Know the Difference Between Private Label & Licensing

by Broad Street | Published 09/10/2014 | Licensing, Licensing Tips

Companies often contact us about securing a brand to put on their products. But sometimes they’re really hoping to have someone else (the brand) do all the heavy lifting.

That’s the difference between brand licensing and private label or store brands.

A private label wine, for example, is one that a retailer sells with their store brand on it. Some other types of entities have done the same (e.g., Manchester United Football Club in the UK). The retailer “sources” the wine or other product from a vineyard or distributor, who does nothing more than deliver the product to a warehouse or other distribution center. Stores sell their own branded products with the assurance that it’s “just as good as” the more expensive national brand. And many PL products are manufactured by the national brands who have excess plant capacity. Most, in fact, are made by “co-packers” who may or may not faithfully replicate the copied brand.

And over the past few years, PL products have been rising in price faster than national brands, who have also fought back with promotional spends designed to keep or win back customers. Some larger retailers are beginning to offer their own products that are not copies of national brands, though this trend has been overstated by the apologists for PL like the Private Label Manufacturers Association.

Being a supplier is, of course, easier:

  • No sales force needed
  • Less risky financially (no marketing spend)

However, a supplier or co-packer has little or no job security. A licensee, on the other hand, has a lot more risk but a greater reward potential.

A licensed wine or other product means that a licensee “rents” the brand name and puts it on their product, then markets the licensed item to retailers. The licensor (the brand owner) is paid a royalty based on net sales (the amount actually sold, not “net” as the opposite of “wholesale”).

A licensor (the brand owner) usually expects the licensee to guarantee a certain amount of their sales. This is a point of contention with many potential licensees who say “we’re taking all the risk.” But in fact, if the licensed product is a failure in the marketplace, then no one will say “X vineyard failed,” they will say “the Y brand was a bad idea” (like NASCAR raw potatoes, for example, a real license in the US some years back).

You will be tested on this tomorrow morning.

Class dismissed.

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