The company Pinduoduo always seems to have the advantage of being the latecomer. From Pinduoduo to Duoduo Grocery, and now to Temu, each time they have entered the market later than others, but it doesn’t seem like they’ve missed out on opportunities.
The cross-border e-commerce platform in China has been around for over 20 years since the inception of Alibaba International. Temu, like Pinduoduo which launched in 2015, started late. Yet, as a low-cost platform, it rapidly gained visibility and instantly became on par with industry giants, showing potential to surpass them.
Temu, which went online in September 2022, spent $140 million on marketing in its first month. Combining data from multiple sources, by August 2023, a year after its launch, the platform’s marketing budget was close to $2 billion. The most direct result of this investment was that since November 2022, Temu has long held the top spot on the U.S. app download charts, until mid-May 2023 when ChatGPT opened its app for download.
Estimates of Temu’s Gross Merchandise Volume (GMV) vary widely, and Pinduoduo has repeatedly denied leaked figures. But in terms of traffic, within less than a year, Temu has joined the ranks of all second-tier overseas e-commerce platforms except Amazon, such as Alibaba’s AliExpress, Walmart’s e-commerce, eBay, SHEIN, TikTok Shop, etc. Given Temu’s high growth rate, its GMV for the whole of 2023 could reach tens of billions of dollars.
Being the latecomer is not the same as being the laggard. Temu is not a so-called dark horse or an overnight success, just like Pinduoduo. The achievements Temu has made so far have boosted the team’s morale, but this is just the beginning, as it is still far from being the true overseas version of Pinduoduo, and Pinduoduo itself is still in a phase of growth. However, this team is already very mature, with enough experience and clear objectives. It’s hard to say how the overseas e-commerce landscape will turn out in the end, but Temu, with its savvy approach and energetic style, looks to have a high probability of success.
Latecomer Advantage
Temu is replicating Pinduoduo’s rise at home in overseas markets, and it’s even more aggressive.
They seem to be like cheetahs, waiting for the optimal time to enter the market: when several waves of cross-border e-commerce have paved the way, they entered the cross-border e-commerce sector during the most challenging second half of 2022 — when the first wave of website and store group models had already cooled down, independent large sites could not be established, and the only survivor SHEIN had been blocked from going public for over three years. They suddenly jumped into the game, bypassed all the big pits you fell into, and harvested both the traffic and the well-cultivated users.
In fact, Pinduoduo has stepped into all these pitfalls, but they talk less about it, not relying on slogan-waving and bandwagon jumping for traffic. It’s not so much that Pinduoduo is strategically deep and bides its time, but rather because such actions are inefficient and have clear side effects. They have a more efficient “latecomer” approach.
Colin Huang began trying out cross-border e-commerce around 2010 (at the same time as overseas gaming). At that time, SHEIN was not yet clear, and was crazily buying wedding dresses under the name “She Inside”. Colin Huang also sold wedding dresses, with his company named Lebei at the time.
Later, those in the overseas circle noticed that SHEIN’s transition from site group to large site selling women’s clothing (moving from site group to independent brand site, meaning first running thousands of junk sites with different delivery methods, such as platform and advertising models, trying out some good data performances, known as big battles, which can then be invested in with capital and manpower) was quite successful, and many followed suit. Lebei also ran large women’s clothing sites like Floryday and JJ’S House, and priced higher than Shein for differentiation.
A core executive at Floryday stated in a private setting in 2021 that creating a large site was too easy. Over the past decade, he didn’t know how many he had made, simply by splashing out on advertising site groups.
Clearly, this senior executive was blowing his own trumpet. But it can be seen that, even if a few large sites like Floryday were established, they have never met Pinduoduo’s expectations.
Thus, in 2018, Lebei merged the teams of the aforementioned major sites, launching the brand Vova, mainly selling knock-offs. This bears some similarity to Wish, the low-end overseas e-commerce platform. It’s approach was close to that of the cross-border e-commerce platforms that were raising funds like mad during the same period, seizing viral hits, selling imitations of famous brands, just in the guise of a platform. Soon, this path was also proven to be inefficient, and Pinduoduo divested its relationship with this company before going public. Even if Pinduoduo tried old tactics like big roulette draws, chopping for new user growth, etc., the GMV quickly slipped (they couldn’t continue selling fake goods), and eventually went out of business. This is also a common reason why that batch of cross-border e-commerce collapsed: selling fake goods ultimately can’t be mainstream, and thinking to go public by relying on continual funding is impossible.
Three years ago, the outbreak of COVID-19 rekindled some investors’ faith in the already disappointing cross-border e-commerce. The story some leading companies told at the time was about the logic of overseas Tmall, that is, “to be an even more extreme Amazon through a self-operating model”. Temu’s current approach is similar to this, rather than SHEIN’s story of competing with Zara.
