The Rise of Temu’s Marketing Spend
It seems like it was only a couple of weeks ago that Temu’s “Shop Like a Billionaire” dropped during the Superbowl. it is estimated that Temu spent over USD 21 million, on top of the USD 15 million the ecommerce platform gave away in coupons and discounts as part of its Super Bowl Campaign.
Tens of millions spent in day may seem like an unwise decision for your average marketplace; however, for Temu, it pales in comparison to its advertising budget. It is estimated that Temu spent over USD 3 billion in marketing alone, from television ads and digital marketing to influencer partnerships. The ecommerce giant spent over USD 2 billion in Facebook and Instagram ads last year and became Meta’s number one advertiser by revenue in 2023. Furthermore, it is one of Google’s Top 5 advertisers, and even Pinterest is reaping the benefits of such large investments in Temu’s digital marketing.
The goal behind such an exorbitant spent is to make Temu, which launched in the US in 2022, the next Amazon Marketplace, selling everything from fashion and furniture to electronics everyday necessities at insanely low prices.
According to Business of Fashion, Temu generated sales of USD 346 million in January and February alone, a 22% growth Y-o-Y. In fact, US consumers now spend more on Temu than on Shein, but a fraction of Amazon’s market share.
Market Share of US Consumer's Online Spend
Temu’s parent company, PinDuoDuo (PDD) reported three-digit revenue growth in its fourth quarter earnings, no doubt in part fueled by its exponential growth in the US and other Western markets, particularly Mexico, it’s second largest market by app downloads.
So what makes Temu so different from other ultra-cheap retailers? For one, consumers are still concerned about inflation, and the pervasiveness of Shein and its shockingly low prices have primed consumers to seek better deals. Additionally, Temu has gamified its app by designing it around product discovery based on a technology that not only draws from the profile customers create when they first log into the app, but also on their purchase and browsing history.
THE TEMU SHOPPER
According to a Jeffries survey of US consumers, 56% of them shopped on the app for clothes and accessories; 37% for toys and hobyy-related items; and 27% for beauty. Quality of goods and shipping lead times are definitely problematic, but this has yet to deter high income shoppers who account for approximately 44% of Temu’s sales. High income earners make USD 130,000 and above, and are growing at a faster rate than consumers in lower income brackets.
THE TOUGH ROAD AHEAD
There are concerns, however, on the sustainability of Temu’s fast growth. Month-on-month sales dropped by 12,8% in December 2023, and 4,8% last January. Online searches for the platform have also been steadily decreasing, and last September, Morgan Stanley underscored that US households were less likely to make any purchases in the app in the future. This contradicts Earnest Data, an AI-powered data company, who says that 28% of Temu shoppers often do a second transaction within 16 months of their first purchase, a customer retention rate higher than Walmart’s or Target’s.
Analysts believe that Temu is losing an average of USD 30 per order in the quest to expedite customer acquisition. According to JP Morgan, Temu is operating at a loss. In 2023 alone, losses amounted to an eye-watering USD 3 billion, a clear indication that enormous marketing budgets and customer subsidies are not sustainable in the long run. An anonymous inside source shared with Wired that Temu’s goal is to have American households to purchase at least 30 times per year from Temu, and to spend an average of USD 50 per order. As of today, Temu’s average order is estimated at USD 25.
At time contradictory, the road ahead for Temu looks rocky. European governments are fighting to curve demand for ultra-low-cost goods within their countries, and are levying penalties on the purchase of such goods. Ethical concerns surrounding the feasibility of selling at a loss have also been raised, but only time will tell if Temu becomes the next everything marketplace, or the next Wish.com.
