What did Temu, which was launched less than two years ago, do right?

Estimated read time 10 min read

Temu is copying Pinduoduo.

After the release of Pinduoduo’s latest financial report, no one can ignore the existence of Temu. This business, launched less than two years ago, has proven its feasibility and is becoming Pinduoduo’s second growth engine.

Settled in 50 countries and regions around the world, the number of unique visitors to Temu has reached 467 million, achieving full coverage of domestic manufacturing categories. Temu’s growth rate is astonishing.

In less than two years, why has Temu become a player that cannot be ignored in cross-border e-commerce?

Pinduoduo Chairman and Co-CEO Chen Lei’s reply on the earnings conference call may have revealed the reason behind it, “Our original intention for global business is to use our own supply chain and technical capabilities to connect outstanding merchants around the world. , bringing high-quality products to consumers around the world and helping different consumers around the world realize their dreams.”

Temu’s phased success is inseparable from Pinduoduo’s innovative measures and also stems from Pinduoduo’s own resource accumulation. After helping domestic industrial factories sell their products across the country, Pinduoduo is now selling their products globally.

Temu has become Pinduoduo’s second growth curve

Recently, Pinduoduo released another financial report that far exceeded market expectations. In this financial report, what cannot be ignored is the performance of the new cross-border business Temu. Judging from the performance of business data, in less than two years, Temu has become Pinduoduo’s second growth curve.

In the financial report and conference call, Pinduoduo did not release specific data on Temu, and Temu revenue was included in transaction service revenue. In the fourth quarter of last year, transaction service revenue (commission) was 40.21 billion yuan, a year-on-year increase of 357%. This growth rate far exceeds the growth rate of advertising revenue. In the fourth quarter of last year, Pinduoduo’s advertising revenue increased by 57% year-on-year.

Undoubtedly, the surge in transaction service revenue is attributed to Temu. No matter in which aspect, Temu’s development speed far exceeds market expectations.

Currently, Temu has settled in more than 50 countries and regions around the world. In January this year, Temu opened its South Africa site. This also means that Temu’s business has covered all continents. According to information revealed by Pinduoduo, Temu currently has the largest number of sites in Europe, and its first site, the United States, has taken the longest to land and currently has the largest volume.

On the consumer side, according to data released by website analysis tool SimilarWeb, as of December 2023, Temu’s number of unique visitors reached 467 million, ranking second in the world after Amazon. In the U.S. market, Temu has launched the “American Spring Festival Gala” Super Bowl for two consecutive years, and its magical advertising has received the largest spread.

On the merchant side, in less than two years since its launch, Temu’s categories have gradually expanded from clothing and digital products to home appliances, bags, outdoor, accessories, toys, stationery and other categories, achieving full coverage of domestic manufacturing categories.

Merchants should be the most aware of Temu’s growth rate.

Liu Wenhai, a “second-generation post-90s factory” engaged in cross-border hat business, was one of the first batch of merchants to settle in Temu. In 2023, on Temu, the store’s hat sales exceeded 100,000 on the day of the “Black Friday” promotion alone, and more than 1 million hats prepared during the “Black Friday” period were basically sold out.

This is Liu Wenhai’s second time participating in Temu’s “Black Friday” promotion. In the first year, during the entire “Black Friday” period, Liu Wenhai placed a total of 100,000 orders on multiple cross-border e-commerce platforms such as Duoduo Cross-border and Amazon.

Liu Wenhai, who already has experience in large-scale sales, prepared for last year’s “Black Friday” one and a half months in advance, but the sales volume still exceeded his expectations. The stock was sold out faster than he imagined. The inventory of 7-8 models was completely cleared, and Liu Wenhai had to take the initiative to remove the product links from the shelves.

In last year’s “Black Friday” promotion, there were many businesses like Liu Wenhai that achieved huge sales. They were the first to take advantage of the situation. Similarly, the explosion of their business also proves that Temu has established a firm foothold in the cross-border market and has become an emerging channel for merchants to go overseas.

What did Pinduoduo do right?

Temu’s outstanding results are inseparable from Pinduoduo’s strategy.

In the past, most of the pain points for cross-border e-commerce merchants focused on transportation and operations. No matter which platform is chosen, cross-border logistics generally goes through the processes of transportation, warehousing, packaging, sorting, customs clearance, etc. Merchants need to transport the goods to the port, complete the first-leg logistics link, and then transport the goods from the port to overseas warehouses, and finally from The warehouse completes the end-end delivery and delivers the goods to the buyer. If any problem occurs in any link, it will affect timeliness and increase transportation costs.

In terms of operations, merchants need to solve language problems, learn the different delivery logic of each platform, and recruit operators from different platforms for promotion. This also makes it more difficult for Chinese manufacturers to go overseas.

Based on the “fully managed model”, on Temu, the platform will be responsible for promotion, warehousing, logistics, distribution, and after-sales. Merchants only need to handle difficult aspects such as delivery. The platform is also responsible for distribution, customer service, inbound traffic, and after-sales. Merchants only need to open a store on Temu, list products and ship the goods to Temu’s domestic warehouse.

