A record 115 million people watched the Philadelphia Eagles defeat the Kansas City Chiefs in the 2023 Super Bowl. And they didn’t just see that: the American football final is accompanied by a lot of spectacle, performances by top artists and the most expensive TV commercials.
Among eye-catchers such as Pepsi, McDonald’s and Ford, there was a commercial from the virtually unknown Chinese webshop Temu. A 30-second animated clip showed a woman adding bargain after bargain to her virtual shopping cart as viewers were encouraged to “shop like a billionaire.”
Anyone who opens the Temu app is inundated with the lowest prices and highest discounts. Vintage sunglasses cost 2.96 euros, the smart doorbell has been reduced to 26.48. A countdown timer shows how long the offer still runs. The range offers products in more than a hundred categories: from home accessories to power banks, and from backpacks to toys. Everything dirt cheap.
In less than two years, Temu has become a serious challenger to e-commerce giants such as AliExpress and Amazon. The online store launched in June 2022 in the United States and quickly expanded to Europe and Asia. Temu now sells in 53 countries, and the app tops the download rankings almost everywhere.
Lightning fast growth
The name may be new, but Temu did not come from nowhere. It is a subsidiary of the Chinese PDD Holdings, which made a name for itself in its own country with e-commerce platform Pinduoduo. This is the third online store in the country, after Alibaba and JD.com.
With its focus on ‘social shopping’, Pinduoduo distinguishes itself from competing online stores. Consumers can receive a discount if they form a group with people who want to buy the same product. To do this, such a customer must invite others with a link – which in turn means that the Pinduoduo app is on more and more phones.
Chinese online stores grew rapidly last decade. But a combination of market saturation, slow economic recovery after the corona crisis and government intervention in tech companies has made unbridled growth in our own country more difficult.
Growing abroad is then an attractive alternative. PDD now does this with Temu. The parent company saw its turnover almost double last year, to 31.7 billion euros. Broken down figures are lacking, but an important part of that success is attributed to Temu.
The Netherlands ordered more from Chinese web shops in 2023, the year that Temu became active there
Industry organization Thuiswinkel.org recently reported that consumers in the Netherlands will order more from Chinese online stores in 2023 – the year that Temu became active there. This is striking, because there had actually been a decrease in the two years before. In 2021, a VAT exemption for small orders from outside the EU was abolished, making Chinese online shops more expensive.
In the Netherlands, Temu attracts around 3.3 million web visitors every month, according to data from SimilarWeb. This puts Temu just below AliExpress (3.5 million) and halfway between Amazon’s number of visitors (6.7 million).
Competitive struggle
Temu’s rapid rise can partly be explained by the fact that it invests a lot of money in marketing campaigns. Temu seems ubiquitous online. PDD spent according to The Wall Street Journal nearly $2 billion in advertising on Meta last year – more than any other advertiser – driving up the price of advertising.
PDD therefore had to catch up. Competitor Alibaba has been active abroad with AliExpress since 2010. The two giants are now fighting for the top spot as the most valuable Chinese company on the American stock exchange. At the beginning of this year, PDD (market value approximately 150 billion euros) dethroned its competitor, now Alibaba (almost 170 billion euros) is again the largest.
The Financial Times recently questioned PDD’s figures. Although the company is comparable in size to Alibaba, PDD’s assets are relatively small. The business newspaper characterizes PDD as a particularly non-transparent company that investors still run away with.
Temu is also involved in fierce competition with the Chinese company Shein, all the way to the court. Shein is best known for being extremely cheap ultra fast fashion and focuses exclusively on the non-Chinese market.
At the end of last year, Temu complained about “mafia-like” intimidation of its suppliers by Shein. That case is still ongoing. Conversely, Shein accused Temu of using influencers to smear Shein.
By looking at products for a minute, Temu users ‘earn’ virtual water for their virtual fields
Farmland
Temu tries to attract customers with, among other things, games copied from Pinduoduo. With these games you can win discount vouchers and free products. For example, there is the game Farmland, where players grow grain on a virtual farm. That grain needs to be irrigated, but the amount of water is finite. Moreover, the grain needs more and more water before it can be harvested. That water can be obtained in the game by opening treasure chests and completing small assignments, such as scrolling through a page of products for a minute. Purchasing these products yields even more virtual water.
