On November 29, 2023, the U.S. stock market witnessed a historic moment in the Chinese e-commerce industry: Pinduoduo (the parent company of Temu) briefly surpassed Alibaba in market capitalization for the first time. Although Pinduoduo’s stock price retraced at the day’s close, this overtaking holds significant significance. Alibaba has always been the dominant player among the three major players in China’s e-commerce, even initially dismissing Pinduoduo’s business model.
The most notable feature of Pinduoduo is its low prices. Despite criticism of this model, it is beloved by a significant portion of consumers, and the user base continues to grow.
In September 2022, Pinduoduo officially launched the overseas version, Temu, outside China. The similar low-price model allowed Temu to rise rapidly, to some extent, encroaching on the market share that originally belonged to Amazon, especially for some low-cost general merchandise where you can find cheaper options on Temu.
Products sold on Temu generally exhibit several characteristics:
- Extremely low prices, varying quality levels, substantial initial platform subsidies.
- Non-branded products, downplaying the concept of brands.
Non-branded products, referred to as “general merchandise” on Temu, are nearly impossible to find exclusive brand products on the platform. The products on Temu are mostly available on other platforms, such as Amazon. Interestingly, Temu’s business managers often use Amazon as a reference point, launching similar or identical products to capitalize on popular trends observed on Amazon.
Searching for “tea bottle” on Temu’s platform, you’ll notice a common trait among the featured products: no branding. As you scroll through, you’ll find more similar non-branded products. Why is this the case?
Before discussing this reason, let’s talk about the types of sellers that supply Temu:
a. Factory-type production sellers: Especially in markets where product homogenization leads to intense competition, many sellers offer similar products. This competition drives prices lower, resulting in minimal profits. To maintain the daily operations of their factories, these sellers need a continuous flow of orders and a large quantity of orders. Therefore, sellers of this type, who operate as factory-oriented producers, may choose Temu as a sales and supply channel.
b. Clearance-type sellers: Many sellers simultaneously sell products on other platforms. Some products achieve success, while others struggle to sell for various reasons. In such situations, Temu can become an effective clearance channel. Clearance implies selling products at a low price, sometimes even at a loss. The quality of clearance products varies. If you’re fortunate, you may find high-quality products at significantly reduced prices. However, these products often have one characteristic – once they are sold out, they are no longer available for sale.
c. Numerous ordinary middleman sellers: Sellers in this category face significantly squeezed profit margins. In this operational model, middleman sellers lack substantial funds or the boldness to introduce personalized and customized products. Typically, they directly inquire with factories to purchase existing or conventional goods, supplying these products to Temu and earning some modest profits in the process.
The situation faced by these Temu suppliers determines the inability to sell high-cost exclusive brand custom products on the platform. In simpler terms, if excellent product sellers can earn more profits on Amazon, why bother putting such products on Temu for meager profits?
While the rise of Temu does have a certain impact on specific price ranges and types of products on other platforms, this impact is conditional and limited.
For new or small-scale sellers, we have the following recommendations:
Stick to a branded product strategy. Only by establishing a brand can you differentiate yourself from the majority of competitors in a fiercely competitive market, securing your own space for survival. Taking our water bottles as an example, perhaps you don’t have the budget to redesign an entirely new bottle or lid, which comes with substantial mold costs and high minimum order quantities for mass production. However, you can customize designs on existing bottles or packaging, offering considerable customization possibilities with easy implementation and manageable costs. This is the preferred branding solution for new and small-scale sellers.
Emphasize high quality. High quality is crucial for sellers with a long-term perspective. Substantial time and marketing costs are invested in each product, but poor quality can render these investments useless and jeopardize the sustainability of your business. High-quality products can maintain more reasonable profits, reduce after-sales costs and losses, and extend the longevity of your business.
Narrow down your target audience and market. Most products can be considered as blue ocean products, with numerous sellers vying for a share of the cake. For new or small-scale sellers, it’s crucial not to rush into this competition blindly, as the result often leads to failure. Before preparing a new product, think about your target audience and launch products based on their needs. We recommend narrowing down your target audience and market. For instance, for drinking cups, we can limit the scope to cold brew, tea infusers, fruit infusion, detox bottles—these are specific usage methods. You can specialize in redesigning cups based on these usage requirements, reducing a significant portion of competition and making your new business smoother.
In conclusion, while the rise of Temu has had some impact on specific products and prices, this impact is conditional and limited. Therefore, for new or small-scale sellers, focusing on branding, emphasizing quality, and narrowing down target audiences and markets are essential strategies for building a successful business.