Everything you need to know about Temu - Part 1
The rising star of the global ecommerce market
Just as I was wrapping up Part 2 of SheIn's story, Temu made headlines with its Super Bowl ad. It was a surprise, as I hadn't expected them to invest so much in this mainstream platform. So, I had to pause my SheIn train of thought and focus on Temu.
For those of you waiting for Part 2 of SheIn, don't worry, it's coming in the next post. Interestingly, since SheIn and Temu have similar backgrounds and business models, they also face similar challenges and opportunities when it comes to how fintech can empower their businesses. Therefore, in the next post, I'm going to combine Temu into my SheIn discussion.
Temu's Super Bowl ad
In the past weekend, TEMU made big news when they made their Super Bowl debut this year. Their 30-second ad, called "Shop Like a Billionaire," featured a person using the Temu app and a really catchy song playing in the background. The song was written for the ad and the lyrics were all about the TEMU experience.
Someone on Twitter summed it up perfectly: "Ver strange, unclear what they’re asking me (consumer) to use them for, but I can still hear the “teemu teemu" jingle in my head so it subliminally worked somewhere.”
Temu 's Super Bowl ad was viewed by an estimated 208 million people. EDO ranked Temu’s ad as high as #4 among all the ads. People dug the tune and the visuals that showed the Temu experience. Plus, the message was catchy too - it said that you could shop like a billionaire even if you don't have the money.
According to Ad Age and USA Today's Ad Meter, it costs $7 million to air a 30-second ad during Super Bowl. So it might have cost Temu $14 million for the ad that was aired twice. As one of the youngest brands to advertise in the Super Bowl, it was a crazy idea to spend so much money on just 1 ad, but this definitely gave Temu the chance to get their product out there and get more attention.
What is Temu?
Temu is an international e-commerce platform launched by Chinese giant Pinduoduo. It is designed to make it easier for international buyers to purchase products from Chinese merchants and is available in the US, Canada, Australia, and several European countries.
The platform is user-friendly and features a wide range of products, from clothing and electronics to home decor and pet supplies. Users can search for products using keywords or categories.
Since its launch in September 2022, Temu has seen remarkable success in the US App Store. In just three months, Temu's Gross Merchandise Value (GMV) had already reached $200 million. Over the past five months, the Temu app has been downloaded more than 25 million times. It even briefly surpassed Amazon and SheIn to reach the top of the iOS shopping app ranking.
The staggering growth has driven Pinduoduo’s stock price to rise from $69 a share back in Sep 2022 to around $96 in Feb 2023, an almost 40% increase over just 5 months.
What is behind Temu’s crazy traction?
This growth is attributed to the platform's user-friendly design, a wide range of products, and competitive pricing.
Firstly, its timing was perfect. In recent years, the global economy has changed drastically, leading to high inflation in many countries, and this has created an opportunity for discount e-commerce platforms like Temu to step in and fill the gap.
On the other hand, over the past 3 years of COVID, the global supply chain was seriously impacted, especially given the lockdown in China. It has caused many suppliers to accumulate excessive inventory. So the supply side has long needed something like Temu to alleviate their overstock situation. That’s partially why Temu was able to offer goods at such low prices, besides the subsidies.
Besides offering a de-stocking incentive, Temu took a more radical approach to its supply side. Instead of a typical two-sided marketplace model, where merchants manage their own online store and promotions, Temu handled store management and promotion for the merchants. This meant that merchants only had to take care of manufacturing and supplying to Temu's warehouse, with the benefit of no commission or safety deposit paid to the platform.
However, merchants did not have the right to set their own selling price, so Temu could still make a profit from the difference between the merchant's purchasing price and the consumer's selling price. This is very similar to SheIn’s model as an independent brand. But regardless of its model, it was able to guarantee the lowest price for the same good across all ecommerce channels, including Amazon.
Secondly, Temu has been able to take advantage of Pinduoduo's extensive knowledge and expertise in the e-commerce space, which has enabled them to develop a deep understanding of the shopping habits and preferences of their customers. All of these learnings empowered Temu to stand out from other e-commerce platforms by offering features that make the shopping experience easier and more addictive.
These include the "Favorites" feature, which allows users to save their favorite products for easy access, the "Shopping List" feature, which allows users to create lists of items they want to buy, and a rewards program that allows users to earn points for their purchases - these points can then be used to get discounts on future purchases.
Temu offers some wild promotions, like 1 order for 1 cent, sharing your order to win rewards, and “give 40%, get 40%”. But the best deal is its referral bonus of $20 for every five new users invited. People have even made TikTok videos showing how to get the $20. It's unclear how many users Temu has retained, but it's certainly boosted the number of new registrations.
Undoubtedly, advertising has played a major role in Temu's rapid growth. By January 2023, Temu had created more than 6,400 ads on Facebook. Additionally, it was reported that in its first two months, Temu spent over $2 billion on marketing. In comparison, the $14 million spent on the Super Bowl appears much less intimidating.
How does Temu compare to Wish?
As two of the top e-commerce platforms worldwide, Temu and Wish are often compared against each other. Although the services they offer are similar, there are some key differences between the two.
Many argue that timing is a key difference. Wish was born during the best years of the global economy after the global financial crisis. So the need for cheaper goods wasn’t as strong as during the post-COVID period. Therefore, even if it was doing great in the private market, after its IPO, it wasn’t able to sustain its momentum in the public market.
By the time the tailwind of high inflation and low economic growth kicked in, Wish has already lost the momentum and its supplier base the late-comers such as SheIn and Temu, and thus wasn’t able to rebuild the dynamic to capitalize on the economic downturn and declining purchasing power.
Besides, Temu has taken advantage of Pinduoduo's expertise in the Chinese market, allowing it to provide cheaper prices to buyers and tighter management of merchants. This is also lacking from the Wish side, because it was only born in the US and major European markets and is not as close to the supply side as its competitors, even though Wish’s founder has Chinese background.
How does Temu compare to SheIn?
Because of their roots in China, and as two of the most popular e-commerce platforms in the world now, Temu and SheIn are increasingly often compared against each other.
Temu has much wider SKUs, while SheIn only focus on fast fashion. Thus, they face quite different target audiences - Temu faces middle-class and lower-income families, while SheIn focuses more on fashionable Gen-Z, as mentioned in my previous post.
Another difference in marketing tactic is — Temu was heavily leveraging the Chinese population in its US market. From Facebook to Youtube, you can often see Temu’s ads in Chinese. The goal is to build its own brand awareness on the reputation of its parent company Pinduoduo.
On the other hand, since SheIn has already established its brand among Gen-Z in the US and Europe, it wasn’t specifically targeting users with a Chinese background. But with the Super Bowl ads, you can expect Temu to shift its focus to local non-Chinese shoppers and thus compete with SheIn head-to-head.
For the goods that are sold on both Temu and SheIn, generally Temu has the lower price. This is mostly because Temu is still in the promotional phase. It would be interesting to see how much longer the “lowest price” value proposition can last, as it could cause some serious concern about the sustainability and profitability of Temu.
In the next post, I'll delve into these challenges in greater detail and explore how fintech could potentially transform the landscape.
Part 2 to be continued…and combined with Part 2 of SheIn
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