Yet it takes a long time to ‘earn’ enough water this way. Those who don’t want to wait endlessly can get extra water by inviting friends to play. This function should also persuade people to download the app. In addition, Farmland incorporates game mechanisms that should entice players to open the app every day.
Adding such game elements is called ‘gamification’. “That is often used to motivate you to do something you don’t feel like doing,” says Adrian Hon. This Briton built exactly such an app years ago: he found running boring and was looking for a way to gamify it. The phenomenon has now gotten out of hand, according to Hon. He wrote a critical book about it (You’ve Been Played).
“For retailers, gamification is a way to get you to use their app more often and for longer and to spend more money. Users love such novelties, but get tired of them after a few hours.”
Shopping as entertainment
The games match the type of online store that Temu is. Users do not open the app because they are looking for a specific product, but as a form of entertainment: scroll through the range to see what crazy things are available. ‘Discovery-based shopping‘, as it is called in jargon, is, according to experts, more like how people look around in a physical store.
Western competitors such as Amazon and bol.com work differently. Their customers search specifically for a product: a telephone cable that they want delivered to their home the next day, for example.
This can be seen on the homepage of such a store. At bol.com it looks almost the same for everyone, with generic, non-personalized offers. Amazon tailors these offers a little more to the user, but mainly shows what the customer has previously searched for.
At Temu, the entire homepage is personalized and products are better suited to the user’s interests. As a result, the web page looks something like one feed like on TikTok or Instagram, where it is a surprise what will appear next. That approach is a bit like a slot machine in a casino, says Hon, where the jackpot falls at a random time. “Nine out of ten products on Temu are boring or useless. But that one time it’s something crazy, that keeps it interesting. This causes users to keep scrolling.”
While Amazon mainly shows more smart watches after a search for ‘Apple Watch’, Temu registers a broader interest in cats when searching for ‘litter box’. The user is then not shown endless litter boxes, but cat toys and automatic feeders. If that catches on, Temu will expand it even further and will also show cat-themed mugs, posters, rugs and tealight holders.
Prize competition
Temu is cheaper than most other online department stores. Behind this lies tough price competition, says tech expert Ed Sander. “Manufacturers are being played off against each other. Whoever offers the best price gets the orders. As a result, you are forced to drop the price further and further. There are manufacturers who are put under so much pressure that they say: we can no longer make a profit from this.”
The downside: low prices can come at the expense of quality and safety. Last month, a sample from Toy Industries of Europe (TIE) showed that the Chinese platform does not always comply with European regulations in this regard. This trade association of the European toy industry tested nineteen toy items, none of which met safety regulations. For example, a rattle had sharp edges that could hurt babies and yellow rubber ducks posed a choking hazard.
TIE called the outcome of the investigation “alarming”. A similar sample of other large-scale online toy stores led to “equally worrying results,” according to the organization.
The interest representative calls on legislators and authorities to tackle the sale of unsafe toys by suppliers from outside the EU. “Consumers must be able to trust that what is offered for sale here complies with EU rules. Online platforms may not abuse that trust.”
Temu says that all harmful products have now been removed from the European range. It says it does everything to ensure that manufacturers comply with product requirements.
Yet it is a tightrope walk, says Sander. “Temu wants to remain cheaper than its competitors, but if the quality suffers too much, they will destroy their own platform.”
Resistance
Inadequate product safety is not the only thing that arouses Temu’s suspicions. There are also concerns about user privacy since malware was found in sister app Pinduoduo. According to British and American politicians, it cannot be ruled out that Temu sells products made with forced labor.
In Europe, meanwhile, resistance to the flow of Chinese bargains is growing, mainly because of the impact on the environment. A bill is being prepared in France against dirt-cheap clothing from Temu, among others. If the Senate agrees, the French will pay up to 10 euros extra per item of clothing from next year. By taxing clothing of mediocre quality, France hopes to curb its proliferation. Companies are also no longer allowed to advertise cheap fashion.
This would make France the first country to take drastic measures against disposable fashion. “I wouldn’t worry if Temu were no longer there tomorrow,” says Sander. “But it has everything to do with our own consumption behavior. You can point the finger at Temu, but we buy that junk. If we stop, Temu will change too.”
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