White Labeling

Why Use White Labeling

Sometimes firms feel that they can market goods and services effectively but it may be better for another firm to produce the goods for them. There a variety of reasons why a firm will ask others to produce goods for them including:

• Production requires specialist knowledge, skills or equipment
• It is cheaper (cost effective) to pay someone else to produce things for you
• You want to start marketing the goods/services as soon as possible
• You do not have time available to produce goods yourself
• Production requires a government licence or registration

Examples Of White Labeling Within The Food Industry

Many supermarkets offer own brand label products. There are two ways of doing this.

• Either they will select a producer who manufacturers goods solely in the name of other organisations. For example Northern Foods within the UK produces many branded and own brand label products but it does not produce food labeled Northern Foods.
• Or the supermarket will select a producer who also produces goods under their own name. For example in the UK Weetabix produces cereals branded as Weetabix products and produces cereals for the supermarkets which it allows supermarkets to label as their own brand.

Examples Of White labeling Within The Financial Industry

Financial products are offered by many organisations some of these organisations will use white labeling because they do not have the infrastructure required to offer financial products. For example small banks will ask large banks to handle their credit card operations as this is cheaper then dealing with it themselves. You may also get new financial organisations such as supermarkets who want to offer financial products using white labeling, because they do not have the financial licence (or other regulation) required by law to offer financial services.

Advantages Of White Labeling

• Producers can access a wider market for their goods/services
• It enables organisations (distributors/retailers) to market a large variety of goods/services
• Distributors do not have the Research and Development (R & D) costs of producing new products
• For distributors it is quicker process than setting up operations to produce new product ranges

Disadvantages Of White Labeling

• Selling products belonging to an external organisation may reduce control over how they are produced
• Changes to the product range could be slower as they have to be agreed by the producer and distributor
• The profit margin on white label goods could by lower (than goods produced by the distributor itself) due to fees that need to be paid to the producer. Fees include permission to sell products that are protected by trademarks, patents and copyright i.e. intellectual property rights

Disadvantages Of White Labeling

• Selling products belonging to an external organisation may reduce control over how they are produced
• Changes to the product range could be slower as they have to be agreed by the producer and distributor
• The profit margin on white label goods could by lower (than goods produced by the distributor itself) due to fees that need to be paid to the producer. Fees include permission to sell products that are protected by trademarks, patents and copyright i.e. intellectual property rights

Conclusion

White Labeling involves two firms (the firm producing the product and the firm labelling it with their branding), both firms will need to consider carefully whether they would like to enter into a white labeling contract. White Labeling allows firms to enter new markets but each firm is also taking a risk because it is relying on an external firm. The risks will need to be managed through detailed research prior to contract negotiations, safeguards in the white labeling contract and periodic checks during the contract.