Need to save some money from too much shopping on Amazon?
Check out Temu!
Temu, the latest shopping app to shoot up in the ranks, is a child of the mother company, Pinduoduo, a name that many Chinese consumers have heard of, but not so much Americans. Before we talk about how Temu is aiming to take a slice of the pie from Amazon, we have to start with an introduction on Pinduoduo, or PDD for short.
Pinduoduo (PDD), founded in 2015, differentiated itself in China through social commerce. Users could share their orders on social media, and if others joined, the price would decrease. This viral sharing strategy attracted a large user base. PDD primarily targeted consumers in Tier 3 to 7 cities, appealing to a different segment than Taobao, the Chinese incumbent.
Now fast forward to Sept 2022, when Temu arrives to the global shopping stage. With another investment of $24 million Super Bowl shopping ad this past February, Temu took over the charts.
In a short amount of time, it even overtook Shein, also a Chinese company, a darling in the fast fashion industry. (We will save this app and Tik Tok Shop for another article for the future!)
Source: Comscore Media 2023
So how did Temu expand so quickly, so fast?
1. Usage of AI on prices: ever wonder why Temu’s products can be so ridiculously low? Take a look at another website called Alibaba.com and you’ll realize why. A large part of the success of an ecommerce platform is how close or influential are you to your supply chain. Though the pandemic has caused the world to create redundancies around Chinese supply chains, most of the goods we use daily in the world today are still made in China. Temu’s suppliers all roughly sit in the Guangdong region of China, close to a city of Guangzhou, that I have also lived by in the past. Around 70% of Amazon sellers are Chinese. This means they all sourced from the same factories that Temu sellers does as well. The difference is Amazon sellers will add a much higher margin to these products while Temu has basically gone direct to the source.
2. Personalization: When I open my Amazon app, it will look entirely different than your Amazon app. This is because the platform has recorded your user behavior and strives to provide you with a personalized experience, showing you products that you have already seen before to increase the chances of purchase. Temu, does something similar but with 10x the accuracy. Temu uses machine learning to categorize its users based on several dimensions. When a new user logs in and adds a phone number, the app already knows some basic information of the user: where they are located and maybe some pieces of data such as income. Next, every click the user provides, “save product”, favorite, add-to-cart, purchase, repurchase or return are all actions recorded by the platform. Based on these pieces of information, the app will then reserve certain products that the user has saved or liked as re-exposure.
3. Simplified operations for sellers: Instead of each Amazon seller figuring out individual logistics on their own, Temu said to the same factories to simply ship products to its warehouses and they will take care of the rest. While on the Amazon end, each seller is figuring out prices using apps such as JungleScoutJungleScout, Temu sellers also will let the platform figure out the correct pricing to sell to consumers. It effectively becomes a retail (rather than marketplace) model without undertaking heavy working capital requirements or inventory risk. In this model, sellers, manufacturers, or brands simply need to reach a price agreement with the platform and send their goods to the platform's warehouses. From there, the platform takes care of all other aspects: marketing to consumers, logistics and fulfillment, and customer service.
Temu screenshot 2023
So what can we do, as brand owners, in the west to brace for this influx of Chinese shopping apps? (Following the success of Temu, it probably won’t be the last one). And what happens when you are an Amazon seller yourself?
1. Study the Integration of AI in the Customer Journey: As Chinese shopping apps leverage AI to enhance the customer experience, it's important for brand owners to familiarize themselves with AI technologies. Understand how AI can be applied to various consumer processes, such as personalized recommendations, chatbots for customer support, and targeted advertising. Embracing AI-driven solutions will enable you to deliver efficient and tailored experiences that can rival the capabilities of Chinese shopping apps. 2. Personalize the Shopping Experience for Customers: To stand out in a competitive market, prioritize personalization. Leverage customer data and analytics to understand individual preferences, shopping behaviors, and purchase history. Utilize this information to create personalized product recommendations, tailored marketing campaigns, and customized offers. By providing a personalized shopping experience, you can establish a stronger connection with customers, fostering loyalty and differentiation. 3. Revisit and Amplify Your Brand Story: In a crowded marketplace, storytelling becomes a powerful tool for brand differentiation. Revisit your brand story, values, and mission. Craft compelling narratives that resonate with your target audience, highlighting what sets your brand apart. Communicate your unique selling proposition, the quality of your products, and the value you bring to customers. By reinforcing your brand story, you can build trust, loyalty, and a strong emotional connection with consumers. 4. Foster Community Engagement: Chinese shopping apps often excel in creating vibrant communities around their platforms. As an Amazon seller, you can emulate this success by building your own community. Engage with customers through social media, forums, or dedicated online groups. Encourage user-generated content, customer reviews, and testimonials to foster a sense of community and social proof. By nurturing an active and engaged community, you can enhance brand advocacy, encourage repeat purchases, and generate organic growth. As Chinese shopping apps continue to expand their market share, brand owners in the West must adapt their strategies to thrive in this evolving landscape. By embracing AI, personalizing the shopping experience, amplifying your brand story, and fostering community engagement, you can position yourself as a strong competitor and effectively navigate the rise of Chinese shopping apps. Embrace these ideas and proactively shape your approach to succeed in an increasingly competitive marketplace.
Sharon Gai is a China-born Canadian keynote speaker on ecommerce, digital transformation and AI. She helps brands become more “Culture Fluid” bracing them to be more agile, innovative and resilient in the VUCA time we are in today. In her tenure at Alibaba, she has advised brands and heads of state in crafting their digital strategy with programmatic marketing and AI. She has been the keynote speaker at TEDx, Singularity University, UBS, Nestle, Ecomworld, and Etail. She is in the AAE list of Top Keynote Speakers in 2023. She has appeared on CBC, Techcrunch, Retail Asia, Wired, and The Next Web. She is the author of the book, Ecommerce Reimagined: what we can learn in retail and ecommerce from China. Sharon has an Honors Bachelor’s degree in International Development from McGill and a Masters in Knowledge Management from Columbia University.