In the ever evolving landscape of the cosmetic industry, there are two business models that have come up as prominent options for the business owners- private label manufacturing and contract manufacturing. In this blog, we will delve deep into the intricacies of both private label and contract manufacturing. We will explore how they work, their respective benefits and drawbacks and the primary differences between the two. But before we delve deep into this, it will be good to first understand the two terms. Both private label cosmetic manufacturers and contract manufacturing does involve outsourcing the production of the cosmetics to the third party manufacturers. The primary difference between the two however lies in the level of control and customization that is afforded to the owner of the brand.
How do these work?
Private Label manufacturing
The private label manufacturing allows cosmetic brands to sell products that are manufactured by them under their own brand name. In this type of a model. The owner of the brand selects the products from the manufacturer’s existing range, customises them to an extent with the packaging and labelling and finally sells them under their own brand name. This is quite a simple approach and therefore this is considered to be one of the most attractive options for the startups and the small businesses.
Contract Manufacturing
Contract Manufacturing is collaborating with a manufacturer and developing and producing customised formulations that are tailored to the needs of the brand owner. The private label manufacturing relies on the existing products however contract manufacturing provides you with a greater flexibility and creativity in the development of the products. Brands here get the opportunity to create their own formulations, branding elements and packaging thereby being able to differentiate themselves in the crowded market.
Read More: Top 10 Cosmetic Products Manufacturer Companies India
Benefits of Private Label Manufacturing
The benefits of private label manufacturing include:
- Brand Recognition: If you place your label on an existing product that helps you to expand the reach of your brand. Rather than spending hours in research and development, you can add a desirable product to the core products without much investment.
- Full Control of pricing and marketing: The private label manufacturing leaves the product manufacturing to the third party manufacturer. You are therefore able to focus on the marketing and the database. You also have the option of modifying the marketing strategy and the pricing in order to maintain a competitive edge.
- High Profit: Since the company does not have to manufacture the products themselves, therefore, they do not have to spend on equipment and labour. This way the companies are able to keep a good profit margin.
- Market Stability: The brands sell the private label products at quite an affordable price and they do not make any compromises with the quality. Therefore even when the economy suffers, the customer base of the company remains stable.
Disadvantages of Private Label Manufacturing
- Less Control on the operations: Though you do have the authority to tweak some aspects, the manufacturer basically controls everything starting from the design to the production.
- Minimum Order Quantity: You have to place a minimum order and this can be problematic if you simply need to test run a new product.
- Dependence on Production: These manufacturers manufacture their own products under your label. Therefore, you are completely dependent on them. When you switch manufacturers, your products also change that might affect your established client base.
Benefits of Contract Manufacturers
- Flexible: Here the companies own the design of the product and therefore they are able to have full control over the branding, quality testing and product specifications. The tasks that the manufacturer does will help your employees get some time to focus on their work.
- Earn a good profit: When the contract manufacturers manufacture the products that help in reducing the overhead costs that are involved with the production, thereby increasing your profit. At times, you can also negotiate the price which you cannot do with the private label manufacturers.
- Scalability: You are able to scale the production without much investment. There is a network of suppliers across the globe that you can tap into.
Disadvantages of Contract Manufacturing
- Miscommunication: This type of manufacturing requires you to have constant communication throughout the entire process of production. If there is any kind of miscommunication that might result in expensive mistakes.
- Intellectual Property: When you outsource the proprietary information to the manufacturer there are chances of intellectual property theft. The manufacturer could become your competitor.
Private Label Manufacturing VS Contract Manufacturing- Which is better for your brand?
Both Private label third party cosmetic manufacturers and contract manufacturing have their own set of advantages. You need to consider the originality and the scalability of your product when you try to decide which method is best for your brand. Research the possible partners to examine the capabilities, the pricing and the experience.
Important questions that you should ask before deciding the type of manufacturer
- How different is my product from others? Is it slightly different or is it a complete new concept?
If the product is a new concept, you should opt for a contract manufacturer, if it is little different, you can opt for a private label manufacturer.
- What are the resources you already have and what else do you need for the production?
If you are able to source your own materials, you can opt for contract manufacturing. On the other hand, if you do not have resources, it is better to partner with a private label manufacturer who already has an established supply chain and a manufacturing unit.
- What are my final product goals?
You need to determine the scalability of the project and whether you want to save time and money by branding a private label manufacturer rather than investing in the full process of development.
Conclusion
Best private label cosmetic manufacturers VS Contract Manufacturing both allow businesses to bring some of the products of the highest quality in the market. While the private label manufacturers do not allow businesses to customise the products, the contract manufacturers allow the companies to customise the products. To put in simple words, the goal of private label manufacturing and contract manufacturing are the same. Both aim to create exceptional products that the consumers will like and buy frequently.
