Why Is Temu So Cheap? The E-Commerce Platform’s Manufacturing Process Explained

Many American shoppers may remember the name Temu from the upstart e-commerce platform’s Super Bowl commercial in February. The ad encouraged customers to “shop like a billionaire” on low-priced items ranging from fashion to electronics and more. The underlying concept of the ad is that, much like a billionaire who can afford to shop without thinking about the bottom line, Temu customers can browse thousands of items and make purchases without worrying about breaking the bank. With standard items such as T-shirts and swimwear below $5, and electronics such as earbuds and smartwatches coming in at around $10, the company has set out to offer its customers an online shopping experience detached from concerns about overpricing or missing out on the best deals. 

But how can Temu offer its customers these products with such small price tags? They often approach wholesale numbers, with many items priced under $1 and at discounts of 80% or more. Shipping is also free in most cases. A recent Business Insider report quoted Twitter users exclaiming “If Amazon and Dollar Tree had a baby, it would be Temu,” and “Temu is basically an online dollar store.” 

As Temu’s orange-and-white shipping bags, holding “hauls” of clothing, jewelry, and gadgets, have become more ubiquitous on U.S. shoppers’ doorsteps, it’s worth asking how the company’s business model works — because it does seem to be working. Temu’s app has remained at the top of the most-downloaded lists for the Google Play App Store and the Apple App Store and has received millions of downloads since its launch in September 2022. It was recently named an Editor’s Choice on Google Play and has received thousands of positive reviews.

The numbers do suggest that Temu is fast becoming America’s new go-to shopping destination. Read on to understand how the company has grown so quickly and how it is able to offer products at such unprecedented low prices for an online retail platform. 

Why Is Temu So Cheap?

Temu is so cheap because it has a deep network of global manufacturing partners and its model connects consumers with manufacturers directly and allows manufacturers to streamline processes, cut costs, and pass along the savings to customers.

Using market insights derived from analyzing broad trends in platform activity, Temu advises its manufacturers regarding which products to focus their resources on and how much to produce in order to accurately fit supply to demand. This enables sellers to reduce costs associated with making and carrying excess inventory. 

Sellers are also able to cut marketing costs because Temu essentially utilizes a reverse marketing strategy: Its platform enables customers with a variety of needs, from the niche to the everyday, to seek out products directly from sellers rather than have sellers pitch ads through more costly traditional channels. 

Temu is an American company headquartered in Boston, but its network of manufacturing and shipping partners is vast and international. This enables the company to build out a huge variety of product offerings. It’s designed to offer shoppers a means of connecting with established independent manufacturers so they can find anything from everyday staples like socks, earbuds, and cleaning products, to niche items like color-changing LED light strips or butterfly-embroidered car seat covers. These items are sourced from different specialty manufacturers to reduce prices, but customers can use a single platform to browse across the entire range of offerings.

On a traditional model, the risk of bloated costs from carrying and producing such a diverse range of products could be high, and the costs of wasted inventory, storage, and production would drive up prices for consumers. But unlike some other e-commerce platforms, Temu doesn’t manufacture the items it sells. It avoids the risk of these inflated costs by building a diverse network of manufacturing partners with a wide range of capabilities, then identifying how those partners can best streamline their processes and reach target customers. The company calls this approach a Next-Gen Manufacturing (NGM) model. It builds on the advanced supply chain management techniques used throughout modern e-commerce but adds the crucial step of actively partnering with sellers and brands at the product design and development stages. This step is the foundation of why Temu can offer low prices. It is also the source of the company’s name, which stands for “Team Up, Price Down.” 

More Than an Online Dollar Store?

Initially launched in the U.S.,Temu has since expanded to reach customers in Canada, Australia, New Zealand, and, most recently, Europe. The company is less than a year old, but it continues to rapidly gain users, who seem to be taking to this concept of an online dollar store. 

“You can imagine a scenario where a customer is getting their keys to drive to a dollar store and Temu throws off a notification in the app, they buy something immediately, and then they’re like: ‘OK, I’ve spent my money on that, I’m not gonna go to a dollar store,’” said Juozas Kaziukėnas, CEO of e-commerce intelligence company Marketplace Pulse, in the Business Insider piece. 

And the company’s ambitions seem to extend beyond the online dollar store concept. While its low prices overlap with those found at such stores, its product offerings are much more substantial. Yes, you can buy a can opener or a dustpan for a song on Temu, but you can also buy items such as appliances and musical instruments. 

Temu is a clear test case of this new Next-Gen Manufacturing approach. It remains to be seen if the company will continue to expand at its current rate but, as evidenced by the steady e-commerce sector growth in recent years, the demand for low-priced products and convenient online shopping remains strong. And e-commerce and supply chain management technology has continued to evolve in tandem with this growing demand. Temu is hoping that its new approach is the way of the future when it comes to utilizing these advancements to meet demand and set a tone for the e-commerce industry going forward.

Alexandra Lewis

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