This week: Pinduoduo’s Temu marks another high-profile entry in the e-commerce market from a Chinese tech giant.
Sandra Peter (Sydney Business Insights) and Kai Riemer (Digital Futures Research Group) meet once a week to put their own spin on news that is impacting the future of business in The Future, This Week.
Follow the podcast in your favourite app
The stories this week
Other stories we bring up
Follow the show on Apple Podcasts, Spotify, Overcast, Google Podcasts, Pocket Casts or wherever you get your podcasts. You can follow Sydney Business Insights on Flipboard, LinkedIn, Twitter and WeChat to keep updated with our latest insights.
Send us your news ideas to firstname.lastname@example.org.
Music by Cinephonix.
Disclaimer We'd like to advise that the following program may contain real news, occasional philosophy and ideas that may offend some listeners.
Sandra A couple of weeks ago, we were talking about this app that seemed to come out of nowhere, this obscure shopping app called Temu, which took the American market by storm.
Kai By storm, because the mother company Pinduoduo spent an enormous amount of advertising, pushing this new app. And in the USA, successfully, it made its way to the top of the shopping app download list in the App Store. The most exciting shopping app you've never heard of.
Sandra Exactly, it reminded us of those other moments of apps we've never heard of. Many years ago, it was TikTok.
Kai TikTok, yes.
Sandra Where we went, what?!"
Kai And we've mentioned Shein before, the fast fashion app that is taking Europe but also Australia by storm.
Sandra So we thought it's worth looking a bit more into innovation or new platform moves coming out of China and moving into markets that have really established businesses. And you know, Amazon is a big player, and so is Walmart in the US market. So worth digging a bit deeper and trying to understand where is this coming from? What is it? What's its future?
Kai And to be fair, we've mentioned this a number of times that there are interesting developments in China, livestream shopping, social shopping, concepts that might be alien to us, but might actually be exciting additions to how we do commerce in Western markets. So worth looking at.
Sandra But we need help.
Kai We should talk to someone who's on the ground and knows this stuff.
Intro From The University of Sydney Business School, this is Sydney Business Insights, an initiative that explores the future of business. And you're listening to The Future, This Week, where Sandra Peter and Kai Riemer sit down every week to rethink trends in technology and business.
Sandra On the 25th of October, there was a prominent article that said that this obscure shopping app is now America's most downloaded app. And we spoke about it on The Future, This Week when we mentioned this in a short story, and it was this shopping app called Temu. And we'd never heard about it, had no idea what it does. It seemed to be super-successful in a space that we assumed was dominated by Amazon. And then we found out it only had launched about a month before, like at some point in September, and it got to be the most downloaded app in the span of a few weeks. So we thought we'd bring someone in to help us out because we were in this position before with TikTok.
Kai We were, and also with Xiaohongshu, with Little Red Book, and so there's no better person to call than Kishi.
Sandra Kishi Pan, who’s our person on the ground in China. Welcome back.
Kishi Hello, here I am, your shopping expert on the ground in China reporting.
Kai Very good.
Sandra So what is Temu? What does it do?
Kai How do you pronounce it? Is a Team-you is a Tim-moo, is it, how is it?
Kishi I think I'll respect however you pronounce it because now it's an English...
Kai It's an English kind of platform. Yes.
Kishi Temu's name I think came from its slogan "Team Up, Price Down". It's very much similar to its mother company's Pinduoduo's business idea on the ground in China. I think it first appeared on the first of September in America and after two weeks, fully launched in September 16th. And I think apparently it already did its Double 11 shopping festival in America.
Sandra Okay, Double 11 shopping festival. We've spoken about that previously on The Future, This Week. But maybe just a reminder because this is a Chinese Shopping Festival right on like Black Friday or things that people might be more familiar with.
Kishi Yes, Double 11 It originally started as a joke in a university dormitory somewhere in 1990s. Apparently, there were four people in a dormitory and they're marking themselves as for singles with no girlfriends or boyfriends. So for single person 1111 has Double 11. That is the date that they locked in, the 11th of November.
Kai That's why it's called the Singles festival as well, right or Singles Day.
Kishi Singles Day, Singles festival, bachelor, or bachelorette's day. And apparently, as a sad single in the Chinese society, you have to buy yourself some things to comfort the lonely. So...
Kai Retail therapy. Yay!
Sandra So Singles Day and they've imported this now to the US.
Kishi Yes. So apparently within the first month of its launch in the United States, Temu opened up for Double 11 sales day registration to its merchants in China, towards the US market already on the 26th of September. And that registration lasted for months until the end of October. And then Double 11, boom, went online in the United States, from the first of November already to the 12th of November.
Sandra So what kind of things can you buy on Temu? Is this a bit like Amazon? Is this a bit like Shein? What's it like?
