There are 4 basic sales models on Amazon:
1. Retail arbitrage – what can be described as: “bought cheaper – sold more expensive”. This means purchasing promotional goods in local markets or at discounted prices in retail stores and then reselling them on Amazon at full price.
2. Wholesale – purchasing goods from the manufacturer at wholesale prices. Earnings due to high margins.
3. Self-produced product – a classic model: you produce something and sell it through an e-commerce platform, saving on marketing and other sales-related costs.
4. Private Label – selling other people’s goods under your own brand.
At first glance, it seems that the wholesale trading model will provide you with the maximum benefit. But this is not entirely true.
Firstly, because many manufacturers also offer their products on Amazon, creating competition for you.
Secondly, since a large wholesale is of maximum interest to the manufacturer, he can cooperate with an unlimited number of dealers. This creates, again, competitive conditions associated with reputational risks.
Dropshipping can be mentioned here, but this method of sale is officially banned on Amazon.
About Amazon Private Label in simple terms
Private Label is a long-term strategy that avoids production difficulties and risks. The idea is this: you label the finished product produced by your supplier. It’s very similar to what supermarkets do when they put their own branded products on the shelves without producing them.
What’s more, with FBA (Fulfilment by Amazon), you eliminate all the obligations associated with warehousing, logistics, and customer service.
In general, the Private Label strategy looks like this:
- Search for a product.
- Ordering its production.
- Labelling (applying a logo).
- Delivery to Amazon warehouses.
The main difficulty in this list is finding a sought-after product of good quality. It doesn’t have to be something original, something that isn’t already available on Amazon. Many sellers take top-selling products and make them unique packaging, add gift stickers, change the basic colours – in other words, add a “twist” and thus attract competitors’ customers.
Another equally effective way to stand out is through proper dumping, which allows you to reduce the price as much as possible but win through high turnover.
According to statistics, 90% of Americans won’t buy anything online without comparing prices on Amazon.
Advantages of Amazon Private Label compared to other strategies
As mentioned above, this strategy is aimed at the long term. That is, you are creating a brand for someone else’s product. This is more comparable to investing in securities rather than buying a ready-made business.
This approach provides you with certain advantages:
1. Full control over your reputation: you do not care about negative reviews earned by the manufacturer’s brand, scandals and disputes that are possible if the product is sold by unscrupulous sellers. You build your reputation from scratch.
2. Unlimited potential and scalability. Your brand is not limited to a topic or niche. It will be strange if a manufacturer of natural candles suddenly launches a robot vacuum cleaner, but it is absolutely normal to combine these items in the catalogue if you position yourself as a brand of household goods.
3. Low competition – since the goods belong only to you, there is no need to share the sale of similar items with other sellers.
4. Recognition. Thanks to a single concept (logo + brand colours + packaging, etc.), the buyer is more likely to return to you. The level of trust and loyalty increases.
5. Flexibility. If the quality of the manufacturer’s goods has dropped and you are no longer satisfied, you can easily change to another one, as you are tied to the brand concept, not to a specific supplier.
This allows you to test new products and seasonal demand offers. This is quite difficult to implement if you are working on a wholesale basis (i.e., tied to a specific company and limited to its product range).
Approximately 80% of the US population is more likely to buy Private Label products than products of large and very well-known brands.
(data from vc.ru)
The main disadvantage of the Private Label model
It would be fair to call it not even a “disadvantage” but an “investment amount” that will be much higher than the initial investment for other models. First of all, it is the cost of trademark registration. It is also worth considering the initial purchase of goods for tests and branding costs (design + implementation).
You can register an internal TM on Amazon for free. You will need to register the TM with the USPTO if you decide to sell the product on other marketplaces. This is a long process that can take up to 9 months.
How we can help you
We protect you from mistakes and save you time. We help you start your business on Amazon:
- search for a competitive product;
- launching the project, a full cycle of support at all stages;
- legal services;
- accounting support for business, etc.
If you have already evaluated all the pros and cons of Private Label and are ready to start a business, we will be happy to discuss your project. You can find our contact details in the section of the website with the same name or fill in the form .