In the current inflation-saturated economic environment, many U.S. shoppers are feeling the pinch of rising prices across sectors. Yet somehow Temu, a new online shopping platform based in Boston and launched in September 2022, has generated a surge of attention by offering drastically reduced prices in dozens of cate gories. Shoppers can find beauty products for under $1, dresses for $5, and auto parts for under $10. So what is the company’s secret? How is Temu’s reducing prices despite inflation?
The answer to that question requires a deep dive into the company’s manufacturing model. The model involves complex logistics and supply chain techniques, but its foundation can be boiled down to three key concepts.
First is collaborative manufacturing. Temu partners with its sellers and brands at all points of the supply chain to help them reduce costs. This process involves utilizing precise demand forecasting to fit supply to demand and avoid excess inventory and marketing costs.
Second, the company has quickly established a deep international network of manufacturers and built a streamlined shipping infrastructure to eliminate the costs of inefficient shipping.
Third, it utilizes flash sales and rewards programs to attract new customers and sell items at a high volume. While the products are lower priced, the increased sales traffic helps Temu’s partners make their margins and still pass on savings to the customer. These sales strategically direct shoppers to the items they really want, resulting in more sales from customers and a lean inventory management approach for sellers.
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Collaborative Manufacturing and Demand Forecasting
Precise demand forecasting plays a critical role in Temu’s business model. It enables the platform to optimize its operations and reduce costs for manufacturing partners. These reduced costs are instrumental in allowing the platform to offer such low prices to consumers.
Accurate demand forecasting allows Temu’s to help the manufacturers it works with align their inventory levels to actual customer needs. The strategy is to minimize the risk of overstocking or understocking, which can be costly and lead to unnecessary markups for sellers trying to meet preset margins. Overstocking ties up capital in excess inventory and can lead to increased holding costs, while understocking results in lost sales and dissatisfied customers. Precise demand forecasting helps strike the right balance, reducing inventory costs and ensuring that products are available when customers want them.
Both Temu and its partners benefit from economies of scale by producing larger quantities of products that are in high demand and smaller quantities of those that are not, thereby achieving cost advantages that can be passed on to customers in the form of lower prices.
In addition, understanding which products are likely to be in high demand means that sellers and Temu can allocate marketing and promotional efforts accordingly. It also frees up resources for customer support, ensuring that the necessary infrastructure is in place to handle inquiries, complaints, and returns. Temu offers 24/7 customer support and has a 90-day free return policy. It also provides free shipping. These sorts of policies are supported by the savings derived from accurate and efficient inventory management.
Temu’s Supply Chain
While the company is headquartered in Boston, Temu has an international network of suppliers and works with global postal carriers. Its extensive and widespread network of partners enables it to deliver to several different countries at effective costs. Since launching in the U.S., the company has expanded to Canada, Australia, New Zealand, and Europe.
The company doesn’t manufacture the products it sells, but it works with its partner brands and sellers to develop efficient and cost-effective logistics strategies. In practice, this may mean that orders take slightly longer to arrive, but there can be significant cost savings in not expediting shipping, and these savings help the platform maintain its low prices.
Demand forecasting also helps Temu’s organize a continuous rotation of flash sales. Flash sales involve offering a limited quantity of products at significantly discounted prices for a short period, generating excitement that leads to increased sales volume. They leverage the principle of scarcity, create a sense of urgency, and drive higher sales volumes within a condensed time frame.
If demand for a particular product is expected to be high, the platform may choose to price it competitively to capture a larger market share. On the other hand, if demand is anticipated to be lower, the platform may offer discounts or promotions to stimulate sales. Accurate demand forecasting empowers the platform to make informed pricing decisions, maximizing revenue while remaining competitive.
Does Temu Make Quality Products?
Temu’s products are generally well reviewed when it comes to quality, and it offers free returns for 90 days on any products a shopper is unsatisfied with.
Its app has a cumulative rating of 4.7 stars on Google Play, with nearly half a million reviews. It was selected as a Google Editors’ Choice in April and has remained the most downloaded shopping app for several months. So far, over 50 million people have downloaded it on Google Play.
In addition to reviews in the app stores and other review platforms, shoppers often take to TikTok, Twitter, Instagram, or YouTube to show off “Temu hauls,” huge collections of items bought for a low price on the platform. These hauls give influencers the opportunity to review dozens of items for their fans and explain how they like to get the most out of the platform.
One review on Google Play by user Crystal Mick sums up why the company’s strategy is connecting with so many consumers.
“I love shopping from this store. Cute, fun, exciting, and easy to use. There’s discounts on random stuff or to the customer so much off. There’s some really cheap prices for the stuff you are looking for. There’re many different items to choose from. I haven’t had any problems with it except I was short on cash. Lol Come check it out and see if you love it too. The items are cheap and worth the money they want for it.