Kai Because Shein, we've seen this fast fashion app come into many of the Western countries very successfully. But Temu is more than just fashion, right? It's lots of different things.
Kishi Oh Temu is way more than fashion and Temu's business model is a little bit different from Shein's. So Shein, as far as I know, is mainly around women's clothing. They also sell some men's fashion pieces, I believe. But Temu you can pretty much find anything. If you have to compare the product category, it's kind of like what Ali Express was doing before. So small appliances, clothing, even digital products, anything you can think of, you can pretty much buy on Temu, and it opens up to merchants of all different product categories based in China. So the Zhejiang Provincial Postal Administration Bureau came up with the express delivery overseas project that encourages companies to optimise warehouses for overseas customers, also encourages enterprises to open the so-called Warm Up Europe, Logistic Express Line to provide multiple different modes of transportation, logistical solutions, covering sea, land, and air, effectively improving the logistic time during the peak season of ordering, which is November. So that made-in-China packages can travel as fast as it can, across the ocean to it's customers all around the world. You actually wouldn't believe what's the most popular items from China being sold to Europe, this Double 11. Can you take a guess?
Sandra Go on. I have a suspicion about the temperature.
Kai Well. Yeah, I have relatives in Europe and heating appliances are all the rage with the guests in energy crisis. So I suspect like, you know, blankets and stuff like that.
Kishi Oh, you are way underestimating the Chinese manufacturers and the merchants. We have a very formal term for it. It's called the 'Chinese winter kit of eight'. You heard it right. It's eight different pieces of items to keep you warm.
Sandra Eight things to get you through winter.
Kishi Yes. So let me go through it.
Kai What is that, beanie, scarf, two gloves and stuff?
Kishi Surprisingly scarf is not among the list.
Sandra So what is the list?
Kishi The first item is my childhood favourite, it's called a hot water pocket. Basically it's a rubber pocket you fill it up with really hot water and you stick it into your blanket and keep yourself warm before bed. And then there's item number two, of course, the irreplaceable turtleneck sweater.
Kishi Item number three, it's a portable electric heat pack. Just in case you don't have a hot water kettle with you all the time. So you have a chargeable electric heat pack. And then the fourth item I have on my desk right now it's a heating fan.
Sandra A heating fan?
Kishi Yes, it's a small fan the size of probably double your iPhone and you plug it in, it blows out hot air.
Sandra All right.
Kai Megan points at me, blowing hot air!
Kishi I lost track. That's item number five.
Sandra Item number six?
Kishi Number six, flannel hoody. Number seven, electric blanket that heats up your bed. And then the last item is thermal underwear. I did wear it when I went to Antarctica, but you need it for the European winter apparently, and it sells really well.
Kai So care packages for the Europeans for the upcoming winter season sold on Temu, for very low prices I guess.
Kishi For very low prices. And interestingly, usually in the past years, this it's not the first time the Chinese winter kit of eight has been so popular. It's been following the trend for quite a while, but in previous years, the end of September usually marks the end of European orders for the winter. But this year because of the outbreak of conflict, Russia and Ukraine, the European customers they waited for a bit to place orders and then the order number actually increased a lot compared to previous years. Some shop owners said they are seeing 15 to 20 percent of volume increase compared to the same period last year.
Sandra We must remind people this is not just like winter kits; you can buy all sorts of things. We've heard there's like Lenovo wireless earbuds for like $3.50 or something, and you know, eyebrow pencils for 50 cents, and so on. So, all sorts of items.
Kai Unbelievably cheap, like sneakers for $5/$6.
Kishi That to me just sounds like normal price. I feel a little bit offended right now. I actually just bought eyebrow pencils before we started this conversation, and I'm sorry, but it's not 50 cents, it's about around $1. But still, slightly offended Sandra.
Sandra I feel you overpaid for eyebrow pencil.
Kishi I should refund it.
Sandra You're sending it back as we speak. So, where does Temu come from? And what's the move for them to go into a market like the US? We normally think of companies in China going to places in Southeast Asia or places where the market or the consumers might be more familiar, but are they following the success of companies like TikTok, or like Shein?
Kai Because AliExpress has previously tried and they weren't all that successful in the US because e-commerce in the US is a fairly mature market, Amazon owns much of the market. There's also Walmart and a few others. So what's the strategy for Temu to break into a market like that, or really other Western countries as well?
Kishi I think Temu is sort of learning from how it's mother company, Pinduoduo, initially succeeded in China. So the name came from its slogan "Team up, Price down", which is the same business logic that Pinduoduo started with in China. And as you mentioned earlier, that AliExpress wasn't all that successful in the United States, or even in Australia. I personally bought quite a few items from AliExpress. And by the time the items actually arrived in Australia, I already forgot about the order because it took one or two months sometimes. I think Temu's decision of venturing into the American market was after thorough consideration. Most of the Chinese e-commerce companies, the first destination that they think of is often Southeast Asia. It's a market they're more familiar with, it's closer to home. But the CEO of team who saw the opportunity in America, yes, they understand the competition is fierce. You have Shein and you have Amazon, but also people have more spending power and higher disposable income. Therefore they saw room for their development in America. And they're actually using quite different strategies comparing to Shein or Amazon. So, Sandra and Kai, you both have just mentioned that you can find really cost-efficient products on Temu.
