Many might have seen this orange logo in many Ads now. Temu is a subsidiary of Chinese e-commerce giant, Pinduoduo1, which launched in the U.S. App Store in September 2022. The parent company started as an online agriculture retailer and transitioned to a platform connecting merchants and consumers across industries. The brand expanded to the grocery market during COVID-19 and now targets the U.S. market as the first stop for overseas expansion. The goal for this expansion is to disrupt the U.S. market as it did a few years ago in China, not to start a price war with its competitors. Temu has a slogan, “Team Up, Price Down.” It sells 16 main categories, from fashion to home goods. Currently, it ranks number one in shopping on the App store with 4.6 stars and 11.3k ratings.
Current e-commerce landscape in the U.S.
Temu is an online-only app with no physical stores and targeting the e-commerce market of the United States. Currently, this market is viewed as mature and saturated with high expectations from customers. To deep dive into the background, Americans started shopping online with some of the pioneers in the early 2000s, such as Amazon, eBay, and Etsy. These customers have lots of experiences and expectations on quality, shopping, and others. The U.S. has the second largest consumer base, after China. The sales in U.S. e-commerce spiked in 2020 and 2021 due to the pandemic and continue to grow. The industry overall accumulated $735.12 billion, seeing an 8.3% increase from $678.87 billion in the first three-quarters of 20212. The growth has slowed down in the first three quarters of 2022 but the industry will continue to grow steadily as workers go back to the office and resume regular activities.
Competitors
The biggest player in U.S. e-commerce is the early adopter, Amazon.com, followed by Walmart and Target. The three take up about a third of the market3. The growth for retailers has slowed and faces seasonality - more sales are generated on Prime Day and the holiday season.
Amazon Amazon started as a book-selling platform in the 1990s and transitioned to a multinational technology company focusing on e-commerce and other businesses. It is the largest online marketplace and has a $239 billion global gross merchandise volume4. Electronics and clothing are the top-bought products on this platform. Compared to other competitors of Temu like Shein, which will be discussed further below, Amazon provides diverse categories to fulfill consumers’ needs and 99% of this population is happy with the variety offered5. The fashion section attracts loyal customers. 67% of Amazon fashion and apparel shoppers were returning customers and they show a high return rate6. Looking from the other perspective, retailers on Amazon are heavily impacted by seasonality; consumers are especially motivated to buy more during the holiday season for gifting. Consequently, sales spike during periods like Prime Day and Cyber Monday from incentivizing prices. Overall, Amazon is a competitor that dominates e-commerce with heavy seasonality influence, has a diverse product portfolio, and a loyal customer base for fashion-related products.
Shein Temu is often compared to Shein, another Chinese-originated company that entered the U.S. e-commerce market in the 2010s. Both companies leverage the same logistics advantage inside of China, sell cheap things, and ship within 1-2 weeks. Shein has been discussed in various business school cases for its mastery of fast fashion - real-time fashion. Zara was the pioneer of such a category that it automated the design, manufacturing, and shipping process. Shein took it one step further by owning its production chain, from design and prototype to procurement and manufacturing. Each step in the process is highly digitized and integrated with others. The platform curates hundreds of new products tailored to different regions and user tastes at a daily rate. Oftentimes, you have your eye on a certain product, but within days the product will be sold out. Instead, the platform would have a similar variation; maybe instead of a shirt with three buttons, it would offer one with two; instead of a blue dress, it would offer a green dress. To tailor to western customers, Shein curated a Plus-Size section. About one-third of U.S. women could possibly prefer plus sizing and there are trends for increasing demand7. In addition to carefully calculated product offerings, Shein also offers in-app interactions by offering points for consumers to leave comments on the product with images. Consumers can then redeem these points in their next purchase.
