Always a key event on the online seller’s calendar, Amazon Prime Day is fast approaching. So, now is the best time to get prepared.
‘Private labelling’, where generic products are sold under the seller’s own brand name, is increasingly popular with online sellers. The 2016 Amazon Sellers Survey of more than 1,500 Amazon sellers reveals that half of sellers sell private label items; with 17% selling only private label items. This trend looks set to continue – not least because of the lure of increased profit margins, the ability to move away from competing solely on price and the opportunity to differentiate your products in a crowded marketplace.
Indeed, a quick web search will bring up a number of blogs in the vein of: “How I made more than $1,000 profit from my private label product”.
But before you gleefully sever all connections with your branded goods suppliers - a word of caution: it’s not as easy as it sounds to make money from private label. It can be done – and many online sellers have proved that. But the Amazon Sellers Survey also pointed out that 27% of sellers earning more than $1m who do some private labelling generate less than 10% of their sales from private label products. They are also less likely to be exclusively private label sellers - just 9% of them sell private label only.
Private label can be an excellent selling model, but it is also more complex and will demand more of your time and money than selling other peoples’ brands: there’s a big difference between reselling other peoples’ products for a quick return – and investing longer term in developing a brand asset.
We don’t want to deter you from private label selling. But if you are just starting out you may find our checklist below helpful in avoiding mistakes others have made.
1. Make sure you have a viable product and market
Absolutely fundamental of course – but how can you improve your chances here?
- Avoid markets that are dominated by a national or global brand; it would be impossible to compete with well-entrenched, heavily promoted brands by offering a similar product.
- Avoid commodity products and those that can be found easily on the High Street– unless you add a differentiator that will make buyers choose you over the rest….
- but also avoid overly complex products that are difficult to use and may require instruction manuals and post-sales support.
- Be aware of the need to comply with safety standards for some products – children’s toys or furnishings, for example.
- Don’t be tempted by low margin/high volume products. It takes just as much effort to sell a £5 product as one that is double or triple the price, so aim for a product which you can sell at a decent margin, even though you may it in sell lower quantities.
- Size matters! The smaller and/or lighter the product you sell means lower shipping costs from your supplier - plus lower storage and handling fees from Amazon.
- Durability is also important: fragile products can incur higher packaging costs and can be easily damaged during shipping to the customer, resulting in poor customer reviews.
- A product that also has appeal as a gift will bring additional sales.
- A product that has a range of optional accessories or add-ons – or is one in a series of ‘collectables’- can encourage customer loyalty and repeat business.
2. Make sure you have done your research thoroughly upfront
Gut instinct can work, but fact-finding research is a much better bet. And it needn’t be complicated:
- Research similar products on Amazon using the multiple keywords that best describe your proposed product to see how many competitors there are, the average selling price of their products, how recently they have added new items and so on.
- Check competitive product detail pages for customer ratings and feedback - also for negative comments about quality or product omissions. You may be able to take advantage of these deficiencies by resolving the issues in your own product.
- Monitor social media for feedback on similar products; the views expressed may be more candid than on the supplier’s page.
3. Make sure your product is legal
Quite apart from any safety/compliance boxes that need to be ticked as regards the design and manufacture of your products, be careful not to infringe the copyright of similar products:
Trademarks and patents are there for a reason. It’s very tempting to piggy-back on the success of someone else’s product, but beware – ‘borrowing’ a product concept too closely can be interpreted as a trademark infringement or even be viewed as a counterfeit reproduction.
Don’t forget that your products will be very visible online – particularly if they are selling well - and you don’t want to attract the attention of the established brands’ legal departments.
4. Choose your supplier carefully – especially when sourcing overseas
Overwhelmingly, private label sellers look overseas – particularly to China, to manufacture or supply their products. This adds a whole new layer of complexity for shipping, product quality and possible loss of control over your own product design:
- You may have received good quality product samples, but there is a risk that this quality may not follow though into the main deliveries, so you will need to take measures to mitigate this risk.
- Ensure that your manufacturer or supplier understands that they have an exclusive agreement with you for this particular product and cannot offer it to other companies.
- Make sure your supplier is happy to work on small minimum order quantities initially - at least until sales volumes build up. Chinese manufacturers are more responsive to this now than they were previously.
- Keep on top of the import process when sourcing from overseas; you don’t want your shipment to be held up because you haven’t provided the correct paperwork.
5. Make sure your product can be found on Amazon
Product listings, sales and customer reviews all help people to discover your product and decide whether or not to buy. You have more control over some of these than others, but focus in particular on:
- Listing optimisation: use of long tail keywords for specific searches and clear, concise product descriptions with good images.
- Generating positive, current customer reviews: these are strong drivers of sales.
- Converting visits to your product page into actual purchases.
6. Promote your product effectively
With private label selling, it’s not just a question of pinning all your hopes on winning the Buy Box. Amazon can help, however, with its Sponsored Products ads.
These were designed to offer sellers a bid-based opportunity to improve their product and site search rankings - hence increasing visibility and driving traffic to their store. Sponsored Products ads are particularly helpful to new sellers, for products with little or no exposure and to promote seasonal lines, unique items and new offers.
You will find more information on Sponsored Products ads in our recent article.
And don’t rely solely on Sponsored Product ads; you also need to be creating a buzz around your private label products in social media.
7. Make sure you get the price right
Pricing private label items is a whole new ball game to pricing branded products against competitors. In the latter scenario, more than 80% of sales go through Amazon’s Buy Box - and price is a large factor in winning the Buy Box, so the Buy Box effectively reflects market pricing dynamics: sellers just need to balance how high they can maintain their price to still have a good chance of winning the Buy Box - while making a decent margin.
Buy Box is not relevant to private label sellers, so you can’t rely on that dynamic as a guide for pricing. This means you will have to monitor prices and sales carefully to be sure you have set the price correctly for maximum margin.
8. Consider FBA
Warehousing and fulfilment can be a real headache for online sellers – and take up a lot of your time and effort. So it’s worth considering ‘Fulfilled by Amazon’(FBA), which offers particular benefits to new or small-scale sellers – and is considered by many to be a service that offers the most immediate and significant impact on a seller’s business.
The good thing is that if your inventory is delivered directly into Amazon’s FBA fulfilment centre, you won’t have to worry about storage, stock handling or customer fulfilment and returns.
It comes at a cost, however, and it can be very expensive for slow-selling lines.
To find out more about FBA, see our recent article.
9. Protect your new private label products
With online selling – and successful online selling in particular - comes high visibility. Before long, your take on a generic or other product may become someone else’s take on your own!
So, don’t forget to:
- Investigate what legal protection (if any) is available to protect your investment in the product.
- Monitor the marketplace constantly to spot any copycat products.
- Ensure your supplier/manufacturer doesn’t use your idea/design for another company.
- Inform Amazon of any infringements.
10. And finally, be prepared to…..try, try, try again!
Not every private label product you select will be a winner. Indeed as few as two or three in every ten private label products will end up making money for you. So even if you have done all the research you could beforehand, have priced appropriately and promoted effectively – some products will just not sell as you expected.
It is important not to give up at this stage. Developing a private label business takes time and a willingness to try out many products to find those that your customers really want to buy.
Hopefully, your perseverance will pay off in the end!