goods and services under their own product names, the branding makes it possible to offer high quality without the need to operate their own production facilities. Since the business can be managed with a smaller staff and less operational overhead, the potential to earn a higher profit margin makes the arrangement very attractive to smaller businesses who are looking to market products to specific niche markets within the consumer base.
Since many private branding situations are structured so that distributors pay very low per unit rates for the goods and services obtained from the supplier, it is possible to have a great deal of control over the pricing that is charged for those products at the point of sale. This means the reseller can assess the demand for the products within a given market, determine what price range is likely to secure a significant amount of consumers, and set the pricing accordingly. As the reseller continues to increase the volume of sales, it may be possible to renegotiate the buy rate established with the supplier, and increase the profit margin even further.
For suppliers, private branding can also be a profitable experience. By utilizing partners in a distribution channel, the supplier does not have to invest as much effort and resources into promoting their own products. This can allow the supplier to maintain a smaller in-house sales force, and also focus their marketing efforts more on securing partners and less on obtaining direct customers. At the same time, private branding can also make budgeting an easier process, since many private branded resellers make contractual commitments based on volume sales. In the event that a reseller fails to generate the promised volume, there is a good chance that the terms and conditions of the contract obligate the reseller to pay the difference to the supplier. Provisions of this type ensure the supplier of at least a minimum amount of income for any given annual budget, making it much easier to structure operating expenses accordingly.