For its target market, Shein targeted Gen Z who thinks the price is the most important factor when shopping for fashion and depends on social media to discover new trends. In 2021, the company saw nearly 11% of desktop web traffic come through social media. The fashion and apparel industry in general has 4.7% web traffic from social media. Shein also generates 20.9% of traffic on mobile from the same source. Often, the younger demographic would see a video of Shein Haul on Tiktok and be directed to the brand to continue the purchase. Shein leveraged influencer marketing - influencer-generated content (IGC). This type of marketing allows brands to partner with content creators to promote the brand that doesn’t come off as sales-y. Influencers build audience trust better than a carefully curated production-level video. It’s also possible to go viral with a smaller budget. Tiktok would recommend highly relevant content, regardless of production quality.
Temu
The Parent Company Temu is currently targeting a customer base that the parent company, Pingduoduo, originally targeted - low-income consumers. Pingduoduo achieved huge successes in China by focusing heavily on these consumers and offering heavily discounted products. It’s worth noting how Pingduoduo rose to the top in a highly competitive market. In 2016, the Chinese e-commerce market was dominated by two companies, Alibaba’s Taobao and JD.com. Both companies are early adopters, with separate branding. JD.com focuses on quality and incubating its own higher-end brands to create a loyal customer base. Taobao reaches out to all populations with different needs and all retailers who might be interested in expanding into the online shopping business, targeting middle to low-priced retailers and consumers. Taobao tried to enter the high-end product market by curating its own branded shop, TianMao, and missed out on the opportunity that was captured by Pingduoduo - lower and middle-end wholesalers who don’t have enough scope or finances to operate their own shop on Taobao. They can be a generic brand that is used to sell to bigger brands and the brands will label the products with brand names. Oftentimes, these retailers profit from high quantities of a single product with low margins. There would be group chats on WeChat, the dominant chat app in China, that focuses on group buying a certain product to create and place group orders on Pingduoduo. This venue is still the mainstream income for Pingduoduo today, for 30-50% of the total revenue8. It’s possible that Pingduoduo, the parent company, views Temu as an attempt to export and expand into another market, replicating its success in China.
Strength and Weakness It’s possible that Temu can be successful by replicating how Pingduoduo succeeded in China to disrupt the market in the United States. The company already has a network of wholesalers who are willing to work with them from its parent company. As the Chinese internal market became more saturated and slowed down, these retailers needed a place to clear up the inventory. The price Temu can offer is unbeatable. For all categories of products they offer, they all have a very competitive price. Temu also inherited a mature logistic inside and the business model and framework I mentioned above from its parent company to implement. However, these strengths are not enough to determine whether Temu will be successful in the United States. The company is entering a mature and educated market. Americans have been online shopping for over a decade and are spoiled by Amazon’s 2-day shipping. The biggest challenge for Chinese companies that want to expand globally is international logistics. China has one of the highest degrees of logistic automation, so products usually arrive within a day or two. It’s hard for Temu and Shein to achieve that speed with oversea shipping. Creating local inventory will drag up the cost of inventory and cause a financial burden. So the companies usually rely on shipping products in bulk from overseas for a low cost, in exchange for the customer’s waiting period. This newcomer also needs to create brand awareness. AliExpress, which started in 2016, is still known for selling cheap things from China. Temu needs to avoid being tagged as AliExpress the second.
Recommendation
Keywords Investments Although Temu has been number one in the shopping category on the app store, most of its growth is generated from advertisements. It might create short-term popularity, but it doesn’t lead to a continuous return rate. The company should invest in keywords. For example, google trends show what people are searching for shopping across Google.
Temu can base on these search keywords identify what timely words to invest in for Google Ads. For electric candle warmers as this week’s top search trends, Temu can invest in Google Ads and link them to any products that are on Temu right now.
