Temu has become a buzzword in the world of online shopping, offering prices that seem too good to be true. As a newcomer that’s quickly gained popularity for its unbeatable deals, many are left wondering: is Temu legit? If it is, why is it so cheap? This article discusses the business strategies and operational efficiencies of Temu to help you understand how it manages to keep its prices so low.
Temu Has Low Manufacturing Costs
One of the most important factors allowing Temu to offer its vast array of products at remarkably low prices is its manufacturing costs. First off, Temu makes its products in China, where the cost of production is significantly lower than in many Western countries. This advantage is primarily due to lower labor costs and the efficient scale of manufacturing operations found in the region.
That said, the lower production costs are not just a result of efficient operations but also stem from the fact that manufacturers often face tight profit margins. One report shed some light on this, explaining that some manufacturers feel like they’re barely making enough to justify their efforts. They’re in a tough spot, trying to keep up with Temu’s need for cheap goods, all to grab a bigger slice of the market, especially in places like the United States.
Another factor that plays a role here is the mass production of products. By producing items in large quantities, the cost per unit drops significantly. This is a standard economic principle that Temu benefits from to be able to offer prices that are often unbeatably low. It is also essential to note that the platform operates on what it calls the Next-Gen Manufacturing model, which allows it to assess the current trends in a better light, preventing overproduction.
The De Minimis Exception Reduces Import Costs
Another interesting aspect of how Temu manages to keep its prices so low has to do with a rule called the De Minimis exception.
The De Minimis exception is a regulation that allows small shipments of goods, under a certain value, to be imported into a country with minimal to no customs duties or taxes. The United States has set this value limit to $800, meaning that many of the items shipped directly from overseas manufacturers to consumers don’t get hit with the extra charges that typically apply to imported goods.
Temu cleverly utilizes this exception to minimize the costs associated with bringing goods into the US. This not only makes products cheaper for you, but also streamlines the shipping process, making it faster and more efficient.
This rule is a win-win for both Temu and its customers. For Temu, it means they can offer their products to a wider audience worldwide without much hassle. For you, it means access to global products at prices that feel like local bargains, all without the hassle of extra fees or long waits.
Temu’s Catalog Features Knockoffs and Unbranded Products
If you actively use Temu or platforms like AliExpress, you must have come across quite a few knockoffs. These items come at prices significantly lower than their branded equivalents and are attractive to anyone trying to save a few bucks.
Temu has a huge variety of such products, and this is not by accident. Since a key part of Temu’s strategy is to capture and retain a broad customer base, it does so by offering these lower-priced alternatives. There is, however, a catch. These knockoffs and unbranded items can be hit or miss. Sometimes you will find an item that’s just as good as the real deal for a fraction of the price. Other times, what you get may not live up to expectations. This means that when you’re shopping on Temu, it’s smart to read through customer reviews and product descriptions before buying.
There’s also the bigger picture to consider when you go for these knockoffs. It’s about the fairness to the original creators and the quality you’re okay with. Temu makes shopping affordable, as it uses its strategy of offering lower-priced versions of popular items, but it also opens up discussions about the impact on the brands being copied and the overall shopping culture.
You can get these products for an even lower price if you are using browser extensions that help save money while shopping online.
How Do Temu’s Low Prices Affect the Brand Itself?
While it may seem like Temu is profiting left and right, because of the surge in popularity, the company is actually focusing on a longer-term strategy. This approach involves operating at a loss, initially – a common tactic known as a loss leader strategy. Companies adopt this method to attract customers through extremely low prices. They essentially bet on the idea that these initial losses will be recouped as their customer base expands.
According to some reports, Temu is losing money on every order it sells, as it spends a lot of money on marketing and customer acquisition, and also has high operating costs. Temu’s strategy is to gain market share and customer loyalty by offering cheap and attractive products. Once it does that, it will increase its profitability by selling more and charging higher fees.
One estimate says that Temu had an average loss of $7 per order in 2023. It also states that Temu spent about $1.2 billion on Meta in 2023.
Too Good to Be True?
Temu sure has tempting offers that can make any shopper’s eyes light up with excitement. With its incredibly low prices, it’s easy to fill your cart with a wide range of products. These can range from fashion to electronics, without breaking the bank. Hence, it may be considered a shopping scam or one of the best Amazon alternatives.
Image credit: Pixabay. All screenshots by Zainab Falak.
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