Thursday, 2024 May 30

The Rise and Fall of Online Budget Retailers

We often witness the rise and fall of numerous e-commerce platforms every year. Some fail to gain any traction from the beginning, while in contrast, others experience meteoric success only to plummet shortly after.

One such example is the story of Temu, a relatively new player in the e-commerce retail market that has experienced both remarkable successes and sustainability challenges in just a few short months. By examining Temu’s story, we can analyze the factors that contribute to the success or failure of online retail platforms.

Temu, an e-commerce platform owned by the parent company of Pinduoduo, has been successful in the North American market by relying on a growth strategy of aggressive advertisement across social media.

Within a mere two months of its launch, Temu soared to the top of the iOS free download list in the US, amassing a staggering 19 million downloads worldwide, with 95% of them originating from North America. The timing of Temu’s entrance could not have been more perfect, as it capitalized on shifting consumer behaviors spurred by the impact of COVID-19 and global inflation. With consumers’ purchasing power reduced and heightened demand for competitively-priced goods available online, Temu’s low-priced products were hitting the right notes with savvy shoppers.

However, despite its early triumphs, Temu has not been immune to the challenges that often plague e-commerce platforms. Users have expressed dissatisfaction with issues such as slow logistics and low product quality, resulting in negative reviews and a declining user rating on consumer evaluation platforms. Additionally, merchants also expressed concerns after the cancellation of delivery subsidies in December last year.

If not addressed effectively, these challenges could jeopardize Temu’s future prospects and relegate it to the same fate that has befallen many other e-commerce platforms — irrelevance and obscurity.

The Factors for Success

The factors that contribute to the success of e-commerce websites are multi-faceted.

Offering products at competitive prices is undoubtedly a crucial factor, as it attracts price-sensitive customers. Providing a wide range of products that cater to various customer needs and interests is also vital in establishing a diverse customer base.

Additionally, by employing targeted and effective marketing strategies, such as social media advertising, search engine optimization (SEO), and influencer partnerships, companies can further create buzz and drive traffic to their websites, resulting in a spike in user volume.

Temu, like its sister platform Pinduoduo, focuses on low-priced strategies, with products priced between USD 0.09 to USD 20, with some special promotions even offering goods at only one cent. Temu also provides free shipping, returns, and refunds within three months.

Temu’s ability to outperform competitors such as SHEIN within their first month of launching can be attributed to its aggressive growth strategy, which leveraged the exponential power of social media through “Referral Bonus” promotions and replicating the social fission marketing popularized by Pinduoduo in China.

Temu’s initial success is also largely due to its strategic focus on low-priced products and aggressive growth tactics. By connecting the domestic low-end supply chain with price-sensitive consumers in the US market, Temu was able to make a successful market breakthrough, even though it entered the e-commerce industry as a latecomer in the overseas market. Its rapid rise to prominence was a testament to the power of its growth strategy, which relied on social media promotion, referral bonuses, and a compelling value proposition for budget-conscious shoppers.

A screenshot of temu.com in April 2023

The Inevitable Decline… Or Not?

However, the road to success for e-commerce websites focusing on low-priced goods is fraught with challenges, and Temu is no exception. Poor product quality, shipping delays and errors, inadequate customer service, uncompetitive pricing, lack of differentiation, and ineffective marketing can all contribute to the decline of e-commerce platforms.

After successfully breaking into the market, Temu is now facing a series of crises — similar to what Pinduoduo, Wish, and SHEIN have been dealing with.

For these websites, finding the delicate balance between offering low prices and maintaining good product quality is a significant challenge. While low-priced goods may initially attract customers, poor quality can lead to user dissatisfaction and result in a loss of customer retention.

In response to the growing customer complaints, Temu has tightened subsidies to sellers and implemented new regulations, such as charging logistics fees and fines for sellers who violate product quality rules. However, these policy changes have resulted in a backlash from sellers, as they are now faced with additional costs and reduced profit margins. These changes were intended to improve the overall quality of products and services offered on the platform and enhance customer satisfaction.

However, these policy changes have not been without challenges. Many sellers have expressed discontent with the reduction in subsidies and the additional costs associated with logistics fees and fines. Some sellers have even threatened to leave the platform and seek alternatives if their profit margins continue to be impacted. This backlash from sellers poses a significant challenge for Temu as it aims to strike a delicate balance between ensuring product quality and maintaining seller participation on the platform.

Furthermore, Temu is also facing stiff competition from other e-commerce platforms, such as AliExpress, which is working on rebranding itself as the original e-commerce shopping platform for competitively-priced goods. AliExpress has been aggressively expanding its product offerings and improving its customer service in an attempt to capture the market share of budget-conscious consumers. This increased competition puts additional pressure on Temu to differentiate itself and retain its customer base.

The road ahead for Temu remains uncertain as it navigates through these challenges. The platform’s success will largely depend on its ability to address the concerns of both customers and sellers effectively. Striking a balance between offering competitive pricing, ensuring good product quality, and providing excellent customer service will be crucial for Temu’s survival in the highly competitive e-commerce landscape.

To overcome its current challenges, Temu may need to adopt a multi-faceted approach. Firstly, it needs to listen to the feedback from customers and sellers and take swift actions to address their concerns. This may involve revisiting its subsidy structure and finding ways to incentivize sellers to maintain quality standards without significantly impacting their profit margins. Temu could also invest in improving its logistics infrastructure to reduce shipping delays and errors, thereby enhancing the overall customer experience.

Secondly, Temu should focus on strengthening its differentiation strategy to stay ahead of the competition. This could involve offering unique and exclusive products that are not readily available on other platforms, partnering with influencers to promote the platform, and leveraging innovative marketing campaigns to capture the attention of potential customers.

In conclusion, while Temu has experienced rapid success as an e-commerce platform, it now faces challenges in maintaining its momentum and ensuring sustainable growth. Temu needs to effectively address customer complaints, manage seller concerns, and differentiate itself, or it might find itself like many of its fellow (former) competitors — irrelevant and forgotten.

36Kr Global Research
36Kr Global Research
36Kr Global Research periodically publishes market trends and industrial intelligence. Powered by in-house experts and data engine, we deliver global clients with exclusive, first-hand and top-quality research insights. From sector screening to data drilling, we support decision-making across a broad spectrum of industries.
MORE FROM AUTHOR

Related Read