Establishing Private Labels in the Wholesale sector: This is What Matters

When wholesalers decide to develop their own brand and include it in their product portfolio, they do so to differentiate themselves from the manufacturing industry. Their own brand or private label is then generally a product or a product range that the wholesaler offers under its own brand name and thus competes with branded products.

These private label products are usually cheaper than branded products because third-party products are more expensive to buy due to the manufacturers’ additional sales and marketing costs.

Wholesalers can therefore count on a higher profit margin with private labels. In this respect, an own brand is also unrivaled and can sustainably enhance the image and contribute to customer loyalty. It is also a profiling tool in a highly competitive market. Company’s own brands in wholesale always mean a good deal of emancipation from the industry.

Private labels: The Answer to Challenges for Wholesalers

Wholesale has come under increasing pressure in recent years for several reasons. Key influencing factors are the Corona crisis, but also increasing competitive pressure, pressure on margins, and direct sales by manufacturers. To become at least somewhat more independent of these developments, the establishment of private labels can be a solution.

Other sectors have demonstrated how good money can be made with private labels. Let’s take food retailing, for example. The management consultancy Munich Strategy predicts that private labels will achieve growth of 41 percent by 2025. According to the consultancy Nielsen, private labels account for 45 percent of the sales volume in Germany.

The Private Label Monitor 2020 also confirms that private labels are increasingly on a par with manufacturer brands. Private labels and own brands are becoming increasingly popular. For example, 66 percent of consumers surveyed consider private labels and manufacturer brands to be equally trustworthy. 70 percent also pay attention to special offers and discounts on private labels. What are encouraging facts that wholesalers in the B2B segment can also use as a guide?

Here’s what Wholesalers Should Keep in Mind When Setting Up Private Labels

If wholesalers want to successfully establish a private label, there are some necessary factors they should consider. An interview with Stefan Wiech, assortment manager private label and head of the development of the first private label RED of DEHA Elektrohandelsgesellschaft (technical wholesale) on managementcircle.de gives first clues.

The company was under pressure from the direct suppliers of new product segments and from their multi-channel sales strategies. Falling margins and a drop in demand for certain products were the result. To counteract this, the company decided to launch its own brand. From the interview, the following factors can be identified as important for establishing a private label:

1. Set Target

As with any new venture, the first step in establishing a private label in the wholesale sector is to be clear about what goals you are pursuing. This can be, as in the example of DEHA Elektrohandelsgesellschaft, the creation of a small and interesting assortment with consistent product quality compared to the manufacturer’s brand. Or explanation-free or simple articles.

2. Analyze Market Potential

Wholesalers should first investigate which product promises the greatest market potential as a private label. This can be done by analyzing the market size and the likelihood of customers switching to different product groups. Possible indicators for this are the brand loyalty of customers and the wholesaler’s experience with certain products.

3. Pay Attention to the Quality

Even if these are relatively easy-to-understand lower-priced private labels compared to established manufacturer brands, the quality of these products should still not be ignored. Especially in the B2B sector, where customers are generally knowledgeable and know which products are the most suitable for their business. A low-budget strategy can be difficult. If the quality or service is not right, private labels can quickly burn out in wholesale.

4. Cooperate with Manufacturer Brands

In order not to strain the business relationship with brand manufacturers, it makes sense to support them with a clear strategy and to work intensively with them. This applies more when trying to build up a private label, especially with regard to communication.

5. Determine Brand Positioning

Developing a private brand and then simply including it in the overall range is not enough for wholesalers. What is needed is clear brand positioning and brand communication. The prerequisite for this is knowledge of the target group that one wants to address with the private label. The brand positioning must fit the image of the wholesaler. In other words, offering a private label in the high-price segment while the other products tend to be in the low-price segment may have a negative impact on the sales potential.

6. Choose Distribution Channels

Private labels also want to be sold. A decisive role is therefore played by sales. It is important for wholesalers to define the role of private labels in sales. It can be offered via upselling as a supplement to the actual brand product or it can be offered via parallel to branded products to become less dependent on them. In any case, the private label should be given its own and appropriate weight in sales.

The good news: Once the private label has established itself in a certain area, there is subsequently room for further development of the product range. Sometimes even in the higher-priced segment under the same brand.

 
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Establishing Private Labels in the Wholesale sector: This is What Matters – Conclusion

As always, each wholesale company should evaluate for itself whether and how to include private labels in its product portfolio. The above six factors are a helpful guide.

The good news: Once the private label has established itself in a certain area, there is subsequently room for further development of the product range. Sometimes even in the higher-priced segment under the same brand.

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