Why is Temu so cheap?

Your first product is free or up to 90% off, and we’re not talking about $1 products, we’re talking about products under $30. Why is Temu so cheap? The answer is quite complex and similar to what explains prices on other platforms such as Shein or AliExpress, and varies depending on the sales strategy in which brand recognition (brand awareness), use of trade agreements, elimination of middlemen and even reports of forced labor.

But first, what is Temu?

Temu is a global online retailer owned by PDD Holdings, China’s second-largest e-commerce giant, second only to Alibaba Group. Using comparisons, think of Alibaba as Amazon and PDD Holdings (and its Pinduoduo brand) as Walmart.

Temu has a market value of $150 billion and is sold to 750 million customers in 49 countries, including the United States, according to Analyzify.

Why is Temu so cheap?

There is not one answer, but several. However, perhaps most importantly, according to Shawn Raine, founder of China Market Research Group, is that they sell products without a brand, and if they have one, it is extremely unknown. This practice does not involve the sale of pirated products, but rather a direct-to-consumer sales strategy in which the product likely leaves the factory en route to an airplane where it is shipped somewhere outside the country. China. .

However, it is possible that, despite the good reviews and appearance of the products, many of them are not of the best quality.

Another factor closely related to direct selling is that Temu sells without intermediaries. This has a very significant impact in terms of eliminating storage costs.

On the other hand, e-commerce expert Ines Duran explains that Temu collects data on consumer trends, such as the products that are most searched for or those that generate the most clicks. However, instead of selling this data to sellers, as Amazon does, the company uses it to predict consumer trends and produce small quantities of products. Temu can use AI-generated images to show you fashion products that may not be available when you order them, Duran says.

Another reason why Temu sells its products so cheaply is because it takes advantage of some countries’ import regulations. For example, in the United States, trade rules indicate that up to a certain dollar amount, products can be imported without duties. In this regard, Temu has received complaints about parcels being split into smaller shipments to evade taxes. This may be one of the reasons why, for example, when you place an order you will receive it in several packages rather than in one.

And then there’s the business strategy.

During the last Super Bowl, Temu paid several million dollars for various 30-second commercials, which is quite unthinkable for an event whose advertisers are usually large global corporations.

However, these are advertising costs – Theme also works with micro influencers– is linked to the commercial strategy in which Temu seeks to increase its position in the market. Theme probably won’t pay dividends, but sooner or later it will. Right now their goal is for you to install their app and place an order.

There are also allegations of forced labor.

Temu has vehemently denied this, but U.S. lawmakers have noted that Temu and other Chinese e-commerce platforms may be using forced labor to offer such cheap goods.

However, Temu has categorically denied these allegations, which are also unproven and could be part of the allegations of a trade war between China and the United States.