Uncovering the price increase of Temu: the brutal growth of e-commerce upstarts

Time: 2023-08-22 09:53

Temu, a fast-rising e-commerce platform, quickly opened up the North American market with its low-priced products, and is known as a "cheap nuclear weapon".
However, Temu's recent frequent price increases and a series of control measures have made suppliers and consumers angry.
Is Temu getting rid of losses and starting healthy operations, or is it planning transformation?
What kind of situation will its ambition eventually drag more people into?
IAN will take everyone to re-examine the brutal growth of this e-commerce upstart.

1. Elusive price hikes anger buyers and sellers
Recently, Temu, an e-commerce rookie based on ultra-low prices, has started to frequently increase the price of products, making sellers and consumers speechless.
According to several Chinese sellers, Temu continued to adopt a price-lower strategy when negotiating with sellers on back-end supply prices, but the front-end sales prices were quietly raised, and some hot-selling products even increased by twice the original price. Under the full hosting model adopted by Temu, the seller does not have pricing power, which means that there is no direct relationship between the selling price of Temu’s front desk and the seller’s profit.
North American buyers also complained on social platforms that the prices of Temu products continued to rise, and various discounts were significantly weakened. The price increase of most categories ranged from 2 to 5 US dollars, and the increase of some popular products reached twice the original price, which directly led to a sharp decline in sales.

2. What is the reason for Temu’s quiet price increase?
Temu's rapid rise relies on "unlimited care" for sellers and "unlimited low prices" for buyers, which consumes a lot of money. Currently, Temu plans to launch large-scale advertisements and build warehouses in the United States, and it is expected to invest US$4.3 billion next year. These developments require more capital investment.
With the skyrocketing downloads of Temu App and sales on the platform, Temu’s losses are actually increasing at the same time, and the capital chain cannot bear such expansion and subsidies, and the pressure has increased sharply. So Temu began to tighten its care for sellers, and reduced subsidies for buyers to reduce losses.
The following three measures are mainly adopted:
1. The seller's full shipping fee subsidy has been cancelled, and the seller is required to bear part of the domestic shipping fee.
2. Implement the mechanism of bidding and putting on the shelves, and those with the lowest price will be put on the shelves, and the high-priced products will be forcibly removed from the shelves. The seller is frequently asked to adjust the price, and if he refuses to adjust the price, he will be restricted from stocking up.
3. Severe fines will be imposed on sellers whose products are judged to be in violation, and some fines account for more than 50% of the seller's sales revenue.
With the rapid growth of Temu's user base and order volume, its desire to control the platform and sellers is also increasing, and these measures have brought greater pressure on sellers.
All in all, the purpose of Temu’s increase in the front-end selling price this time is to reduce the platform’s own losses and hope to embark on a more sustainable development path.

3. Temu’s future strategic transformation direction
According to Temu's current series of initiatives, we can see the direction of the company's future transformation.
Recently, Temu publicly stated that it will make a major decision and plans to open the platform to allow local sellers in the United States to settle in. This marks Temu's transformation from a self-operated "pure hosting platform" to an open ecological platform. In the future, Temu may attract more American sellers to set up shop on the platform, which will not only improve product quality and localized service level, but also promote the transformation of Temu into a real ecological platform.
At the same time, Temu may follow the parent company Pinduoduo's model, cooperate with more well-known big brands, and provide huge subsidies at the right time. This strategy can gradually change consumers' stereotype that Temu only sells cheap goods, and attract mid-to-high-end customers. Pinduoduo in China has used this method to make many middle-class consumers change their minds. They gradually began to think that Pinduoduo can also buy branded products with high cost performance and quality assurance, and gradually developed the habit of shopping on Pinduoduo.
These two strategies will provide more space for its future development.

Temu's actions such as canceling logistics subsidies, lowering prices to suppliers, raising commodity prices, and attempting to occupy the cognition of European and American consumers will definitely attract criticism and criticism from the outside world. But Temu is obviously not affected by these external evaluations, and is firm in its own development path and goals. Such determination and execution make it bound to become a terrible and powerful opponent.

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