Private Label or Wholesale – Which is better for Amazon Sellers?
Many sellers who want to gain a foothold on Amazon are faced with the question of which strategy to pursue. This is not only about decisions regarding price, quality etc. but also about the question: Do I want to sell private labels or wholesale goods?
Today we will explain how this decision will affect your entire seller profile and who should choose which model. Therefore, in this blog post, we will tell you all the facts you need to take into consideration before making a decision.
But before we go into detail, let's first address the question of what is a private label and what are wholesale goods?
First of all, Private label means that you, as an Amazon seller, establish a new brand yourself. This means you are responsible for expanding the brand and raising awareness. You also take responsibility for the products sold under this brand.
Nowadays, nobody has to build up his own factory in the backyard to sell a new product but can use online platforms like Alibaba or GlobalSources. There are many manufacturers, mostly from Asia, who sell their goods to sellers. You can choose and order the product you want to sell under your private label – for example, toothbrushes. You also have the option of ordering personalized packaging and the printing of your logo on the product. In this manner, sellers retail a toothbrush of their own brand.
In contrast to private label products, already established brands can be used for wholesale. For example, sellers can resell toothbrushes from Oral-B on Amazon. The brand is already known and customers will specifically search for this brand when interested in an electric toothbrush. As a seller of wholesale goods, the main challenge is to win the Buy Box.
One can see some differences at first glance. A closer look, however, reveals many more differences that should be considered when choosing the appropriate strategy, which brings us to the next point.
How do Private Labels and Wholesale differ from each other?
To shed more light on this, we have to look at the following different areas: Price, investment, Buy Box, legal responsibility and opportunities & risks. We will now discuss into detail and come closer to our goal of deciding whether private label or wholesale is the right thing for you.
Your final selling price on Amazon is influenced by all the costs you incur until your product reaches the customer – including a profit. The costs for selling on Amazon, shipping etc. are of course similar – no matter if you use a private label or wholesale. However, there are drastic differences in the costs until you are ready to sell on Amazon:
Pricing for private label sellers
In contrast to wholesale, the purchase price of goods for your own private label is low because you purchase no-name products (possibly from low-wage countries). However, there are other costs that sellers of wholesale are not confronted with. We will discuss these in more detail in the section 'Investments'.
Through your private label, you have created a new product (incl. new EAN). This means that you are the only seller and are not in competition with other sellers. Due to the missing price war, you are somewhat freer in your pricing. But beware: You may be out of competition for the Buy Box, but you are in competition for the top hits in the result list, which allows buyers to compare your price with those of other brands or private labels. To orientate yourself on the pricing of other suppliers.
Pricing for wholesalers
Since sellers of wholesale buy products of an already established brand, the purchase price is much higher than the price of no-name products. Besides a margin for the brand owner, you pay for the research and development of the product, the marketing of the producer, etc. The high purchase price naturally has a negative effect on your profit, but also on the investments you have to make.
Your sales price is also significantly influenced by the prices of your competitors. As a seller of wholesale, you sell the same product (with the same EAN) like many others. Amazon uses the EAN to determine whether a product is already listed or whether it is a new product. Since only one listing is allowed for identical products at a time, wholesalers are competing for the Buy Box and are thus in a direct price war with competitors. Wholesalers are correspondingly inflexible in terms of pricing.
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In order to expand an online business, some investments are required. For example, sellers have to procure the goods. Since sourcing varies according to strategy, this has an impact on the amount of investment required.
Investments for private label sellers
Since one still has to build up a brand with the private label, the investments are significantly higher than for wholesale goods. For example, sellers should invest in a professionally designed label and take marketing measures to create brand awareness. The photos from websites like Alibaba often lack quality. Therefore, sellers should invest in professional images of the product. Also, sellers need to have an EAN created for the product, which Amazon will use to determine whether the product is already listed or whether a new product page is being created.
Building a new brand is a task that takes time and effort. But if sellers are willing to take this time, these actions will increase immensely the chances of establishing a strong brand image. In addition to the costs of building up and expanding the brand, sellers often have to deal with even larger purchase quantities and shipping costs from suppliers in other EU countries. So sellers should take this into account.
Investments for wholesalers
These investments are not opposed by wholesalers, as they rely on an already existing brand. They only have to buy and distribute the goods. A strong brand has already invested in development and expansion. In addition, many sellers of trade goods rely on products from the EU. These have a lower minimum purchase quantity on the one hand and on the other hand, do not have to be imported from Non-EU countries.
