eCommerce: Pinduoduo & Temu – Business Model & Marketing Strategy

Temu (pronounced ‘tee-moo’) has captured the world's attention and piqued consumers' curiosity: What makes this Boston-based online marketplace different from other new players on the eCommerce scene?

Founded by Pinduoduo’s parent company PDD Holding, Temu's business model is akin to Chinese shopping platforms SHEIN, Wish, and Alibaba – but Temu stands out with a few distinctive features.

Apart from the sale of large quantities of products at incredibly low prices - how does Temu stand out from the crowd? Let's dive right in.

Facts About Temu

You do not know anything about Temu? Temu is a new eCommerce platform founded in the USA with ties to Shanghai. Here's a quick rundown.

• Temu was founded in the USA in 2022 and is a subsidiary of PDD Holdings Inc., which is listed on Nasdaq and headquartered in Shanghai.

• Temu operates as an online marketplace similar to AliExpress, Walmart, and Wish, focusing on offering affordable goods.

• The company acts as an intermediary between sellers (primarily from China) and buyers without maintaining its own inventory.

• Temu promotes social commerce, encouraging potential buyers to find more buyers to avail discounts.

• The app employs gamification to engage customers and offers free shipping by circumventing customs duties.
  

Getting Into the Numbers

As we recently posted in our insight on Temu's download numbers, the shopping app is becoming increasingly popular on Google Play and the App Store.

Having started out with about 440.000 downloads after the app's initial launch in September 2022, the download numbers continued to rise steadily until April 2023, when they reached 15.3 million downloads. After that, however, there was a sudden spike of about 98%, so that by May 2023, the app had been downloaded more than 30 million times. This was most likely due to the increased media attention Temu received. After a short dip in June 2023, the number of downloads increased steadily again, with the most recent number being more than 40.5 million app downloads in September 2023.

But app downloads are not the only way to measure the traffic Temu generates. Recent data from Similarweb shows another perspective: The number of visits to Temu's browser site, temu.com.

Compared to the app downloads, the number of visits to temu.com is significantly higher, but this is to be expected since visiting a website in a browser requires less effort than downloading the app on a mobile device. However, the same spike from April to May 2023 occurred on the website, rising by 96.5% from 110.6 million visits in April to 217.3 million in May. Similar to app downloads, the heightened global media coverage of Temu is expected to have had a major influence on website traffic.

But why is Temu so interesting?

Temu’s wide range of products is particularly appealing to consumers, combined with a gamified online shopping experience that encourages customers to try their luck and spend more time on the website or app. With its impressive growth and distinct strategy, Temu’s business model warrants a closer look. 

Temu: The Company's Five Core Strategies and Tactics 

The obvious reasons to buy from Temu are low prices, free shipping, and discounts. Like SHEIN, Wish, and Alibaba, Temu’s business model is built around low prices. Temu further differentiates itself by offering free shipping and returns to customers, which is made possible by PDD Holding’s extensive network of suppliers and shipping partners. 

An efficient logistics network is not to 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. 

Temu offers even more discounts and lower prices than SHEIN, with special offers such as items sold for as little as one cent. 

Combining Shopping and Entertainment

One-fifth of online shoppers in the U.S. say they miss the in-store shopping experience when they shop online. Temu aims to bridge this gap by introducing games into the shopping process. By playing games like Fishland, Coin Spin, Card Flip, and others, you can win rewards that ultimately lead to more time spent on the site and a dopamine rush from winning free items. 

To keep people playing these games, however, the app relies heavily on referrals, another core business strategy.

Shared Shopping Experience

Group Buying is a familiar concept in Asia that Temu is extending to its Western customer base. Essentially, it increases customers’ bargaining power by forming groups to share a bulk discount. 

This plays into the aforementioned referral program, which gives discounts to customers who bring new clients to the app and enables a shared shopping experience.

Affiliate Programs and Heavy Advertising

As SHEIN has already proven effective, Temu sends free items to a large number of influencers and micro-influencers to promote Temu on YouTube and TikTok. A younger 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 for products.

Seeing a favorite internet personality or a personal acquaintance promoting the products can lead many young customers to imitate the purchase. Temu’s omnipresence on TikTok and YouTube is seen as a key factor in why this marketplace has taken off so quickly.

Real-Time Shopping: Cost-Effectiveness vs. Plagiarism and Exploitation

Temu’s most innovative and effective strategy is also highly ambivalent and criticized. Similar to SHEIN, Temu uses a reverse-manufacturing model that relays customer feedback directly to manufacturers. Starting off with smaller quantities that are offered on the marketplace, products in high demand are reordered, while others are replaced. 

According to Temu, this results in environmental efficiency because product inventory is aligned with customer demand in real time. In addition, a greater number of products can be offered than with traditional retail strategies. With this method, SHEIN was able to launch 150,000 new items in 2020, beating its competitors by a wide margin.

Temu Has to Fight Criticism

Critics point to several detrimental effects of this type of 'ultra-fast' commerce: To ensure low prices, manufacturers must keep costs down, contributing to the continued poverty of workers in manufacturing countries. The same goes for product quality and environmental friendliness: Cheap products that break easily contribute to increasing amounts of waste, returned products tend to be dumped rather than recycled or resold, and the high number of new products sold is only possible by ripping off SME fashion designers and creators. 

Temu Takes the World by Storm: A New Era of Online Shopping? 

The marketplace Temu has achieved impressive success with its business model of offering low-priced products and free shipping, combined with a gamified shopping experience. Temu's strategy also includes group buying, referrals, affiliate programs, and heavy advertising on social media platforms. 

However, Temu's most controversial strategy is its real-time shopping model akin to that of SHEIN, which relays customer feedback directly to manufacturers. While this model increases cost-effectiveness and product variety, critics argue that it contributes to environmental degradation, exploitation of workers, and plagiarism of fashion designers. 

Nonetheless, Temu's growth and distinct strategy make it a noteworthy player in this emerging business model of ultra-fast eCommerce, and it will be interesting to see how this trend plays out in the future.

Temu’s Strategy 2023: Key Takeaways

Rapid Growth and Global Presence: Since its launch in September 2022, Temu has seen significant growth, with the app being downloaded 10 million times by April 2023 and becoming available in around 100 countries. This Boston-based online marketplace, backed by Pinduoduo's parent company PDD Holding, offers a business model similar to major Chinese platforms like SHEIN, Wish, and Alibaba, focusing on selling large quantities of products at incredibly low prices.

Innovative Shopping Experience: Temu stands out by blending shopping with entertainment, introducing gamified experiences where customers can play games to win rewards. This not only enhances user engagement but also promotes a unique shopping experience reminiscent of in-store browsing. Additionally, Temu promotes a shared shopping experience through group buying, a concept popular in Asia, which allows customers to form groups and avail bulk discounts.

Controversial Business Strategies: While Temu's real-time shopping model, which involves relaying customer feedback directly to manufacturers, is seen as innovative and cost-effective, it has also garnered criticism. Critics argue that this approach can lead to environmental issues, exploitation of workers, and plagiarism of designs from small and medium-sized fashion creators. Despite these concerns, Temu's combination of low prices, gamified shopping, and heavy advertising on platforms like TikTok and YouTube has made it a major player in the ultra-fast eCommerce sector.

Sources

Daxueconsulting (2022a)

Daxueconsulting (2022b)

The Guardian

Kake

SensorTower

ZDNet