In 2021, with the rapid improvement of the overseas epidemic, SHEIN’s growth slowed down. Should they continue with the platform model, or stick with the independent brand site? The fact is, it’s difficult to go all out in both directions. The image of cheap women’s wear has been established, and SHEIN’s years-long women’s wear supply chain system can’t be abandoned. Over the past three years, SHEIN’s path to going public has not gone as smoothly as expected, and turning to the platform may be the only choice. It’s not easy to finish the story of “Zara copying big brands, and SHEIN copying Zara”.
SHEIN, which regards the North American market as its largest sales base, has already been surpassed by Temu in terms of single-day traffic in North America.
Comprehensive Cost-Effective Platform
Temu’s method of traffic acquisition is simple and brutal, as always.
A massive amount of advertising expenditure is poured into all mainstream media. You can always see their advertisements on Google, Facebook, Instagram, TikTok, and Twitter. It goes without saying that they spend millions of dollars on the Super Bowl. Various forms of online alliances, influencer recommendations, paid search, and other methods are used extensively.
Its country launch strategy is also very clear: start from a single high-purchasing-power market and expand downwards. The first choice is naturally the United States, followed by expansions into Canada, Australia, the UK, Germany, Italy, France, Spain, the Netherlands, Austria, Mexico, and Japan. Under a unified operation strategy, Temu’s download volume in the newly opened countries naturally ranks among the best.
And they also use the concept of “incredibly low prices” for extreme user fission. American users are amazed at the “low prices” on Temu, although these do not seem cheap to Chinese users who are used to domestic e-commerce: a phone case on Temu for 7 dollars, of equivalent quality, costs around 30 yuan on Taobao or Pinduoduo. The reason why Americans think it’s incredibly cheap is that the same item would be sold for $19.99 by an Indian brother at a mall stall in the United States.
Similarly, operations methods like “chopping a knife” are also effective in the United States. The speed of new user fission exceeds other platforms, and you can see links to Temu’s new user free orders on all social platforms.
The rapid change of Temu’s slogan from “Team Up, Price Down” to “Shop like a billionaire” reveals a clue: Initially, it had a pun meaning “unite and lower the price”, now it has become “shop like a billionaire”. This symbolizes that the concept of “low-price fission group buying” has been “implanted” in Temu, the overseas version of Pinduoduo. The current goal is very clear, which is to strive for maximum growth. In the words of Colin Huang: exert force in one spot.
This time, Pinduoduo has not revolved around clothing as before. Temu is clearly positioned as an all-category platform, even at the initial stage of launch, clothing does not account for a large proportion.
This compensates for the biggest supply-side deficiency of overseas e-commerce: light industry small commodities. At the same time, this is also the greatest advantage of Made in China for 40 years, the supply chain. Chinese manufacturing means that as long as you have a demand for light industry products, I can satisfy you, and no other country in the world comes close to the precision of China’s light industry product supply chain. The expensive and substandard small Chinese commodities on Amazon are not even a drop in the bucket.
All along, overseas e-commerce companies either specialize or counterfeit. Like SHEIN, Anker, and Zhiou, etc., they can all turn cheap women’s clothing, power banks, and trending furniture into good specialty brands.
No one has ever systematically moved the Yiwu small commodity market overseas.
Retail Business
The approach of Temu is aggressive at the front-end, cautious at the back-end.
Temu’s user retention data is much better than that of other competitors, including Alibaba’s AliExpress, SHEIN, Shopee, etc. According to Bloomberg’s June 14 report, “analyzing billions of credit and debit card transactions, Temu’s sales in the United States in May 2023 were 20% higher than the more mature fast-fashion retailer SHEIN.” Being able to achieve high retention rates in the first year of launch is an extremely favorable signal for the robust growth of an e-commerce platform in the future. Repeat purchases are the lifeblood of the long-term development of e-commerce and even the retail industry.
Moreover, compared to Pinduoduo domestically, the proportion of fake orders and return orders on Temu is smaller, which is also a good start. With such an aggressive user acquisition strategy, the quality of goods will undoubtedly be inconsistent at the early stage of the platform — the same thing that Pinduoduo has already experienced — it is already good to prevent everyone from complaining under the condition of high growth.
As soon as Temu was launched, it started with a fully managed mode of operation — — that is, self-operated mode. Suppliers only need to submit goods and supplies, and the rest of logistics and customs clearance are all done by the platform. This can be simply understood as the self-operated mode of JD.com, not the shop entry mode of Taobao and Amazon. This move not only reduces logistics costs due to centralized transportation but also reduces overall marketing costs due to competition among merchants. More importantly, it accelerates the survival of the fittest among downstream suppliers, reduces procurement costs, and helps improve the cost-effectiveness of the platform’s branded goods. Simply put, it reduces the profit margin of middlemen.