This model leaves almost all cross-border pain points to the platform, allowing merchants to only focus on research and development and product selection. This not only lowers the threshold for domestic businesses to go overseas, but also reduces cost pressure, allowing many domestic factories and manufacturers that previously did not have the ability to go overseas to try to go overseas.

Liu Wenhai once said, “Compared with traditional cross-border e-commerce platforms, Duoduo Cross-border saves costs including labor, logistics, etc. On traditional cross-border e-commerce platforms, these costs account for 30% of the product selling price, but on Duoduo cross-border is only 10%.”

In order to provide merchants with long-term and stable orders, Pinduoduo identifies and aggregates consumer demand in markets in different countries through small and multiple quick responses, which is the “flexible supply” model.

In order to further ease the inventory pressure on merchants, Temu launched the JIT model (that is, a pre-sale model in which orders are placed first and shipped later). Merchants can place orders on the platform and then ship to domestic warehouses. This model does not require merchants to blindly prepare goods in advance, and can determine output based on the actual popularity of the product. The production of products that are popular in the market can be increased, while the production of products that have no sales for the time being can be reduced.

Currently, there are tens of thousands of manufacturing merchants on Temu. Although they have strong production and supply capabilities and have their own factories, they have been engaged in OEM manufacturing for many years and can only earn a meager OEM fee.

“What factory doesn’t have a brand dream?” This sentence has been circulated among factory owners in various industrial belts for many years. In the past many years, factories were unable to compete with brands in traditional channels. Until the emergence of Temu, an emerging channel, this deadlock was broken.

After the launch of Temu, they can not only sell their goods to overseas markets, but also build their own brands with the support of Pinduoduo. Manufacturing factories such as thermos cups from Wuyi, Zhejiang, porcelain from Chaozhou, Guangdong, and women’s shoes from Wenzhou have all begun to try to break through on Temu and create their own brands.

After Wang Bowen, the “second generation of the factory”, took over his parents’ thermos cup factory, he regarded Temu as an important channel for building his own brand.

In the past, Wang Bowen’s factory “raised” multiple Amazon sellers. From R&D, design to production, Wang Bowen’s factory was Wang Bowen’s factory, but operations and sales belonged to the sellers, and the brand and high premiums only belonged to the sellers.

Temu’s fully managed model makes up for Wang Bowen’s shortcomings in operation and launch experience, allowing him to focus on the research and development and design he is good at. Half a year after settling in Temu, Wang Bowen built a team of 6 people, including 4 operators, 1 artist and 1 designer.

Anchoring long-term value

Whether it is the innovative measures of the fully managed model or the setting up of Temu’s buyer model, with Temu’s success, Pinduoduo has grasped the pain points of the cross-border e-commerce industry.

This is the direct reason for Temu’s staged victory, and the fundamental reason behind it lies in Pinduoduo Group’s past focus on the e-commerce industry and the accumulation of supply chain resources.

Although it adopts a different model from the main website Pinduoduo, Temu can also be regarded as the “overseas version” of Pinduoduo to a certain extent. The essence of Temu’s platform is also to pursue the ultimate quality-price ratio.

Temu’s Super Bowl ad slogan “Shop like a billionaire” has been mentioned repeatedly. Chen Lei also mentioned in the earnings call that no matter how the market environment or competitive landscape changes, consumers’ demands for e-commerce platforms, namely “more benefits and better services”, remain unchanged.

Pinduoduo has been established for 8 years and has always been rooted in China’s manufacturing industry, covering almost all fields from agriculture to agriculture. Over the past many years, Pinduoduo has accumulated profound industry resources, and these resources can also be reused on Temu. For example, Temu does not start from scratch in terms of supply, so it can achieve full category coverage in a short time.

Starting in 2023, Pinduoduo will implement a high-quality development strategy, one of which is high-quality supply. No matter how the market changes, Pinduoduo has always adhered to its unique value proposition and continued to deepen its supply side.

This strategy of Pinduoduo’s main website is actually accumulating supply resources for Temu. The consumer market has changed from domestic to overseas, but from the perspective of the supply side, it is broadening sales channels.

However, Pinduoduo’s cross-border business is still in its early stages and will still face many changes and challenges in the future. In an environment full of uncertainty, Pinduoduo’s intention for Temu’s future is to build its long-term value.

In 2021, Pinduoduo will transform from a “marketing-focused” strategy to a “research and development-focused” strategy. In 2022, Pinduoduo’s annual research and development expenses will exceed 10 billion. Pinduoduo Group’s R&D investment in 2023 will reach 11 billion yuan, a record high.

The high-quality development strategy with high R&D investment will also be applied to cross-border business. “We will also firmly implement the ‘high-quality development’ strategy into our global business and be prepared for long-term investment,” Chen Lei mentioned at the conference call.

For Pinduoduo, the expansion of overseas business is not about obtaining short-term returns, but about bringing Chinese manufacturing to the world.

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