Kai Cheap, cheap is the word. Very low price.
Kishi Trying to be diplomatic here, very low price. So the target group is actually quite different from at least Amazon. So Amazon is targeting middle class and even the price of Shein, let alone Shein mainly sells women's clothing and some men's fashion pieces. So the product category is not in direct competition with what Temu has to offer.
Kai And also the experience, right?
Kai So I've read somewhere, and I've only briefly played around with the Temu app, but I read that on Amazon, most purchases are very deliberate, direct purchases, someone wants to buy something, they look for the best product in the category, they go, and they buy. Whereas Temu has a more, you know, spontaneous browsing experience, impulse buying, because everything is so cheap. And then in China, also what we call social commerce. So maybe tell us a little bit about that because it seems very different to Western approaches to e-commerce.
Kishi So I think it was two years ago, almost, when we talked about Xiaohongshu as a representative of social commerce in China. But in fact, most of the transactions, the actual purchasing behaviour was not actually closed on Xiaohongshu, and still is the case. So, people go on Xiaohongshu, they browse, different user experience or consumer experience. They decide what they want to buy, and then they went on Taobao, Tmall, to place their order. So the social happens first, and then the commerce side happens after. And Pinduoduo's business model is slightly different. It's also social commerce, but it actually takes the social outside of the platform and then the commerce within the platform. So this April and May was when I use Pinduoduo the most. I was trying to get some vegetables, so I browsed on Pinduoduo, and it's selling at a much cheaper price than what I can otherwise get on the market. But in order to secure this price, I have to pay a deposit, and then share my buying activity to our very familiar social media platform WeChat, to invite my friends and people on my WeChat to join me on this order. And then once we have a group of 30, or 50, or sometimes 10, the order is successfully placed and then the merchant will ship it within the next day.
Sandra This is mind boggling because it's two big platforms. So let's remind people a bit what WeChat is because quite often people assume WeChat is simply, you know, the Chinese equivalent of something like WhatsApp, but it's so much more and everyone's on it.
Kishi Yes. So WeChat started off as a newer generation of QQ, which is the one of the oldest form of simply a chat app, and then WeChat later expanded its functions into payments and narrowband payments. They discover, wait we can use this platform to help you to pay your bus ticket, order a car or pay your medical insurance, and even register for your health code as it follows. You can pretty much live on WeChat to fulfil any of your day-to-day needs in China. It's not just a chat app, it's a social survival kit.
Sandra So what I'm hearing you say is then Pinduoduo, so Temu's...
Kishi Mother company in China.
Sandra Mother company is leveraging the power of WeChat, and the connectedness that WeChat provides, to augment membership on its platform.
Kishi Yes. So basically, Pinduoduo is able to provide competitive pricing by what we call collective ordering. So instead of you place single orders on Taobao, Pinduoduo gives you a cheaper price if you buy it together with other people. So this is when the social bit comes in. And Tencent or WeChat seems to be extremely generous and welcoming for Pinduoduo's customers to share their ongoing orders on WeChat to invite their friends to join in the order. Whereas WeChat or Tencent, in direct competition with Alibaba, might not be as generous towards Taobao orders to the same logic.
Kai So in China, this obviously works because this all lives inside WeChat, for example, right as the super app where conversations can happen, where you can congregate and form, you know, buying teams and then things can be executed on Pinduoduo. But how is this going to work in the US, for example? At the moment, it seems that Temu is mainly a channel for Chinese sellers to reach customers directly at very low prices. That seems the value proposition. But can you see any moves towards introducing this social aspect in the US, or in other markets outside of China?
Kishi So I have to be clear, at present Temu has not yet started the group buy function in America, it's only entered the market for less than almost two months. Most of the e-commerce platforms that we can see in China operate in two separate modes, either it's self-operating or either it's just purely a platform. Temu is, however, somewhat in the middle, but much was self-operating mode. So the merchants on Temu are only responsible for supplying the goods. And the platform is responsible for pricing the product like a consignment store, and then for the sales, for customer care, and contract fulfillment. Earlier we talked about Temu started officially in America on the 16th of September and then 10 days later, it already opened for merchants to register for Double 11 sales, merchants in China that is. So it took a month to collect this registration. What follows is that once the merchants have successfully registered, they send their products to the main domestic warehouse of Temu in China, already way long before the Double 11 officially starts. And then Temu will organise and consolidate these products and then ship it to the customers in America. And I think most of the orders are actually delivered within a week. One of the quickest was the next day or something.
