Temu: An analysis of its marketing strategy and rapid growth

Temu, a popular shopping app offering a wide range of products at low prices—including clothing, accessories, electronics, home goods, and more—is owned by the Chinese company PDD Holdings Inc., which also operates the well-known platform Pinduoduo.

Key Features of Temu:

• Low Prices: Temu offers highly competitive prices, making it attractive to shoppers.
• Diverse Selection: The app covers many product categories, including clothing, gadgets, household items, toys, and more.
• Global Market: Temu targets international customers and is actively expanding beyond China.
• Sales and Discounts: Frequent discounts, coupons, and various promotions allow shoppers to save even more.
• Social Features: Temu includes social elements such as inviting friends to earn additional bonuses.

How it all started

Temu has gained significant attention due to its bold marketing strategy and rapid expansion. In 2023, Temu spent nearly $2 billion on advertising on platforms like Meta and Google, becoming one of the world’s leading advertisers. This massive advertising approach not only propelled Temu to the forefront but also contributed to rising advertising costs in the industry.

A notable move by Temu was investing in Super Bowl advertising, with a 30-second commercial costing $7 million. This, coupled with over $15 million in coupons and giveaways during the event, significantly boosted Temu’s visibility. However, such spending impacted the unit economics. According to Goldman Sachs, in 2023 Temu spent approximately $5 to acquire each $39 order in the U.S., an improvement from the $16 spent to acquire each $29 order in 2022. Despite this, the company still faces substantial losses, including $6 per order in the U.S. and $18 per order in other markets.

Central to Temu’s strategy is a data-driven approach. Significant advertising expenditures are aimed at gathering extensive user data, which is crucial for refining algorithms, optimizing pricing, and managing inventory. Additionally, Temu uses gamification in marketing campaigns, offering discounts and coupons to encourage repeat visits and referrals. This not only increases user engagement but also provides valuable psychographic and demographic data, allowing for better-targeted offers and maximizing customer lifetime value (LTV).

The Temu app interface also enhances demand and engagement. Bright promotions, short videos, and a user-friendly design enable users to continuously browse new products and find the best deals. Product reviews are organized similarly to social media comments, creating a sense of communal product verification.

High efficiency and ultra-low prices

Temu stands out by offering products at prices 60-70% lower than competitors like Amazon. These substantial discounts are the result of aggressive negotiations with suppliers and a highly efficient logistics system. The platform uses a direct-to-consumer sales model, allowing Chinese manufacturers to bypass traditional supply chain stages and reach North American buyers directly. This reduces markups and facilitates higher sales volumes.

Temu also deviates from the traditional e-commerce model by consolidating consumer demand and distributing production among numerous smaller suppliers. This reduces inventory risks and increases the platform’s flexibility in responding to demand fluctuations. Moreover, Temu realizes profits through currency conversion adjustments rather than sales commissions.

Sustainability of Temu’s growth model

Despite impressive growth, Temu’s business model faces several challenges regarding sustainability. While the aggressive pricing strategy effectively captures market share, it raises concerns about potential reductions in profitability and unit economics. The heavy emphasis on advertising costs to drive traffic and conversions may be unsustainable without substantial growth in customer retention and LTV.

Logistics also pose a challenge for Temu. Most products are shipped from China and take over 10 days to reach U.S. consumers, significantly longer than Amazon’s two-day delivery promise. Reducing this gap is critical, as fast delivery has become a standard expectation.

Consumer trust is another crucial area. Reports of low and inconsistent product quality, especially for inexpensive items, could deter consumers from purchasing more expensive products in the future, potentially limiting Temu’s market and growth prospects.

While it remains to be seen whether Temu can develop a sustainable business model, its ambitious market entry in the U.S. has already demonstrated new potential in commerce. Temu’s strong market push, smart data usage, and efficient global network management for maintaining low prices offer new perspectives for the future of retail and potential industry development in the coming years.

Expert insights from UAMASTER

Temu has proven to be a significant player in the e-commerce market due to its aggressive marketing strategy. However, for continued success, several critical aspects need to be considered:

• Long-Term Viability of Marketing Expenses: Although massive advertising expenditures have quickly increased brand visibility, there is a risk that such an aggressive strategy may not be sustainable long-term. Temu needs to find a way to reduce reliance on large advertising budgets and focus on organic growth through product and service improvements.
• Optimization of Advertising Costs: The significant costs associated with acquiring customers could impact profitability. It is recommended to invest in advertising optimization technologies, such as machine learning for predicting costs and campaign effectiveness, as well as analytics to improve ROI (Return on Investment).
• Improvement of Logistics: The current level of delivery from China to the U.S. is a significant barrier to competitiveness. Temu should explore opportunities for localizing inventory or partnering with local logistics providers to reduce delivery times and enhance customer service.
• Management of Product Quality: Reports of low-quality products could negatively impact Temu’s reputation. Investments in quality control and establishing clear standards for suppliers are crucial for maintaining high levels of consumer trust and long-term loyalty.
• Analysis of Consumer Experience: While gamification and interactive elements in marketing can effectively increase user engagement, it is important to continuously analyze their impact on overall user experience. Adapting strategies based on consumer feedback will help Temu improve user experience and customer retention.

Overall, while Temu shows significant potential for innovation and growth, the company must focus on strategies that emphasize long-term sustainability, cost optimization, and quality service to maintain a competitive edge.

This article available in Ukrainian.