5 Reasons Why Going White Label May Mean Going White Elephant

White Labelling White ElephantThe concept of white labelling products and services has been around for some time and though it’s certainly had its day, it’s not a strategy that’s aging particularly well.

Whether it’s a function of new product companies wanting to bring their brands out into the bright light of day, or that traditional white label service buyers – be they agencies, telcos or other infrastructure providers – are no longer bringing in the numbers, there’s definitely been a shift in the currents. In this Keep Marketing Fun post, we’re looking at 5 reasons why going white label is akin to going white elephant.

Certainly there are many businesses out there for whom white labelling is essential to their models. But usually these are organizations that have already sold their clients on the concept, and are merely continuing to farm those fields. As we see many of the older piously white label providers losing out to big name brands, or even hot new startups, we begin to see the cracks in the plaster wall of white labelling. Though this post happened very independently of his, I was glad to see our own Mark Macleod, Chief Corporate Development Officer at Freshbooks pre-flecting the same basic critiques a year ago on his blog Startup CFO

So here goes (the number’s arbitrary, as this list could easily go to 10, or better yet 11)

1. Brands Can’t Grow in a Greenhouse

Believe it or not, many white label providers out there have really strong brands, sometimes even stronger than those of their buyers, and particularly in the specific niches they occupy. Nonetheless, they chose early to bank on the “You Own the Customer, You Monetize the Relationship” mantra. While it may sell well to VPs at big telcos and infrastructure companies, ever sensitive about customer acquisition, retention and churn, it’s brand suicide for the white labelled service provider themselves.

Why?

The reasons are obvious. Imagine your product years from now enjoying a captive audience of millions, if not tens of millions of prospective customers with nary a mention of you and the company and product you’ve built. That’s your best hope, and you haven’t necessarily sold any seats yet. Confining your branding as you do to an ever-shrinking club of increasingly inflated big players, your brand equity will remain relatively nil as you work to help the client sell your stuff. It’s akin to planting trees in a greenhouse. While it may seem a good way to weather the winter storms, it’s short sighted, and probably won’t even produce pretty bonzais.

2. Your Company Focus Will Quickly Become a Channel Focus

Aside from the business and technical hurdles of getting your product in among the hundreds, if not thousands of SKUs in the big guy’s house, you have many more mountains to climb before you even start to see returns. In most cases, unless you are working within a very nimble and dynamic environment, you face a daunting uphill climb within saturated sales channels where it’s very difficult to get visibility and buy in. Even if there is channel support, you will spend buckets of time, resources and money feeding those channels to stay top of mind, and the residual equity of that investment is again close to nil. The moment you turn the taps off, the sales slow to a drip.

3. Your Product Will Suffer

As your focus and attention turns increasingly to feeding the hungry beast of your channel programs, and the demands of those stakeholders mount, you will find yourself scrambling to manage an effective market-driven product roadmap. Instead of serving the core mission of the product, your development team will spend most of its time putting out fires it didn’t start, lose focus and eventually lose interest. Any direct customers you have, if you have any will likely feel the brunt of this as they find themselves using a product that isn’t going anywhere.

4. If/When Something Goes Wrong, The Big Guy May Well Throw You Under The Bus

Despite the risk a big telco or infrastructure provider takes on going with a white label provider, the decision also comes with a certain risk mitigating “out” in the event that something goes terribly wrong.  I can read these press releases before they are written.

“ACME and Co. would Like to apologize for the inconvenience caused by one of our third party service providers ‘Whiter than White”. Due to the unfortunate experience this service caused for our customers, we have elected to discontinue our business relationship with them. As we move to a new provider, we will do our utmost to ensure a smooth and painless transition.”

And finally, here’s mambo “white elephant in the room” no.5

5. However Well or Badly it Goes, You Will Ultimately Be Replaced By a Name Brand

Oops.

“So all the pain and effort spent appeasing this big telecom industry beast was for nought? You mean I could have spent all that time building my brand, and my business on my terms and developing the product that was at the core of why we started this business the first place?”

Pretty much.

As MacLeod points out in his post, that albeit focuses more on startups, there is a common sequence here that brings many a strong technology company to the dead end of white labelling. More often than not it’s a direct product of their self-perceived failure at making a market of their own. So perhaps the White Label strategy is a last ditch attempt to shore up the business or secure another round of financing, but it’s not a viable long term strategy in the “Relationship Era”, our current state which has been so perfectly encapsulated by Bob Garfield and Doug Levy in their book Can’t Buy Me Like. Fundamental to this is the need to build a direct and honest rapport with your customers. And that cuts both ways – for both the white labeller and the labelee who at the end of the day is in all honesty putting one over on their customers.

As scores of great new products and services with killer branding and marketing programs behind them are coming online, the benefits of the big guys co-branding with leaders in a space is seems to be winning the day. Telco customers don’t care if the service they get is provided by another well known name. It’s not going to prompt churn any more than it’s going to prevent it. One thing is certain. If you are starting a business or building it, the great joy of that proposition is the promise of owning your own destiny, and white labelling is anathema to that promise.

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