Temu – Disrupting the US e-Commerce Market?

Case Code: BSTR675 Case Length: 16 Pages Period: 2021-2023 Pub Date: 2024 Teaching Note: Available

Price: Rs.500 Organization : Temu Industry : e-commerce Countries : United States Themes: E-Business Strategy, E-commerce, Types of E-commerce,Operating Environment

Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

The Launch of TEMU

Temu, meaning ‘Team up, Price down’ was based in Boston, Massachusetts, USA, and was operated by Whaleco. Inc., based in Delaware . The website and mobile app of Temu were launched on September 01, 2022.

Pinduoduo, which boasted 11 million suppliers, approached them a few months before the launch, and informed them about its plans to venture into the US. The Chinese suppliers had limited access to the US market, but were keen to sell their products in the US and so readily agreed to list their products on Temu..

Attracting Customers

Temu’s business model was based largely on Pinduoduo’s direct-to-consumer business model. In the absence of wholesalers, distributors, and retailers, the overhead costs were low, and Temu passed on the savings to consumers. According to John Deighton, (Deighton), Professor at Harvard Business School, “Temu’s model leads to higher sales, lower costs, and ultimately, lower prices for consumers by guiding factories to produce what shoppers want, as and when they want them.”..

Building the Customer Base

One particular noteworthy attribute of Temu’s was its marketing-heavy strategy. In the US, startups and new companies were wary of spending heavily on advertising, and did not consider advertising as a tool to penetrate and grow in a new market. But Chinese companies that focused on discovery and recommendations driven by AI, started off with a huge advertising budget. The main reason for this was that the model of algorithm recommendations needed large data sets to work. With a lot of data at their disposal, these companies were able to give high-quality recommendations and showcase personalized products to customers..

Aggressive Advertising

In the first month, not many users discussed Temu on social media, but there were several ads of Temu on different platforms. Temu placed over 1,000 ads on Meta in the first month. It also advertised extensively on iOS and Android . Juozas Kaziukėnas, founder of e-commerce analyst firm Marketplace Pulse, said, “I believe it’s driven almost exclusively by ads, because I’m seeing relatively no mentions of Temu on social media. That makes me believe that there’s very little organic recognition of the brand yet.”..

Social Media and Networking

Several consumers who shopped on Temu posted their reviews on Reddit , claiming that the products were priced low. Some said that prices were half of those on Amazon. Users specifically praised Temu’s policy of giving customers US$ 5 for late deliveries.

Temu launched a slew of social media campaigns, where it reached the users and shared with them the benefits they could get when they invited their friends to sign up. For each reference customers were given points, and if the referred person signed up, additional points were given. If a user succeeded in convincing a lot of friends to sign up with Temu,

Gamification

Temu used gamification and fun incentives to attract customers. Through games, it kept customers engaged, and encouraged them to buy from it, and also share it with more people. For example, if a customer bought a product, say a make-up product regularly, he / she could win a free product of the same category by playing a game that was displayed on the Temu app. The game could be an online jigsaw puzzle, putting on virtual makeup, etc..

Discovery Model

Discovery-based shopping was Temu’s core offering. This was mostly used in the fast fashion arena. Discovery-based shopping gave users an endless choice of products. As users scrolled through, they found several products that could be useful, could improve their lives, help in making daily chores easier, were inexpensive, etc. The aim was to keep the users engaged with the app, so that those who visited it to buy one product, continued to scroll, and ended up buying many products..

The Rise of TEMU

Analysts said Temu was a combination of Amazon and Shein. Like Amazon, it had a wide range of products and it sold these at low prices, it used social media and influencers to promote the products. It also regularly brought out several new products like Shein did. Temu attracted customers by offering a discount of a minimum 30% on all products. It handled all international shipping, and suppliers were paid after the customers received the goods. “It seems like they’re being subsidized to be a loss leader in order to gain market share, which is not unlike what Amazon did for a long time,” said Douglas Schmidt, a professor of computer science at Vanderbilt University..

Growing Competition

As Temu grew, competition also increased. While Amazon was in the clear pole position in the US e-commerce and Temu was expected to take some time to reach there, its immediate competition came from Chinese players.

Temu’s competition was mostly from Shein, which had ventured beyond fashion and lifestyle, and started selling household products, appliances, fixtures, wallpaper, etc. Shein launched its own online marketplace, allowing third-party merchants to sell on its platform.

IS TEMU on the Right Path?

Some analysts were not convinced about Temu’s model of relying heavily on ads to drive transactions. They said Temu should be able attract repeat customers to survive and grow. Juozas Kaziukėnas said, “At one point, ads will become too expensive and too inefficient to justify the costs.” Others pointed out that with growing inflation, people were looking for low-priced products, and were opting for Shein. Adam Blacker from Apptopia said, “The current economic environment is certainly helping Temu as consumers are looking to get the same things they need for less in order to combat inflation. But will the music stop when the paid ad machine shuts off?..

Looking Ahead

According to retail marketing consultant Cathy Hotka, for Temu, one of the major challenges would be win the loyalty of US shoppers. Though it would be able to attract customers with low prices, Temu needed to maintain quality in order to retain shoppers. At the same time, low prices were not always welcome for American consumers. Michael Felice from Kearney said, “American consumers might not even be ready to accept some of these price points … There’s always the question, ‘is it too cheap to be good?’”..

Exhibits

Exhibit I:Temu – Third Party Code of Conduct
Exhibit II: Temu’s Logistics Flow and Cost
Exhibit III: Chinese Suppliers
Exhibit IV: Temu’s Business Model
Exhibit V: Screenshot of Fishland Game
Exhibit VI: Top Apps on iOS Appstore and Google Play Store (September 2023)
Exhibit VII: Number of Unique Visitors – 2022

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