White label goods are not given a specific name after they are manufactured, but are sold by different companies under different names and in different market segments (what?).
The manufacturers of white label goods only bear the costs of producing the products: This is a key advantage of this business model, as there is no need to invest in infrastructure (how?). The white label company focuses on optimising the production processes and therefore has a better chance of achieving economies of scale. Since the finished products are not branded, sellers can market them in any way they choose.
White labels can also be used to sell a portion of a company’s products under a different brand name. This is common in the food industry, where products can be manufactured in one facility, packaged in different ways, and sold by retailers under different names (like? what?).
The revenue generated from the sale of no-name products can supplement the revenue generated from branded products. This gives the company access to lower-income customers and alternative distribution channels. In addition, production becomes more efficient when it is possible to reach customers with different expectations of product quality.
In order to supply these additional customers, often only a small amount of extra work is required, as all goods are based on the same basic product.
For the white label business model to work, it is important that customers do not realise that the seemingly different offerings are actually the same. Otherwise, there is a risk that sales of the more expensive brand will be eroded or cannibalised by the cheaper substitute product.
The origins of White Label Business Model
The music industry first invented the term ‘white label’ and propagated it during the second half of the twentieth century. Artists frequently sent unlabelled demos to radio stations and clubs before officially releasing their CDs and LPs.
These demos bore the name of neither the record label nor the artist, hence the designation ‘white label’. This served two main purposes: first, to attract new listeners to an artist’s sound, and, second, to ensure that listeners were not prejudiced, enabling the record labels to estimate production quantities more accurately.
If albums were well received, they were officially released, adorned with a proper label and given professional marketing. Other industries, the food industry especially, later adopted similar methods. A familiar feature in the food industry is the presence of comparatively small margins over substantial sales volumes. This is conducive to application of the White Label business model.
The innovators of White Label Business Model
Taiwanese technology company Foxconn is perhaps the biggest and most important White Label innovator, as it manufactures many electronic devices and components for well-known brands. Reputable companies including Apple, Dell, and Intel are among its customers.
An estimated two-thirds of all computer motherboards sold under the Intel name are actually manufactured by Foxconn. Regardless of whether a console is labeled Microsoft, Nintendo or Sony, it will contain at least some Foxconn hardware.
Surprisingly too, the company is even the leading manufacturer of central processing units (CPUs) and computer casings. All of this makes Foxconn a prime example of what constitutes a White Label producer. As a contractor, the company focuses wholly on producing electronics.
In this way, the contracting companies benefit from its consistent and cost-effective production and are able to concentrate on research, marketing and branding. This principle has enabled Foxconn to build considerable expertise in the industry. The company owns some 20,000 different patents, employs almost a million workers, and generated revenues in excess of US $110 billion in 2011.
White Label producers are also well-established and highly innovative in the food industry. Richelieu Foods is a famous White Label contract food producer of frozen pizzas and salad dressings. The company’s products are marketed and sold under the brands of various retail chains.
Customization of manufacturing processes and packing options by Richlieu Foods for the contracting client enables the latter to benefit from consistently high-quality products that they can brand with their own label without the costs associated with establishing manufacturing and packaging facilities.
As discount stores gained market power, the White Label concept obtained a strong foothold in food retailing. No-name and store-brand products make up more than two-thirds of all goods sold in the food industry. These developments explain the continued steady growth of White Label producers.
Printing In A Box is a White Label producer in the printing industry that offers its customers an opportunity to start their own online printing business. The firm provides everything required to start an online printing business, from webpage templates and marketing information to handling of the ordering and delivery process.
Customers can embellish their website and online store with their own logos and layout, and sell printed products such as postcards, letterheads, gifts and flyers to their customers.
It’s a win–win situation. Customers can concentrate on distribution and marketing and sell prints without needing detailed knowledge of printing processes or even own any printing equipment at all, while Printing In A Box focuses on production without the overheads and infrastructure required to manufacture and deliver the goods, leaving the marketing, branding and distribution to its customers.
When and how to apply White Label
You may choose to opt for a White Label strategy if your customers are very price sensitive and you already have a firmly established brand. This business model has been applied very successfully in both the food and garment industries in the past. To start with, you will most likely want to introduce a limited number of White Label products.