The Chinese shopping app has racked up over 70 million downloads in less than a year with a flood-the-zone offensive that emphasizes adding new customers over profit.
Megan Payette, a mother of three who lives outside Peoria, Illinois, has been obsessed with Temu since she discovered it on Facebook last year. She spends hours playing games on the shopping app and has persuaded more than 250 friends, relatives and strangers to join. The payoff: $6,000 in free merchandise, including four Nintendo Switch consoles, a sno-cone machine for her son’s birthday party, materials for her candle-making hobby and tons of children’s clothing and toys.
“I’ve gotten everyone I know to sign up,” Payette told Forbes. The punchline: she has yet to actually pay for anything on the app.
The China-based company, part-owned by billionaire Colin Huang, launched in the U.S. last year with rock-bottom prices on thousands of items shipped straight from China. It quickly demonstrated a willingness to spend (and spend and spend) to recruit new users. Its big-budget marketing campaign includes all the usual things done by ascendent companies, like a splashy Super Bowl commercial (slogan: “Shop like a billionaire”) and plenty of Facebook ads. But it also relies on an old-fashioned word-of-mouth campaign refashioned for the digital age, which it incentivizes through games and generous referral bonuses.
Temu burst onto the scene at a time when inflation-weary shoppers are searching for ways to save money, with its site touting prices that might be two or three times lower than on Amazon. Socks go for $2.29. Lenovo headphones are $8.99. An avocado slicer is 98 cents. The tradeoff is it may take a week or two for that brightly-colored orange package to show up on your doorstep.
“They want to be known as the cheapest place to shop online,” said Bo Pei, an analyst at U.S. Tiger Securities. “The first step is to create mindshare. And they’re going to spend a lot of marketing dollars to create that mindshare.”
That’s only possible because its parent company, the Chinese e-commerce giant PDD Holdings, has deep pockets. Previously called Pinduoduo, the retailer has racked up 740 million monthly active users and $19 billion in annual revenue since it started in 2015. That success has made Huang, the founder who still owns 28% of the company, a fortune Forbes estimates at $30 billion. However, the company is looking for new sources of growth amid a slowdown in spending among Chinese consumers. It sees opportunity in the U.S., which has a large number of consumers and high income per capita, said Pei.
Temu is using a similar playbook as in China, where it was known for leveraging its vast supplier network to offer the lowest prices around. It also leaned into gamification and encouraged friends to band together when purchasing items to get lower prices. The American iteration is a lot like that. It offers cheap stuff, plus the chance to earn discounts (or even freebies) to those who invite their friends to shop and play games on the app.
It’s working. Temu is the No. 1 most-downloaded app in the U.S., a position it’s held for seven months, and has been downloaded more than 70 million times, according to Apptopia. That likely makes it the fastest retailer to go from zero to scale, said Juozas Kaziukėnas, who runs e-commerce research firm Marketplace Pulse. For comparison, Wish and Shein both took about three years to cross 50 million downloads.
Still, its traction has not come cheap. Temu paid for as many as 862 keywords on the Google Play and iOS app stores in February, the same month it ran its $14 million Super Bowl ad. Walmart, meanwhile, paid for just a tenth the number of keywords that month.
Temu shoppers are inundated with a relentless barrage of texts, emails and push notifications, which dangle some new discount or deal that Temu insists won’t last. “They’re just hitting you over and over and over again,” said Barbara Kahn, a marketing professor at Wharton.
A single order can be followed by non-stop notifications about the location of the item. Subject lines on promotional emails can be misleading, like “Order Notification” or “Thanks for your order” when no order has been placed. A class-action lawsuit filed in May accused Temu of sending unsolicited text messages, including some at night, in violation of federal and state laws governing robo calls. Temu didn’t respond to requests for comment.
“They’re lighting money on fire.”
Its tactics on social media are so aggressive that the company is being sued by rival Shein, which has accused Temu of paying influencers to badmouth Shein online.
“As a new entrant, Temu is willing to do things other retailers aren’t,” said Kaziukėnas. Most of its competitors tend to be far “quieter,” he said.
Discounts and freebies also eat into margins. Catherine, a 32-year-old from Pennsylvania, has received over 400 items for free, like stickers, a strainer and an under-the-sink organizer. She is currently job hunting and typically spends four hours a day on the app, playing games like Fishland, where you earn food to feed your fish by completing various tasks and inviting others to join. She has a group chat with some friends where they help each other earn free stuff by clicking on each other’s referral links.
Temu is too busy adding customers to care much about profitability. This year, it will lose an estimated $500 million to $900 million, according to calculations from China Merchants Securities.
“They’re lighting money on fire,” said Kaziukėnas.
Their pricing is so low that Amazon has excluded Temu from its price-matching program because it doesn’t meet certain standards.
Its aggressive launch signals big ambitions, with Temu targeting $30 billion in gross merchandise value in the U.S. in the next five years. It hopes that if it can establish a reputation for consistently having the lowest prices, it can eventually pull back on marketing, keep its customers and take some margin for itself, similar to what it managed in China, said Pei.
The danger is that it falls into the same trap as Wish, a San Francisco-based online retailer that also sold inexpensive merchandise straight from China. Wish climbed to as much as $2.5 billion in sales in 2020, but spent an astonishing $1.7 billion that year on marketing. When it stopped spending so much on ads, its customer count dwindled. Last year, sales cratered to about $500 million.
“Once you’ve spent all this money on customer acquisition,” said Wharton’s Kahn, “you kind of want to keep them loyal if you can.”
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Source: https://www.forbes.com/sites/laurendebter/2023/06/22/temus-relentless-push-to-woo-american-shoppers-freebies-spam-and-half-a-billion-in-losses/