The other retailers have been investing in these keywords. When I searched “temu electric candle warmer” on Google, the first results were Amazon and Target, which are the top e-commerce retailers in the U.S. They have clearly invested in the relevant shopping trending words. Temu can also invest in other related keywords such as an online store, online business, and others. Based on wordstream.com, these are the top trending words based on search volume9. Nevertheless, Temu should not invest in keywords such as its own brand “temu” and competitors’ keywords like “Amazon”, “target” and “Shein.” As we discussed in class, if someone is interested in buying from Temu by searching the keyword “Temu,” the user will click on the Temu home page regardless of the company paying Google per click to redirect traffic. Similarly, if someone searches for “amazon,” it’s likely that the user is looking for something specific on Amazon. Investing in these keywords would not be helpful to increase awareness for Temu. Temu should also avoid associating itself with keywords like “cheap product China.” As Temu enters the U.S. market, it wants to shy away from the image of only selling cheap products from China. Associating the brand with such keywords will bring a negative connotation to the brand and forgo prior marketing efforts.
Influencer Marketing Both Temu’s parent company and competitor leveraged this digital marketing strategy - inviting influencers to review the product and enlarge the word-of-mouth effect. Temu should create relationships with influencers on Tiktok, Youtube, and Instagram to create reviews in the hopes of fostering viral products. Once these platforms promote a single viral product, Temu can then benefit from its business model - selling a single viral product in large quantities for low margins. Temu can also go one step further to invest in Key Opinion Consumers(KOCs). These are regular consumers who love to share their true product reviews on social media. Oftentimes, they only have a few hundred followers, compared to tens of thousands of followers top influencers might have. The KOCs are the ones who share their daily lives without a filter and social media users are looking for the life-oriented experience that these influencers represent. They are also cheaper than the top influencers so this strategy enables Temu to create a viral video with a relatively low investment. As I mentioned above, Tiktok and other social media platforms promote videos based on relevancy not by quality. Anyone can make a viral video. Consequently, to attract these KOCs, Temu should first invest in ads on these platforms to engage with the demographics of influencers that the company should work with. Temu could invest in video ads on Tiktok through its own brand account and post ads on youtube as a way to create brand awareness and communicate with KOCs and influencers.
Target New Market Although people sometimes have the perception that women are the mainstream buying power for e-commerce, there are some outliers that Temu might market differently to expand its consumer base. One is the baby product market. It’s a stable market with continuous growth as the global population continues to increase. In addition, many baby toys and clothing are consumables, meaning that after a certain period of time, consumers used up the previous products and have to come back to buy new ones. The timelines and frequencies of repurchasing match the nature of fast-consumption commerce that Temu represents. Temu can capture the market that thinks Amazon and Target prices are too high and provide quality products comparable to Walmart. This market was valued at 214.13 billion dollars in 2021 globally and is projected to have a compound annual growth rate of 5.7% from now to 203010. Another market that Temu might invest in is the footwear market. This market consists of sneakers, luxury footwear, athletic footwear, sporting shoes, and others. The United States is the top footwear market with USD 78 billion in revenue last year11. Although there is an increasing demand for fashionable and stylish shoes for the younger generation, people in general still prefer comfortable footwear. If Temu can reach out to the wholesalers in China who specialize in comfy shoes, it can create an image as the destination of comfortable shoes. Another advantage of this market is that, unlike clothing which is dominated by the female population, footwear is relatively gender-neutral. Currently, none of the big players like Amazon, Target, or Walmart focus on footwear so Temu can be the early adopter of such a market. To reach these potential customer bases, Temu could consider investing in the related keywords and some traditional advertising such as TV and billboards to test the market response.
Conclusion From the analysis above, Temu is a strategic move of its parent company, Pingduoduo, to expand globally. The business is to sell cheap goods that ship in a week or less. Marketing is deciding whether or not the expansion can be successful. While the company faces competition from local players with mature logistics networks, there are ways that Temu can stay on the top as the most downloaded shopping app in the App store. Temu can invest in trending keywords to generate search traffic, partnering with influencers and KOCs for organic growth, and targeting new markets in the United States to diversify its consumer demographics.
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