Source: Tech Planet

Temu is copying one$PDD Holdings (PDD.US)$.

After the release of Pinduoduo's latest earnings report, no one can ignore Temu's existence. The viability of this business, which has been online for less than two years, has been verified, and is becoming Pinduoduo's second growth engine.

The number of unique visitors to Temu in 50 countries and regions around the world has reached 467 million, achieving full coverage of domestic manufacturing categories. Temu is growing at an astonishing rate.

In less than two years, why can Temu become a pole in cross-border e-commerce that cannot be ignored?

Chen Lei, chairman and co-CEO of Pinduoduo, may have revealed the reason behind it. “Our original intention for global business was to use our supply chain and technical capabilities to bring outstanding global merchants and high-quality products to consumers around the world and help different consumers around the world achieve their dreams.”

Temu's phased success was inseparable from Pinduoduo's innovative initiatives, and also stemmed from Pinduoduo's own accumulation of resources. After helping domestic industrial belt factories sell their products to the whole country, Pinduoduo is now selling their products to the world.

Temu has become Pinduoduo's second growth curve

Recently, Pinduoduo also released another financial report that far exceeded market expectations. In this financial report, what cannot be ignored is the performance of Temu, a new cross-border business. Judging from business data performance, in less than two years, Temu has become Pinduoduo's second growth curve.

In the financial report and conference call, Pinduoduo did not release specific data on Temu, and Temu's revenue was included in the transaction service revenue. In the fourth quarter of last year, transaction service revenue (commission) was 40.21 billion yuan, a year-on-year increase of 357%. This growth rate far exceeds that of advertising revenue. In the fourth quarter of last year, Pinduoduo's advertising revenue increased 57% year over year.

Undoubtedly, the sharp rise in revenue from trading services is due to Temu. At any stage, Temu's development speed far exceeds market expectations.

Currently, Temu has entered more than 50 countries and regions around the world. In January of this year, Temu launched the South African site. This also means that Temu's business has covered all continents. According to information revealed by Pinduoduo, Temu currently has the largest number of sites in Europe, while the first stop took the longest to land in the US, and is currently the largest.

On the consumer side, according to data published by the website analysis tool SimilarWeb, as of December 2023, Temu had 467 million unique visitors, ranking second only to Amazon in the world. In the US market, Temu hosted the “American Spring Festival Gala” Super Bowl for two consecutive years, and the magical advertisement spread to the greatest extent.

Meanwhile, on the merchant side, in less than two years since its launch, Temu's categories have gradually expanded from clothing and digital to categories such as home appliances, bags, outdoor, accessories, toys, stationery, etc., and has achieved full coverage of domestic manufacturing categories.

The merchants should be the most aware of Temu's growth rate.

Liu Wenhai, a “second-generation post-90s manufacturer” that does cross-border hat business, was one of the first businesses to enter Temu. In 2023, on Temu, the sales volume of hats in stores exceeded 100,000 on the day of the “Black 5” promotion alone, and the more than 1 million hats prepared during the “Black 5” period were basically sold out.

This is the second time Liu Wenhai has participated in Temu's “Black 5” promotion. In the first year, throughout the “Black Five” period, Liu Wenhai had a total order volume of 100,000 orders on various cross-border e-commerce platforms such as Duoduo Cross-border and Amazon.

Liu Wenhai, who has already experienced major promotions, is preparing for last year's “Black Friday” a month and a half ahead of schedule, but sales still exceeded his expectations. They were sold out faster than he had imagined. Inventory of 7-8 models was completely emptied, and Liu Wenhai had to take the initiative to remove the product links.

In last year's “Black Five” promotion, there were many merchants like Liu Wenhai that hit the market. They were among the first to eat crabs. Similarly, the explosion of their business also proved that Temu has established a foothold in the cross-border market and has become an emerging channel for merchants to go overseas.

What did Pinduoduo do right?

Temu's impressive results are inseparable from Pinduoduo's strategy.

In the past, most of the pain points of cross-border e-commerce merchants focused on transportation and operation. Regardless of which platform you choose, cross-border logistics generally has to go through processes such as transportation, warehousing, packaging, sorting, and customs clearance. Merchants need to transport the goods to the port, complete the front-end logistics process, then transport the goods from the port to the overseas warehouse, and finally complete the final delivery from the warehouse to the buyer. Any of these links will affect timeliness and increase transportation costs if something goes wrong.

In terms of operation, merchants need to solve language problems, learn the different marketing logic of each platform, and recruit operators of different platforms to promote. This has also invisibly made it more difficult for Chinese manufacturers to go overseas.

Based on the “full hosting model”, on Temu, the platform will be responsible for promotion, warehousing, logistics, distribution, and after-sales. Merchants only need difficult points such as delivery, delivery, customer service, and distribution, and the platform is also responsible for the after-sales part. Merchants only need to set up a store on Temu, list products, and ship goods to Temu's domestic warehouses.

