Temu tries to gain market share in the US online retail market

The Chinese-based online retailer, Temu made a bold statement to American viewers during the Super Bowl on February 11 with the slogan "Shop like a billionaire.". Their advertising message was reinforced five times during the game at a cost of about $7 million for a 30-second advertising slot. Temu is a business that spends a lot of money on promotion with a $3 billion marketing budget this year.

Temu is an offshoot of the Chinese e-commerce giant Pinduoduo and aims to follow the success of Shein, a Chinese fast-fashion brand that has gained attention in the US online retail market. Temu are aggressively targeting American consumers, investing heavily in digital advertising. Chinese advertisers, such as Temu, contributed significantly to Meta's revenue growth last year with a significant marketing presence on Facebook and Instagram.

As a result of its promotional activity worldwide, Temu has become the most downloaded app in several countries. The company has an aggressive pricing strategy, where it offers items like shoes, clothing, tablet computers, sunglasses, and lighting at remarkably low prices. Temu has made this possible by cutting out intermediaries and dealing directly with Chinese factories. Temu relies on shipping products from warehouses in China rather than maintaining extensive logistics operations in other countries, although this does mean longer delivery times for customer orders.

Although Temu has been successful in revenue and market share growth it does operate at a loss. Indeed, it loses around $10 per item sold in the US. These losses are covered by its parent company Pinduoduo's financial success.

Temu currently holds about 1% of the US e-commerce market, while Amazon dominates with 38%. The online retail market in the US has significant barriers to entry and Temu's rather limited progress in gaining market share shows how difficult gaining a foothold in the market is. That said, Amazon has reacted to this increased competition by trying to cut costs in its supply-chain services to maintain its competitive advantage.

It remains to be seen whether Temu is to be a significant threat to Amazon. Temu is investing in warehouse space and partnerships with local logistics firms in the US and is diversifying its product range to include higher-priced items, potentially challenging Amazon in the future.

Some possible questions to discuss with a class

1. What do you understand by the term market share?

2. What effect does Temu's spending on advertising have on the demand for its products and its market share?

3. How is Temu able to keep operating even though it is making losses?

4. How important are barriers to entry in the online retail market in the US?

https://www.economist.com/business/2024/02/15/how-worried-should-amazon-be-about-shein-and-temu (adapted)