The Operating Mechanism Behind Temu’s Low Prices

The ability of Temu to achieve extremely low prices is underpinned by a rigorous and effective operating mechanism. In September 2023, in a post on the official WeChat account of Temu for cross-border expansion, its fully managed model was compared with those of AliExpress, SHEIN, TikTok Shop, and Amazon's fully managed model. It was pointed out that this model aligns with the current survival environment of factories and enables many factories to survive.

The fully managed model of Temu significantly shortens the supply chain by directly collaborating with factories. Factories only need to supply goods, while the platform is responsible for listing, operation, marketing, logistics, customer service, after-sales, and other links, greatly reducing the threshold for merchants to engage in cross-border e-commerce. For the platform, it can achieve centralized management, unified allocation, form a scale effect, reduce various costs, and have more say when cooperating with all parties.

Meanwhile, Temu introduces a bidding mechanism that encourages merchants to compete with each other and offer the lowest price to ensure that the prices of the same products are lower than those of mainstream cross-border e-commerce platforms. In addition, the "sales-driven mechanism" also guarantees the implementation of the low-price strategy. Unsold goods will be discounted or removed from the warehouse and taken off the shelves. The price of goods is determined by Temu, and the platform has strict reviews of merchants' quotations.

Temu also carries forward the entrepreneurial spirit of Pinduoduo, with a tight investment promotion rhythm and strict screening of suppliers. Although it has caused some complaints from merchants, it has maximized efficiency. For many factories, as long as the purchase price meets expectations, there is profit space. Moreover, Temu offers preferential policies of 0 commission and 0 deposit and bears half of the domestic logistics costs, thus being able to attract many factories to collaborate.

However, this model also has drawbacks for sellers, such as a lack of control, intense competition, and diluted profits. Currently, sellers on Temu mainly include factories, individual sellers without sources of goods, foreign trade merchants, etc. Factories with advantages in source supply are better able to adapt to this model.

At the same time, low prices do not mean low quality. Merchants who want to sell goods on Temu need to first send samples to buyers. Only after passing the inspection can they supply goods and store them in the warehouse. The Temu platform has also increased penalties for quality issues.