This model leaves almost all of the cross-border pain points to the platform, so that merchants only need to focus on R&D and product selection. This not only lowered the threshold for domestic merchants to go overseas, but also reduced cost pressure, so that many domestic factories and manufacturers that did not have the ability to go overseas before can also try to go overseas.

Liu Wenhai once said, “Compared to traditional cross-border e-commerce platforms, more cross-border has saved costs, including labor and logistics. In traditional cross-border e-commerce platforms, these costs account for 30% of the product's sales price, but in Duoduo's cross-border market, they are only 10%.”

In order to provide merchants with long-term and stable orders, Pinduoduo identifies and collects consumer demand in different markets through quick responses in small quantities and multiple times, or a “flexible supply” model.

In order to further ease the inventory pressure on merchants, TEMU introduced a JIT model (that is, a pre-sale model where orders are placed first and then shipped). Merchants can place orders on the platform and then ship to domestic warehouses. This model does not require merchants to blindly prepare goods in advance; production volume can be determined based on the actual popularity of the product. Production of products that are popular in the market can be increased, while production volume of products that have not been sold for the time being can be reduced.

Currently, there are tens of thousands of manufacturing businesses on Temu. Although they have strong production and supply capabilities and their own factories, they have been engaged in OEM work for many years and have only earned a small amount of contract processing fees.

The phrase “no factory has a brand dream” has been circulating for many years among factory owners in various industrial belts. Over the past few years, factories were unable to compete with brands on traditional channels until the advent of Temu, an emerging channel, broke this impasse.

After the launch of Temu, they were able not only to sell their products to overseas markets, but also to build their own brand with the support of Pinduoduo. Thermoses from Wuyi, Zhejiang, porcelain from Chaozhou in Guangdong, and women's shoes in Wenzhou, these manufacturing plants have all begun to try to break through on Temu and build their own brands.

After Wang Bowen, the “second-generation factory”, took over his parents' thermos factory, he saw Temu as an important channel for building his own brand.

In the past, Wang Bowen's factory “raised” many big sellers on Amazon. From R&D, design to production, it was Wang Bowen's factory, but the operation and sales were carried out by big sellers, and the brand and high premium only belonged to big sellers.

Temu's full hosting model made up for Wang Bowen's shortcoming of having no experience in operation or launch, allowing him to focus on R&D and design, which he is good at. After joining Temu for half a year, Wang Bowen set up a team of 6 people, including 4 operators, 1 artist, and 1 designer.

Anchored long-term value

Whether it's the innovative move of the full hosting model or the setting up of the Temu buyer model, Temu's success has grasped the pain points of the cross-border e-commerce industry.

This is the direct reason for Temu's phased victory, and the fundamental reason behind it is Pinduoduo Group's past focus in the e-commerce industry and the accumulation of supply chain resources.

Although it uses a different model from the main site Pinduoduo, Temu can also be considered an “overseas version” of Pinduoduo to a certain extent. The essence of the Temu platform is also to pursue the ultimate quality-price ratio.

Temu's advertising slogan “shop like a billionaire” at the Super Bowl was mentioned over and over again. Chen Lei also mentioned during the earnings call that no matter how the market environment or competitive landscape changes, consumers' demand for e-commerce platforms, that is, “more affordable and good service,” remains the same.

Since its establishment 8 years ago, Pinduoduo has always been rooted in the Chinese manufacturing industry, covering almost all fields, from agriculture to agriculture. Over the past many years, Pinduoduo has accumulated deep industrial belt resources, and these resources can also be reused on Temu. For example, Temu doesn't start from scratch in terms of supply, so it can cover all categories in a short time.

Starting in 2023, Pinduoduo will implement a high-quality development strategy, one of which is high-quality supply. No matter how the market changes, Pinduoduo has always insisted on its unique value proposition and continues to cultivate the supply side.

Pinduoduo's main site's strategy is actually also to accumulate supply resources for Temu. From domestic to overseas, the consumer market has changed, but from a supply-side perspective, it is broadening sales channels.

However, Pinduoduo's cross-border business is still in its early stages, and it will still face many changes and challenges in the future. In an environment full of uncertainty, for Temu's future, Pinduoduo's intention is to establish its long-term value.

In 2021, Pinduoduo changed from a “heavy marketing” strategy to a “heavy R&D” strategy. In 2022, Pinduoduo's annual R&D expenses exceeded 10 billion dollars. Pinduoduo Group's R&D investment in 2023 reached 11 billion yuan, a record high.

A high-quality development strategy with high R&D investment will also be applied to cross-border business. “We will also firmly implement the strategy of 'high-quality development' into our global business, and at the same time prepare for long-term investment,” Chen Lei mentioned during the conference call.

For Pinduoduo, expanding overseas business is not about getting short-term returns, but about bringing Chinese manufacturing to the world.

editor/tolk