On Amazon, everything revolves around the Buy Box. But even here there are some differences depending on whether you sell a private label or wholesale.
Buy Box for Private Label Sellers
Through private labels, sellers avoid the fight for the Amazon Buy Box. That's because private label sellers are the only supplier of the product to win the Buy Box as long as they are authorized to do so.
But beware: You are, in most cases, out of competition for the Buy Box, but that doesn't mean that private labels generally have no competition. Sellers may already have customers who specifically buy their brand, but if a non-branded consumer is generally looking for a new toothbrush, the product is one of many in the results list. The buyer still has to be convinced this toothbrush is the best for them.
Buy Box for Wholesalers
As a wholesaler, you are in a direct price war with your competitors, as everyone wants to get into the Amazon Buy Box. These sellers have to pull out all the stops to become number 1 for this product. The use of Fulfillment by Amazon (FBA) is a must as it will increase the chances of getting into the Buy Box.
But one of the most important criteria for winning the Buy Box is probably the price. Since you are in competition with other wholesalers, it is essential to regularly review and adjust the price. Save time and resources by using a flexible repricer. It will automatically set the best price to win the Buy Box and beat the best price for the seller.
Owners of a trademark are bound by the Product Liability Act, which can hold the manufacturer of a product liable, for example in the event of an accident caused by this product. It is therefore important for legal responsibility to distinguish whether you are the manufacturer, importer or seller. Which role you play depends on your decision whether you are selling private labels or wholesale.
Responsibility of Private Label Sellers
As a seller of a private label, you sell your own product and therefore you’re legally responsible for it. If one of the toothbrushes has a dangerous defect, this not only has a negative effect on the brand image but can also have legal consequences.
If sellers purchase goods from Non-EU countries, this seller becomes the importer and is therefore responsible. Additionally, all products sold in the EU should be marked with the CE seal. This may require costly tests and test reports.
This is by far not the only EU customs regulation. As an importer, you are responsible for the customs-compliant import of the goods. You can find out what you should pay attention to on the customs webpages, for example, the british one. It is therefore advisable to primarily purchase goods from the EU since they were either manufactured here or already brought into the country by another importer.
Responsibility of Wholesalers
However, wholesalers legal obligations are limited. They are not liable for the product itself, since the liability is the responsibility of the manufacturer (in our example Oral-B). By sourcing, i.e. product procurement in the EU, the obligations of the importer are also eliminated. This is also the responsibility of the manufacturer, as he imports the goods if they are not manufactured in the EU. Accordingly, the conformity marking, CE, is not applicable.
Opportunities and risks
As you can see from the previous sections, both strategies have their advantages and disadvantages. Let's take a final look at the opportunities and risks of each strategy.
Opportunities and Risks of Private Label Sellers
YOU are the brand, for now, influence its image and much more. But you also bear more responsibility. As described above, you are liable for your brand and the products you sell. If your brand is not well received, this will affect your sales and therefore your profitability.
As the owner of the brand, Amazon also gives you the opportunity to customize the item description. This allows you to make your texts SEO-compliant and achieve a higher visibility. Once you have established your brand, you can think about expanding and, as part of a diversification strategy, add more goods to your product range in order to win new markets.
Last but not least, as the owner of a private label, you also have the opportunity to sell your brand itself.
Opportunities and Risks of Wholesalers
Especially for beginners on Amazon, it is helpful to first sell wholesale to gain experience as a seller. Find out how Amazon works, what makes customers tick and how you can fit into the marketplace. This way you also learn how to make your store sustainable or how to communicate with customers – and all this at a lower business risk than with a private label.
However, with wholesale, you don't have the opportunity to build your own brand to which you can later add more products to grow further.
If you want to sell wholesale on Amazon that is already listed, you have to assign your product to the already existing product page and therefore have no influence on its design. With a bit of luck, you will be added to a well maintained, SEO-compliant site. However, it can also happen that the creator of the product page was not very skilled in the design.
Whether you choose private label or wholesale, no strategy is clearly superior to the other. In fact, both have their advantages and disadvantages. So it only remains to see which strategy fits better to your own preferences and goals. More tips on how to sell successfully on Amazon can be found here.