Temu’s wide range of products is especially attractive to consumers, coupled with a gamified online shopping experience that encourages customers to try their luck and spend more time on the website or app. It burst into the world’s online stores in 2023 and is already considered the largest. By the beginning of this year, it had overtaken Amazon and Walmart in downloads in the US, and by August it had become the most downloaded app in the world, with 38.8 million downloads. Temu’s strategy includes group buying, referrals, affiliate programs and heavy advertising on social media platforms.
Temu’s business model, due to its staggering growth and unique strategy, deserves a closer look at its 5 main strategies.
1. Unrealistically cheap, with free shipping and extra discounts
The obvious reason why customers choose Temu
- extremely low prices,
- free shipping and returns,
- continuous huge discounts.
Following the example of Shein, Wish and Alibaba, Temu’s business model is based on low, in fact, incredibly low prices.
(Temu offers even more discounts and lower prices than Shein.) In the 2023 Black Friday sale, it even advertises a discount of more than 90%, compared to the general discount of 20-50% in domestic online stores.
We didn’t do a thorough research, we just looked at the landing page where it is currently on offer
- a waterproof stereo wireless earphone for HUF 1,837,
- a wireless speaker for HUF 1,684,
- a digital watch with a square silicone strap costs HUF 580.
- But a multifunctional earphone cleaning brush set is available here for HUF 145…
Temu further differentiates itself by offers customers free shipping and returns, which is made possible by the extensive supplier and delivery partner network of the owner PDD Holding. An efficient logistics network should not be underestimated, as problems with supply and distribution networks are seen as a major factor in the failure of Alibaba and Wish to break into the Western market.
2. Shopping and entertainment 2 in 1
According to a survey conducted in the United States, a fifth of online shoppers miss the experience of shopping in a store when they shop online. Temu aims to bridge this gap by introducing games into the shopping process. With games like Fishland or the farmland, the customer can win rewards. What’s so good about Temu? Playing games actually increases the time spent on the site, which has two benefits: on the one hand, it gives you the opportunity to make additional purchases, and on the other hand, Google (more precisely, its algorithm) monitors the time spent on the site, and adjusts the ranking of the various sites based on this.
The game and winning free items also release the happy hormone, dopamine, in the customer. Dopamine plays a crucial role in the brain’s reward system. When we achieve something, for example in an online game, the brain rewards us by releasing dopamine. This is responsible for the well-known euphoric feeling that we always want to experience more and more intensely. The brain perceives it as a sweet reward, which it wants to enjoy as often as possible, and this serves as motivation to repeat the behavior, the and addiction can easily develop due to repeated rapid dopamine boosts. And to keep the customer playing these games, the app relies heavily on customer referrals, another core business strategy.
3. Shared shopping experience
Group shopping is a well-known concept in Asia, which Temu has extended to the Western clientele. It essentially increases the bargaining power of buyers by forming groups to share the group discount. This is reinforced by the aforementioned referral program, which gives discounts to customers who bring new customers to the app and allows for group purchases.
4. Influencers, powerful advertising
After proving its effectiveness with Shein, Temu also sends free products to many influencers and micro-influencers to promote Temu on YouTube and TikTok. The customer base of users under the age of 35 is particularly attractive to Temu, as younger consumers are typically less able and willing to pay large sums of money for products.
Seeing a favorite internet personality or personal acquaintance promoting products can drive many young shoppers to buy. Temu’s presence on TikTok and YouTube can be seen as a key factor in why it took off so quickly.
5. Real-time shopping
Temu’s most innovative and effective strategy is highly ambivalent and open to criticism. Like Shein, Temu uses a reverse manufacturing model which it feeds customer feedback directly back to manufacturers. Starting with the smaller quantities offered on the market, products in high demand are reordered, while the rest are replaced.
According to Temu, this results in environmental efficiency as product inventory is matched to customer demand in real time. In addition, a larger number of products can be offered than in the case of traditional retail strategies. Using this method, Shein was able to launch 150,000 new products in 2020, far ahead of its competitors. In comparison, Temu offers more than 25 million products, according to its data.
What’s wrong with Temu?
This type of “ultra-fast” trade has many consumer dangers and harmful effects on the environment:
- To ensure low prices, manufacturers must keep costs low, which contributes to the exploitation of workers in the producing countries. So, for example, it is not possible to know whether the manufactured products are not made in the Uyghur labor camps.
- Low prices can also determine the quality of products: cheap, easily perishable products are quickly replaced by customers, so the whole business model leads to increased consumption and an ever-increasing amount of waste.
- Temu’s most controversial strategy is similar to Shein real-time shopping model, which forwards customer feedback directly to manufacturers. While this model increases cost efficiency and product variety, critics say it contributes to environmental damage, worker exploitation, and plagiarism by fashion designers.
However, Temu’s growth and unique strategy make it a notable player in the emerging business model of ultrafast e-commerce, and it will be interesting to see how this trend develops in the future.
We haven’t yet, but another European consumer organization, Altroconsumo, has already tested Temu’s services, the results of which will be presented in our next article.