What’s the real deal with Temu’s business model?
Being a Zimbabwean, if there’s one thing I understand, it’s balancing bills and shopping smart. There is no other option. But this is true for a lot of people now across the world, really. Why? Because inflation has hit the entire globe and prices have skyrocketed for certain products. This leads to most people looking for budget-friendly, convenient shopping deals.
In the past couple of years, affordable online stores, like Shein for example, have become staples for shoppers, because they provide fast fashion and affordable products without compromising too much on quality (and sometimes without compromising on quality at all). But how do they do it? Well, what better way to discuss the super-cheap online shopping phenomenon than with Temu as the case study?
Yes, Temu. I’m sure you’ve all seen the bright orange packaging online that is so easily recognizable, almost as if the brand has been around for decades. But that’s obviously not the case because Temu was only founded just recently in 2022. Boston, Massachusetts is listed as the location where Temu was founded, but it’s owned by the formerly China-based company PDD Holdings (PDD moved its headquarters to Ireland from China last year). This brand seemingly came out of nowhere and took the online shopping world by storm, inviting you to “Shop Like A Billionaire.” There has been an outpouring of complaints across social media accusing Temu of being a modern day slavery operation that uses forced labour, while also fueling consumerism (which is already rampant). And with roughly 235 million downloads of the app worldwide, Temu has also been accused of data mining. In other words, YOU are the real product. But some people argue that it’s simply a good business model that cuts out a costly middleman. Basically, it’s either Temu is simply a genius business and has found a way to keep costs low in order to entice the masses without any shady dealings, or they are morally and ethically bankrupt in how they manage to sell products at sometimes half the price of their competitors. The truth is that no one can really know the answer to this right now. Either way, we think you would be interested to read the conclusion of this article…because there’s something to learn from it, whatever the answer is.
How exactly does their business model work?
So, what’s the real deal with Temu’s business model? We decided to reach out to Temu to find out.
We emailed Temu ourselves to try and get the deets on how exactly they manage to keep their prices so low and what their business model is (we had heard many people on YouTube state that Temu is usually happy to answer any questions regarding their business, especially when it’s a collaboration). Unfortunately, Temu didn’t respond to our email to answer any of our questions so we had to do our own extra research. From what we found out, Temu is a marketplace full of different sellers and suppliers, whose goods are initially vetted by Temu. According to this article by Marketplace Pulse, there are more than 100,000 sellers on Temu and they are all based in China (Marketplace Pulse research). These sellers all agree to wholesale pricing, meaning they have to maintain the lowest prices and the suppliers do not have autonomy over their pricing. They have to ship their goods in bulk to Temu’s warehouses in China, and Temu then “handles the listing, marketing, fulfillment, customer service, and pricing.” This business model allows Temu to keep their costs low (especially due to using suppliers from China, who have generally low production costs) but also maintain a relatively good reputation in terms of how orders are handled since they do all the order fulfilment. And with this model, Temu has managed to become the number 1 shopping app in the United States in both Google Play Store and the Apple App Store, with an estimated $6 billion dollars in annual revenue.
Regardless of these incredible numbers, however, it has been alleged that Temu does not make a profit at present. Yes, you read that correctly. This article on WIRED, stated that Temu is losing an average of $30 per order according to insider information, with the goal of breaking into the American market. This totals estimated overall losses of $588 million to $954 million per year.
So, how does Temu make money then? Why are they willing to continue on that trajectory?
Realistically, we can’t know for sure. The assumption and general accusation is that Temu is data mining and so the benefit of their business comes mainly from having a whole lot of user information. Hundreds of millions of users…This is all alleged of course, but it’s an understandable concern, since they are running at a loss…allegedly. But don’t many start-ups and new businesses run at a loss for a little while before breaking even? And separate research has found that Temu simply uses your data to personalise your ads and promotional emails to make your user experience better, that’s all. Isn’t that standard practice with many websites and their “cookies?” We’ll need some tech experts to step in on this one. But for now, depending on what you believe and how much you use the app, you can do with that information what you will.
The question is: are any platforms we use not mining data? How many of us actually read the “Privacy Policies” and “Terms and Conditions” of usage on websites and apps? What are these advertisers paying certain websites for? User details and the sheer amount of those details that these companies can provide, perhaps? But that’s not going to stop you from signing up to random websites you want access to and clicking “I Agree” though, is it?
