Temu: PDD’s direct challenge to industry giant Shein

Pinduoduo’s cross-border platform Temu is off to a promising start. Temu ranks 2nd in the shopping section of Apple’s App Store in the US, following behind Amazon Shopping, with 3.8 stars ranked by 339 people, according to Sensor Tower statistics on 17th October, 2022. The platform is regarded as a successor to Chinese online fashion retailer Shein. Shein now ranks lower than Temu in the shopping section.

What is Temu?

On September 1st, Pinduoduo, one of the most popular Chinese e-commerce companies, launched a cross-border e-commerce platform named Temu, marking the firm’s first attempt to target the US market. Temu means “Team Up, Price Down”. Similar to fast fashion retailer Shein, Temu offers goods at incredibly low prices —although Temu’s offerings go beyond clothing. Customers can browse through 12 different product categories, including men and women’s clothing, kids’ fashion, accessories & jewelry, and bags & shoes. Unlike Shein, Temu can rely on Pinduoduo’s pool of over 11 million suppliers and manufacturers to expand the number of merchants and items on its platform. Chen Lei, chairman and CEO of Pinduoduo, stressed that Pinduoduo “will not repeat what others have done”, but will create unique value from the needs of consumers.

What is the secret behind Temu’s business model?

Low-price strategy

Temu’s strategy for attracting new users is based on low prices, free shipping for newly registered users, and word of mouth or invitations from existing users. Compared to other platforms like Shein, Temu has a staggeringly lower price. For example, a US$2.99 mobile case on the platform would cost US$2.29 for new users with a 30% discount of US$0.89, free shipping, and US$0.19 tax. It is not surprising then that many products on Temu are priced below US$0.99.

Another example is ditsy floral sleeve blouse that sells well on both Temu and Shein. It costs US$11.00 on Shein, while it only costs US$6.49 on Temu, almost half the price of the former, which is undoubtedly a huge attraction for customers.

Nevertheless, while many consumers are motivated to purchase by low prices, a portion of consumers may conversely become wary of these ultra-low price-points. This explains why Temu’s top selling items are mostly daily necessities and gadgets: these products themselves don’t cost much and their quality won’t mean a lot to the customers. Although Temu’s top selling items remain daily necessities and gadgets, its categories have been gradually expanding, with products from new sub-categories such as kitchenware and decorative goods also rapidly increasing in sales. Moreover, the arrival of the holiday peak season in the United States has also led to a boom in festival products sales, all for an astoundingly low price.

temu vs shein
Source: Temu website, categories of Latest Clothing, Beauty, Home, Jewelry & More

Group-buying on Temu

Group-buying is not a new thing in China. It refers to a way of buying in which consumers unite to increase their bargaining power. Making the sacrifice of small profits for more frequent turnover, merchants can offer discounts for group purchases below retail prices. This is a win-win scenario where customers buy at a more favorable price, while merchants earn a smaller profit per unit but enjoy much quicker sales and an increase in sales volume and profit overall. Temu brings group-buying to the West.

On the app, old users can get a 40% by inviting their friends to join the platform through a provided link. By increasing total sales volume, Temu is able to keep the price of their products extremely low.

Temu app, “Give 40%, Get 40%”
Source: Temu app, “Give 40%, Get 40%” promotion activities

Pinduoduo Overseas Support Program 2022

On September 19th, Pinduoduo announced the official launch of the “Pinduoduo Overseas Support Program 2022” to help Chinese companies explore overseas markets and, to some degree, pave the way for Temu. In the plan, several measures were taken to attract sellers to Temu.

First, for Chinese manufacturing enterprises overseas, Pinduoduo will adopt the preferential policy of 0 deposit for entry and 0 commission. Second, Pinduoduo invested building the creation of 100 overseas brands and the support of 10,000 manufacturing enterprises engaged in foreign trade. At the same time, it will also provide sellers with infrastructural services, such as domestic and foreign warehousing, cross-border logistics, and after-sales services.

According to Pinduoduo’s arrangement, Temu is not only using various promotional methods to attract new sellers, but also ensuring product quality and merchant diversity through China’s strong supply chain.

Why US consumers prefer Temu over Shein

High cost performance of products

Compared to other platforms like Shein, Temu offers shoppers even lower prices. During the global economic downturn, willingness to purchase declined across the board, resulting in an increased focus from consumers on value-for-money.

At present, Temu offers much larger discounts than Shein for the same or similar goods, at the same time also offering various discounts. In general, Temu’s fashion products, such as clothes and shoes, have at least 25% lower prices than Shein’s. Furthermore, Temu has launched a large number of “30% off” products, with some products “breaking” Shein’s price floors. Temu has even launched a “PICK 1 FOR 1” campaign including a wide range of items, such as necklaces, T-shirts, sunglasses and more. For now, Temu’s low-price strategy is working well.

