A lot of people believe “branding” is a new trend that's playing an indispensable role in creating successful businesses. The truth is that branding isn't new at all and all the firms that have always been successful have been branding their products properly.
With that being said, a wide multitude of entrepreneurs have been known to get excited by the entire branding scene and so decide to begin building their own brands and products from scratch. Unfortunately, this option isn't always the best and it can create some major challenges for inexperienced entrepreneurs. Instead of creating their own products, some entrepreneurs decide to become resellers of products, which basically means they will buy products that are already manufactured and branded and simply take care of the marketing and sales.
When it comes to agreeing to the terms and conditions of the agreements between the manufacturers and the resellers, the technicalities can get a little troublesome at times. To ease the process, the concept of a White Label agreement came to being.
If you're an entrepreneur that wants to become a reseller or if you are a manufacturer that produces goods, go ahead and continue reading this article as we are sure you're going to learn a lot about the White Label concept.
So, then, what is the White Label agreement, exactly? The White Label concept, simply put, is a regulation for the agreement that takes place between manufacturers and resellers. The manufacturing company is the one that produces the stock whether they're products, goods or services and the retail company is the other party in this agreement that's responsible for managing the sales. This business agreement usually helps divide the workload into more specialized fields. As the White Label has proven to organize business agreements effectively, there are quite a few fields that are using this management strategy such as electronics, foods, software production, etc.
It's worth noting that eCommerce is among the sectors that are employing the White Label concept. eCommerce is a modern way of managing business that turns the world into one metaphorical shop. There are zero borders and eCommerce stores empower traders to ship their products, services and goods all over the world. eCommerce gives companies the ability to sell their products in multiple regions easily. They no longer need to sign agreements with logistic companies as they can ship their products with ease directly to the consumer. If they're involved in the B2B world, they deal directly with the business and can ship directly to them, making the entire process seamless.
Here at AGP law, we saw the need to create a detailed article about eCommerce under the White Label concept in depth, and you can find the article here. It's the last article we released and the response from our readers has been great.
What are the advantages and disadvantages of the White Label agreement?
The White Label concept is a set of policies that creates a fair agreement between the manufacturer and the reseller in which each party's rights and duties are clearly defined. To reach common grounds, in most situations, both sides have to compromise to finally reach an agreement, which is the norm when it comes to agreeing to anything. This creates some advantages and disadvantages for both the manufacturer and the reseller.
In fact, the reseller has the chance to simply enter any market and change the price for their own benefit. The reseller can decrease or increase their own profits to fit into any market, ensuring they remain true to their business plan. How is this beneficial to the reseller? When their responsibility is strictly related to sales and distribution, they don't have to think neither about the creation of the products nor its branding, which gives them more time and energy to find ways to grow their main business. Even with these privileges, the reseller still doesn't have any right to interrupt or influence the manufacturing process. What do we mean by this? It means that the reseller has absolutely no right to meddle with any technologies used in creating the products or with the design of it because these are part of the manufacturer's sphere of responsibility.
This now brings us to the manufacturer's side of things. The very advantageous thing about being a manufacturer is that manufacturers get the chance to sell their products and services without having to worry about paying exuberant costs for advertising and promoting these goods. Another plus is that the manufacturer can expand their circle of customers which allows them to build a much more lucrative business model and find new potential partners.
Now let's touch upon the disadvantages the manufacturers face. First and foremost, the recognition and the publicity the product receives doesn't reflect directly on the manufacturer. Instead, the reseller enjoys it as it's their brand which is recognized by the consumers. The manufacturer doesn't receive calls from the consumers using the products they produced, neither do they receive praise nor complaints. The calls, recognition and goodwill, as well as any complaints are directed squarely at the reseller, with the manufacturer remaining out of the picture. Another disadvantage manufacturers should be aware of is that they'll sell their products at lower prices. They do this so that the resellers can add their mark-up to the said product.
What are the terms that the White Label agreement includes?
As we clarified previously in this article, the White Label strategy is a deal the manufacturers of products and services reach with companies wanting to sell these said items. In turn, these companies are referred to as resellers. Technically, the White Label agreement is a license manufacturers grant the resellers according to specific terms and conditions. Below, we list the major terms most White Label agreements should include.
- Relationship between the parties and its legal nature
- Manufacturing of products
- White Label license and its terms
- Packaging and documentation
- Rights and obligations of the reseller and the manufacturer
- Product warranties
- Marketing materials
- Repair services and customer support
- Orders and pricing
- Product quality control
- Intellectual property rights
- Division of profits between parties
In addition to the titles listed above, the White Label agreement also includes the terms that are found in many legal agreements, such as force majeure, limitation of liability, term and termination, confidentiality, assignment and other required terms.
What are the points of the White Label agreement that the parties agreeing to should focus on?
There are some aspects in the White Label agreement that the two parties should settle and decide before they actually proceed with the arrangement.
Both parties signing the White Label agreement should decide whether the manufacturer is allowed to communicate directly with the consumers of the said product/ service. More often than not, the manufacturer isn't allowed. The two parties, the reseller and the manufacturer, should also agree if the manufacturer provides exclusively to one reseller in particular or not. For example, in some agreements, the manufacturer gets prohibited from selling their products in a specific geographic region, to more than one reseller, or even under their own name. This is what is called a “Term of Exclusivity”.
The two parties must also decide whether the manufacturer is allowed to make any changes in the design and functionality of the product. This leads to the fact that both resellers and manufacturers, while signing the White Label agreement have to agree which performance progress is required from the parties in the first year and in all subsequent years. More agreements should be settled such as; how the costs and expenses should be split between the parties. For instance, who should pay the cost of marketing materials, freight and transport costs, taxes and duties, etc. It's also important to note, in the case the product relates to food, whether the manufacturer retains ownership of the product recipe or formulation, with the reseller retaining all intellectual property rights. Do the products comply with valid quality standards? Who bears product liability, the manufacturer or the reseller? And finally, which amount of products and services will be supplied by the manufacturer to the reseller? There are a lot more details manufacturers and resellers should agree on to make sure no complications and disputes appear during their business journey together.
The ultimate goal of crafting a contract is to regulate a business relationship to minimize the risk of misunderstandings, regulate the relationship with your counterpart, establish a profitable business deal and guarantee that the terms of the contract comply with applicable legislative provisions and eliminate legal risk as much as possible. If you're trying to create an agreement that'll protect your business from all possible legal threats, we can assist you when it comes to the different terms and conditions you should include in your White Label agreement.
At AGP, our team is experienced when it comes to drafting White Label agreements. Our expertise doesn't stop there as we are also experienced at drafting all sorts of professional contracts and agreements for individual interest as well as corporations. Whether you're the manufacturer or the reseller, we'll create a White Label agreement that fits exactly what your business needs. At AGP, you can also get a detailed dissection and explanation of the contracts that seem binary, for example, the “take it or leave it” approach which many businesses seem daunted by.
White Label agreements are incredibly important, and should be viewed as such. A good, well drafted White Label agreement is the foundation your products are built on, whether you are the manufacturer or the reseller. Make sure before you sign and agree on any terms to be fully aware and well informed of the risks, perspectives, advantages and disadvantages in connection with it. Our legal consultation and advice can go a long way in ensuring that you won't face any roadblocks that'll affect your business.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.