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Temu Is Not Too Good to Be True

Temu Is Not Too Good to Be TruePhoto from Unsplash

Originally Posted On: https://examiner.com/temu-is-not-too-good-to-be-true/

 

Temu, a Boston-based e-commerce platform, was launched in September 2022 and quickly became the most downloaded app in the United States. The company sells products across 29 categories, ranging from clothing to home goods and electronics. It’s gained attention for offering near-wholesale prices despite rising inflation, causing some to wonder: Is Temu too good to be true?

While its prices may initially raise eyebrows, Temu’s business model is based on the idea that lower prices should stem from streamlined product design and supply chain management, not lower-quality products.

Temu collaborates with sellers to design products tailor-made to shoppers’ preferences. It shares its insights on consumer behavior and predilections to analyze shopping trends and help sellers create items that connect with their target audiences. This collaboration cuts costs tied to marketing and carrying excess inventory. In exchange for reducing spending, Temu asks sellers to lower prices and pass the value on to the consumer.

Why is Temu So Cheap?

Temu is so cheap because of its next-generation manufacturing model that enables Temu to guide manufacturers through each step of the production and sales process. The company works with sellers to design products that meet demand and cut out unnecessary marketing and production costs. Cutting these costs enables sellers to lower their prices by more than half on the platform.

By communicating precise sales insights to sellers, Temu proactively matches supply to demand. Manufacturers learn which products are most popular, then adjust their design and production accordingly, eliminating excess procurement and inventory that cuts into profits and drives up prices for consumers.

Rather than spend millions on consumer surveys and market research, sellers on Temu can access valuable consumer insights from the platform for free. Temu’s analytics informs sellers how to design and market products, identifies target customers, and helps schedule efficient production and order fulfillment.

This drives down overhead costs. Manufacturers can support price cuts for quality products because the Temu marketplace offers increased sales potential based on a fine-grained understanding of what customers want.

All this is a boon for penny-pinchers and anyone on a budget. Satisfied customer Adam M. posted, “Can’t go back to other online shopping sites. I’ve always liked online shopping for its convenience, especially when I have an entire messy family to take care of, but no other sites can compare to Temu for me.”

Consumers are incentivized to give more comments and insights because they can enjoy lower prices and products that are better customized for them. Sellers and brands are incentivized to pass on the savings to consumers on Temu because they are getting higher sales volume.

‘Team Up, Price Down’

Temu’s name means “Team up, price down,” a phrase meant to capture its collaborative approach to selling products at affordable prices.

The company’s business model is based on incentivizing price reduction so the low prices benefit both the seller and the buyer. It involves three steps. First, product design anticipates demand, enabling sellers and brands to cut costs and charge less.

Second, optimized, data-driven marketing means these lower-priced items reach more target consumers, driving up sales for sellers and brands while saving on marketing costs.

Finally, return on investment increases despite reduced prices because overhead costs decline while sales increase. With an uptick in sales, sellers gain more valuable data on customer preferences and needs.

In other words, with the right data and strategy, a seller can invest less to produce and market the same quality products, and a buyer pays less for those products as a result. Temu’s goal is to provide the insights, strategy, and supply chain infrastructure to facilitate this process. The company works with sellers at all points of the supply chain, from product idea, design, and just-in-time production planning to inventory, warehousing, and last-mile delivery.

This business model encourages sellers to team up with Temu to drive prices down, with both parties benefiting from the resulting increase in sales and consumers benefiting from lower prices. The process is cyclical. As consumers buy more products at reduced costs, sellers gain more data they can use to create in-demand products and drive up sales of items that consumers actually want.

Next-Generation Manufacturing

Online shoppers have come to expect low prices from large retailers like Amazon and Walmart. What consumers may not realize is that these low prices are largely due to innovations in inventory management technology.

With the help of technologies such as scanners, automation, and cloud computing, companies have become adept at coordinating widely dispersed supply chains and reducing costs associated with human error and inefficient communication.

Walmart was an early innovator in this new era of inventory management, eliminating distributors and using barcodes and radio-frequency identification scanners to track inventory and communicate data for inventory replenishment.

In the e-commerce space, Amazon revolutionized order fulfillment with its coordinated network of fulfillment centers and delivery vehicles, which allows the company to deliver products to consumers’ doorsteps as quickly as overnight.

Temu takes this approach one step further by collaborating with sellers on product ideas and design. Amazon and Walmart have reduced prices by streamlining how a finished product reaches the consumer. Temu has lowered prices by proactively helping sellers and brands designing products that anticipate and meet consumer demand, then delivering them through global partners — e.g. USPS, UPS, and FedEx — to reach consumers in the most economical and efficient method.

Temu can offer more cost savings than other platforms because of the next-generation approach to manufacturing that ties tailored product design to reduced prices. While consumers may associate lower prices with lower quality, Temu’s avenue subverts this connection because its platform reduces marketing and development costs that are usually passed on to the consumer. Prices are reduced not because of a reduction in quality, but because of a reduction in the cost of understanding and reaching customers.

The Temu Takeaway

Consumers may not be used to seeing quality products at the low prices offered on Temu, but it’s important to understand why Temu is so cheap. Shoppers associate price with quality, but production inefficiencies can also factor into higher prices, with companies passing on bloated marketing and inventory management costs to the consumer to meet their margins.

Temu’s business model is based on the idea that data and supply chain infrastructure can help companies sell quality products at a profitable margin while reducing price. While companies like Walmart and Amazon have been operating with a similar streamlined approach, Temu is implementing a novel consumer-to-manufacturer strategy to product design and demand forecasting.

Consumers are responding to this novel approach. Temu has remained at the No. 1 spot in total app downloads since November 2022, and its market share of total downloads among e-commerce companies continues to grow.

The takeaway? Temu’s consumer-to-manufacturer strategy is designed to offer consumers quality products at low prices, and the company’s growth numbers suggest consumers are responding to that offer.

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