Source: Temu website, “PICK 1 FOR 1¢” grand opening section

Free shipping

In addition to low prices and discounts, Pinduoduo also mimics Amazon’s two key features: free shipping and free returns. In order to attract customers to place orders, Temu launched a limited-time Free Shipping discount for all orders. Currently, the delivery time of Temu products is generally 7-15 days. If the actual delivery time exceeds the estimated one, the platform will refund the goods in full.

The secrets behind Temu’s marketing strategy

Targeting Gen Z consumers

Temu’s target audience are young, price-driven customers who love online shopping from all over the world. Across Temu’s social media presence, 32.68% of their followers are aged 25-34. As 55% of Gen Z cite price as the most important factor when shopping for fashion, and 50% of them claimed being severely affected by the COVID-19 pandemic, Temu’s low-price strategy turns out to be especially suitable to attract such kind of consumers.

Moreover, compared to other generations, Generation Z relies more on social media and targeted mobile advertising to discover fashion brands. Temu provides an omnichannel experience with its website, app, and social media, as well as a wide network of fashion influencers.

Temu’s presence on Tiktok and YouTube

Temu has its own official account on Tiktok called shoptemu, which already boasts nearly 2,000 fans as of November 18th , 2022. Users can easily enjoy free giveaways by just clicking the link on the Tiktok official account, thereby capturing the attention of many users.

Temu on tiktok
Source: Tiktok, Temu boasts about 2,000 followers on Tiktok
Temu giveaway on Tiktok
Source: Tiktok, Temu giveaway on Tiktok

On YouTube, Temu has created an environment that allows and encourages shoppers to freely discuss their shopping experience and feelings. People are curious about what these products at such low price points are like, especially in terms of quality. Sponsored and non-sponsored micro-influencers give good answers to such kind of questions. There are also sellers sharing their experience as Temu merchants on Youtube.

In addition to accelerating investment attraction, the Temu team will begin to fully invest in advertising and attracting traffic for App, and plans to put batch ads into online channels, variety shows on TV, and events like coming Halloween activities.

Temu haul videos by micro-influencers
Source: Youtube, Temu haul videos by micro-influencers

Abundant promotional activities

Temu is currently offering 30% discounts on the first three purchases regardless of how much the customers spend. Promotional activities and coupons are the main drivers of purchase on the platform.

What’s more, Temu excels at creating a sense of scarcity and urgency in its promotion activities: the PDD’s subsidiary leverages consumers’ scarcity psychology and uses offers limited in time or quantity to nudge users into a purchase. By using discount price countdowns, coupon countdowns, and red envelope countdowns, Temu induces consumers to cut back on rational thinking and make impulse purchases.

countdown deal
Source: Temu’ website, Temu’s countdown deal

Controversies surrounding Temu

Product quality concerns

Wish, another famous cross-border e-commerce platform, also relied on low pricing to make its way to the market, but later its business model became unsustainable due to the “low quality” that came with low price. Given the example of Wish, many people now are skeptical regarding the quality of lower-priced goods. Based on current reviews, the quality of Temu’s goods is inconsistent and not highly rated by users. Temu’s rating (4-star rating) is still not as good as Shein’s one (5 stars). However, as the app has not been on the market for a long time, the sample size of reviews is not particularly large.

shein on sensor tower
Source: Sensor Tower, Reviews of Temu and Shein on October 18th, 2022

However, whether Temu will ultimately follow Wish’s footsteps is not clear yet. Although it attracts customers with low prices, Temu’s robust goods selection and performance vetting ensure strong quality control.

Temu is currently especially strict with merchants selling below standard goods. In fact, merchants shall bear the cost if any quality problem occurs, while the platform only bears operational problems. Moreover, Temu will impose stiff fines of up to five times the price of goods on merchants with quality problems.

High logistics cost

U.S. population density is relatively low, making logistics costs much higher than in China. Temu’s “Free shipping” and “Free returns” policies may entail very high logistics costs on the long run, even higher than profits, and may not be sustainable.

The secrets behind Temu’s successful overseas strategy

  • Temu targets specific Gen Z consumers who are price sensitive, and stimulates their consumption urge through low-pricing strategies spearheaded by group purchase.
  • Temu adopts sophisticated marketing tactics. By holding time-bound promotional activities which induces impulse buying and establishing a presence on Gen Z-favored online channels like YouTube and Tiktok, Temu’s business model has created buzz and attracted many young users.
  • Although Temu has attracted controversies along with praise.
  • It is still to be seen whether some of its current marketing strategies such as free shipping will be sustainable in the long run.

Know more about sustainable consumption in China