Private labeling. It will probably sound new to you if you have just started learning about dropshipping.
Still, you have most likely heard some good things about it and are now looking for an explanation of how private labeling is different from dropshipping!
The difference between dropshipping and private labeling is that with private labeling, you sell products that are marked with your company’s brand. This can be done by putting your company’s own logo on the product and packaging.
People are often very optimistic about private labeling since it can bring some great benefits to your business compared to regular dropshipping.
Are you curious now about what private labeling exactly is and what those great benefits are?
Then keep on reading, and you will find out!
What is Dropshipping?
Before we start discussing private labeling, you will first have to understand the concept of dropshipping.
Dropshipping is a business model where you sell products on your online store while not managing the stock of those products yourself. That is done by your dropshipping supplier, who will manage your stock, process, and ship out your orders.
To make it clearer, I will show you a picture from Shopify that also explains the concept of dropshipping. After all, a picture is worth a thousand words, right?
Here’s another great image from Oberlo:
The most common question people have now is, “Won’t my customer know that the package didn’t come from me?“.
No, they won’t.
A supplier knows what dropshipping is, so you will only have to let them know that you’re dropshipping. That way, they won’t include any invoices or promotions in the packages.
Here’s an example:
By doing this, your customers will receive a package with only your product in it and won’t know that you are dropshipping!
If you’re interested in learning more about what dropshipping is, check out this article here.
What is private labeling and why is it different?
You can probably imagine that receiving a completely brand-less package and product can have a negative impact on the customer’s experience.
Products without any branding on them just have a lower perceived value.
A great example of a product with a brand is Coca-Cola. The product has a recognizable name and logo, and there is a great story behind the company.
All these things (and more) cause Coca-Cola to evoke a recognizable feeling for people. It is the reason why Coca-Cola is so popular and can ask for a higher price than most of its competitors.
With private labeling, you are the only one selling your product. It belongs to your brand. Unlike dropshipping, no others can just hop on AliExpress and buy the exact same product.
Examples of things that can “private label” a product are:
- A brand name
- A logo on the product
- A brand identity
- Custom (branded) packaging
- Branded invoicing
For more information about branding your dropshipping store, I suggest reading our article about 7+ amazing tips to brand your dropshipping store!
If you feel that you don’t fully understand private labeling yet, don’t worry. In a moment, I will show you an example of a dropshipping and a private label store.
But first, let’s talk about the advantages and disadvantages of dropshipping and private labeling!
What are the pros and cons of dropshipping vs private labeling?
As always, there are pros and cons to two different methods of approach. In this section, I will discuss the pros and cons of dropshipping vs private labeling:
Pros of dropshipping (or cons of private labeling)
- Dropshipping is easier to start & saves time. One of the main reasons you could do dropshipping instead of private labeling is that starting a dropshipping business is much easier. With dropshipping, you will just have to find a supplier and try to sell their products!
- Dropshipping products are cheaper. Generally, private label products are more expensive to buy since they take more work to produce. Things like a custom logo and packaging take extra time to create and drive up the price.
- Common minimum order requirement for private label products. Your supplier will often ask you to purchase private label products in bulk beforehand. This is because it’s not worthwhile for your supplier to produce these unique products one-by-one.
Cons of dropshipping (or pros of private labeling)
- No product branding when dropshipping. Selling a product without your company’s logo or name can lower its perceived value. This means that you will most likely have to adapt your pricing strategy and reduce your selling price. In other words, private labeled products can sell at a higher price!
- When dropshipping, you will have to deal with more competition. Everyone is able to create their own online store and sell the exact same product as you. With private labeling, you’re the only vendor for that exact product. For more tips on beating your competition, click here!
- Customer loyalty. When someone buys a blank dropshipping product, they probably won’t remember the company’s name a few weeks later when someone asks about the product. A private-labeled product includes your company’s name and logo, which positively affects customer loyalty and word-of-mouth marketing.
Is private labeling better than dropshipping?
With the pros and cons all lined up, the next question that naturally comes up is, “What is better, dropshipping or private labeling?”
When weighing the pros and cons, I think that private labeling is better, but it also depends on your situation.
For example, if you’re just starting out with selling products online, I think it’s perfectly fine to start with dropshipping.
That way, you will learn how everything works without carrying the extra risks of spending too much time branding your store and buying private label products in bulk beforehand for a store that may eventually fail.
If you find out that your product is selling really well, you can always take the next step and scale your store by private labeling your product!
However, if you’re a dropshipping veteran, then I think it’s definitely worth a shot to start a private label brand! A brand allows your business to be scaled more easily and is a great choice for the long-term.
Dropshipping vs private label stores: Examples
I’m going to show you a real-life example of dropshipping vs private label stores based on the following product:
It’s a massage gun, which mainly helps relieve muscle soreness and stiffness, but has many other benefits as well. It will cost you around $50 to buy from your supplier, including shipping.
Here’s an example of (one of the many) regular dropshipping stores that is selling (a newer version of) this exact product:
As you can see, the product is basically the same on AliExpress; there is no additional branding on the product or on the package it comes with. However, this dropshipping store is selling it for triple the price!
What do you think will happen to the retail price?
Exactly, you will be able to ask for a much higher price from your customers, as your product’s perceived value is a lot higher!
As you can see, Hyperice put their brand name and logo on the product, but that’s not all!
For example, they even private-labeled the case that the product comes with:
Their private-labeled product and branded store are the reasons why Hyperice can ask double the price of regular dropshipping stores for the (apart from the logos etc.) exact same product.
Hyperice’s product’s perceived value is just much higher.
And that brings me to the conclusion.
Private-labeled products contain a piece of the brand’s identity. When paired with a branded store, private labeling can be extremely powerful.
However, don’t get me wrong; dropshipping is still a great business model in 2021.
And don’t forget, a dropshipping store can be a great stepping stone to a private labeled brand, both for beginners and experienced dropshippers.
If you want to read more about branding your store and see more branded store examples, check out this article:
That will definitely help you further to think of ways to give your own store more of a branded feel.
I hope you’ve learned something new today, and don’t forget that you can write a comment below if you still have any questions.
Have a great rest of your day!
Getting Started with Dropshipping in 2021
So, are you ready to get started with dropshipping? Or maybe you have already started, but you’re looking to get some inspiration?
If so, then I suggest reading this complete Shopify dropshipping guide.
It’s a huge article, but it contains everything that you need to know to create your own Shopify dropshipping store in 2021. It’s like a dropshipping course, but then for free!
Reading this article will surely help you to get started and to stay motivated while beginning and continuing your dropshipping journey.
Just don’t forget that success takes time. Keep improving each and every day!
And here are the articles I suggest you read next:
- 14 Awesome Tips To Get Your First Dropshipping Sale
- Unique Dropshipping Store: 11 Amazing Tips to Create One
- Dropshipping Startup Checklist: 10 Things to Do Before Starting
- How to Find Winning Dropshipping Products? (Product Research Methods)