The Real Reason Temu Is So Cheap

Although Temu technically has a Boston-based address, the company is operated by and runs exactly like its China-based sister app, Pinduoduo. They both share the same model of selling low-quality products to customers by shipping directly from Chinese factories and warehouses within the company’s supply chain. This direct-to-consumer model allows Temu to cut out middlemen like wholesalers, distributors, and retailers who do ultimately inflate the cost of goods (but also provide some measure of customer service and quality control). Critically, this strategy also allows Temu to bypass tariffs and other regulatory requirements that would cost the company more money. 

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It’s important to mention that Temu is not actually profitable. In its bid to expand market share and create a customer base, the company loses an average of $30 per order. In fact, it’s estimated that the company is losing between $588 million to $954 million per year. This tactic is intended to replicate the success of the Pinduoduo app in China, which followed the same strategy. Another element of Temu’s plan is to flood the market with advertising, which anyone on social media today could attest to. In the U.S. alone Temu spent $1.4 billion on advertising in 2023 and intends to go up to $4.3 billion in 2024. A major part of Temu’s advertising strategy involves the social media sharing of existing shoppers. Customers are promised app credits in exchange for convincing their friends and family to purchase from the app (which sounds suspiciously similar to some of the signs of a pyramid scheme).

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