Sandra Which is amazing considering how far some of these goods have to travel and also the fact that many of them are fairly cheap things get shipped.
Kai So what Temu tries to do then, in my view, is to combine the large variety of products that Chinese sellers have to offer with the lowest prices that they can offer. And then a very sophisticated logistics and fulfilment function, which is the thing that AliExpress didn't have previously when they leave the fulfilment to the individual sellers.
Kishi I think Temu's success has to do with the somewhat predictable shopping festivals if you're looking at Double 11. Following that, it's the World Cup. And another reason for shopping and of course, the Black Friday after that, so Temu chose to enter the market at mid-September, seeing there will be very much likely surge for demand in its destination market. It already started preparing to ask all its merchants, 'hey, send your products in my warehouse a month before the shopping festival actually starts'. So I can already start shipping it to America. And it's only a matter of days for the product to be dispatched and delivered to the customer because it's already on the way to the customer in a way before the audit was even placed. And this is what AliExpress missed in beginning.
Kai So the marketing at the moment is low prices and those events.
Sandra There is a suspicion though that the very cheap prices that Temu has right now and all the fantastic offers like free shipping or no minimum purchase and, you know, widespread like 30% discounts and stuff, there is a suspicion that this is kind of artificially held up by Pinduoduo, you know, pumping a lot of money to get as much market share and to make it initially attractive, because it's such a big company and it can afford to do this.
Kishi I think the suspicion is definitely valid because that's what Pinduoduo did in the beginning, sort of snuck into the market when Alibaba and Tencent were fighting very fiercely and no one was taking care of the lower end of the market and Pinduoduo came in with a very cheap price targeting those customers who are price sensitive, but not paying that much attention to the actual details or the extreme quality requirements for products. And Temu actually promised to provide compensation to customers if delivery is delayed, and for most of normal circumstances, around 80% of the orders should reach its buyers within 10 days. Keep in mind you're actually placing your order from China in this case, to America.
Sandra In this climate right, where all the supply chains are strained, where production is strained, delivery and so on. This is no mean feat. The question is what's next? Where is this going?
Kishi Temu's initial strategy, its current strategy, is to gain momentum and accumulate users and then secure its brand image in America. But it's expected that the platform will have to adjust its business model in the long run to improve profitability after the traffic accumulation. For example, reasonably increasing the unit price per order or per customer, or increasing the minimum spend to get free shipping for example, I think it's already done. And in the longer term, the platform should go down to more profitable direction for development. The same thing with Pinduoduo's business model in China. Initially it came in selling only small appliances targeting customers who are not really quality sensitive but more price sensitive. And now it's forking out and doling out money to subsidise its customers to buy iPhone. And apparently once you move to that platform, you're more likely to change your shopping behaviour of only buying high-end product on Taobao or Tmall. Pinduoduo might be your new destination.
Sandra And in the future, Temu might also succeed in changing some of our shopping behaviours. TikTok has been successful in shifting how people use social media and getting us used to a social media behaviour that didn't exist before. Temu is a type of social shopping that we might not be used to. 11/11 is a shopping holiday we didn't used to have.
Kishi So Chinese consumers used to go after overseas products. The trend of overseas shopping first started on Xiaohongshu, now we're seeing the reverse overseas shopping where customers are using platforms like Temu from America to purchase products from China. So reverse overseas shopping is something interesting to watch for this Double 11, and the one up and coming.
Kai So we'll watch with interest where Temu and the other entries from China into Western markets are going and what success social shopping might have. But you know, maybe this is a chance here for Elon Musk the way in which indoor users established social platforms in China. Maybe there's a niche for Twitter to bundle up with some new entrants to the commerce market to find that all coveted new income source that he is so much after
Sandra Kishi, thank you so much for sharing your insights. So interesting. Hope to have you back to see how Temu is doing once you know it's established itself on the American market. I will hear it's going into Canada and Spain.
Kai And I'm going to check the app store here frequently to see if we have it in Australia soon. But that's all we have time for today.
Kishi Thank you. Thank you, Sandra. Thank you, Kai, and happy to see the shopper in you, Kai. And thank you, Megan.
Sandra Thanks so much.
Kai Thanks for listening.
Outro You've been listening to The Future, This Week from The University of Sydney Business School. Sandra Peter is the Director of Sydney Business Insights and Kai Riemer is Professor of Information Technology and Organisation. Connect with us on LinkedIn, Twitter, and WeChat. And follow, like, or leave us a rating wherever you get your podcasts. If you have any weird or wonderful topics for us to discuss, send them to email@example.com.
Kishi Actually, this reminded us. Just restart. This reminded us, this reminded me. Sorry Megan. It's my other selves talking. Shhhhh!
Sandra Yes, ladies?