Competitors can only follow up. Alibaba’s AliExpress (+ Alibaba’s Lazada), SHEIN, TikTok’s store, etc., have all changed to a fully managed mode. This is naturally a good thing for consumers. The de-intermediation of the platform will eventually squeeze out many suppliers with low cost-effectiveness, improve the quality of goods, and reduce the price of goods.
It is understood that Pinduoduo’s repayment cycle for backend suppliers is about one month, which is very fast in the industry. This is typical Pinduoduo behavior — efficiency first: as long as suppliers can meet the platform’s needs, your benefits will not be less, at least higher than what competitors can offer. Several employees who work at Pinduoduo have told that they knew before they joined the company that the working hours would be much longer than those at competing companies, but the compensation they received was also much higher than elsewhere.
It seems that Temu is gradually realizing what Colin Huang often referred to as the Costco+Disney strategy — the basis of which is a robust backend platform construction coupled with aggressive front-end customer acquisition. Applying Occam’s razor, they are shaving towards the limit of cost-effectiveness. Costco can pick two types of toilet paper out of 20 sold by Walmart that cover most users, then sell them in large volumes to consumers at a lower price, ultimately getting the cheapest quotation from high-quality suppliers — because they are demanding in large quantities. The same logic applies to IKEA. Ten years ago, many villages in Hebei were producing furniture, scrambling for IKEA orders rather than more profitable Taobao retailers because IKEA not only demands more but also provides guarantees. What Temu wants is the limit of cost-effective goods that have been eliminated by natural law, which is the core focus of platform-based enterprises.
Like the twin giants Pinduoduo and Meituan, who have remained in the “grocery shopping” market, using the platform as a group buying entity is the most efficient retail practice seen so far.
The same goes for live-streaming sales in China, where influencers with traffic serve as group buyers, eliminating the middleman. The reason why live-streaming sales are difficult to develop overseas is simple: they have always had television stations and independent media, so they have never lacked content. In China, however, after the advent of Internet video platforms, especially personal live streaming, there emerged a degree of private television stations. The demand for live-streamers overseas is not so strong because the demand for private television has been satisfied long ago. Otherwise, why did TV shopping rise so early in the United States?
Although Temu’s investment strategy is wide-ranging, the ultimate reason is that they have clearly calculated the big picture: since the overall efficiency and cost-effectiveness of e-commerce retail are higher than offline retail, the global market will one day approach the level of development of China’s e-commerce market. Given that the team is experienced and professional, and has already gone through the necessary trials and tribulations, when else to “strike hard and fast” if not now? Just like Colin Huang’s “master” Duan Yongping heavily invested in prime-time TV commercials in the past, it is also in line with the logic of Costco vying for Walmart’s business — to use good steel where it really matters.
At the core, the way Colin Huang has been doing business over the years is very cautious. Temu’s North American headquarters is located in Boston, with a significant number of senior legal advisors and a focus on hiring senior compliance, legal, and financial staff. They have been preparing at the backend for their aggressive operational strategy.
The “slash one cut” model has lost lawsuits in China, where it was judged as an infringement of the right to know, but it had no substantial impact on Pinduoduo’s fission model. Similarly, SHEIN has also sued Temu overseas, claiming that Temu’s influencers have made “false and deceptive” statements about SHEIN. From Temu’s perspective, what needs to be done is to bring in more professional forces, not to stop or change their marketing strategy. It’s like many shuttle bus companies in Beijing used to drive in bus lanes every morning, getting fined 200 a day — they just factored this into their costs. Being able to save 20 minutes on the road during Beijing’s morning rush hour is a huge attraction for passengers.
Public criticism of Temu hasn’t stopped since it went online, and the reasons aren’t much different from the criticisms Pinduoduo has received over the years, so there’s no need to elaborate further here. What’s worth mentioning is that the noise it has made is big enough to achieve its purpose. Even in its annual report, Pinduoduo noticeably downplays Temu, stating, “Temu is a global online platform committed to providing consumers with affordable quality products. Given its short operational history and early stage of development, Temu did not have a significant impact on our financial performance for 2022.”
There are many voices that are pessimistic about Temu, and Temu’s path may not necessarily be so smooth. But if you take stock, it seems that no one is better suited to run an overseas e-commerce platform than Pinduoduo. With many years of overseas experience, top-notch marketing delivery, mature e-commerce platform experience, an extremely stable team at the peak of their age, and top-tier execution and cohesion among global companies. The background of the founder Colin Huang himself, as part of the “Duan Yongping system”, with Google China’s background and excellent thinking power, ensures his depth and breadth of vision is outstanding among his peers. Compared to other top global companies, it’s not necessarily inferior.
Therefore, even if Temu doesn’t succeed, it’s a must-do for Pinduoduo. This predetermines that the Temu project won’t put “success or failure” in the first place. What they care about is how to make this work as well as possible, rather than considering the question of survival.