Why Is Temu So Cheap? What Shoppers Need To Know

Since it launched in September 2022, Temu’s influence has spread like wildfire in the United States and beyond.

Social media and other online platforms are buzzing with customers talking about the shockingly low prices of products on the website.

If you thought Amazon, Wish, or Shein offer affordable products, their prices are nothing compared to the delicious deals and discounts available on Temu.

Some products are so cheap that they’re practically free, leaving plenty of shoppers wondering what the deal is with Temu.

Why is Temu so cheap? Is it a scam? How is the company making money? Does it really offer good quality products at such rock-bottom prices?

This article is going to answer all your questions and unlock the secrets behind Temu’s hard-to-believe pricing.

Let’s get into it!

Why is Temu so Cheap? 9 Factors that Contribute to the Company’s Low Pricing

Here are some of the reasons why Temu can afford to sell items at jaw-dropping prices every day of the week:

1. Direct-to-consumer sales

Temu acts as a bridge linking customers directly to Chinese manufacturers, major suppliers, distributors, and wholesalers selling the goods they want to buy.

This erases the need for middlemen and brings down the final cost of products because you’re buying directly from the source.

So unlike other marketplaces that serve as intermediaries between you and manufacturers or suppliers or allow middlemen to retail their offerings on their platform, Temu can sell products at a much lower price.

The price markup these middlemen would have added to turn a profit is then passed on to customers as cost savings. So you’ll be paying less for the same product that may be available on other ecommerce marketplaces at a higher price.

Temu’s strategy is to make money by taking a small cut from sales that vendors make on the platform and sometimes it even forgoes its cut just to keep prices low and increase its market share.

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2. Dynamic pricing model

If you’ve spent some time on Temu’s website you’d notice that the prices of products are not fixed. You can check the price for a case now and it’d be $2 but an hour later, the same phone case may be listed for $5 or even $1.

You have Temu’s dynamic pricing algorithm to thank for this. The algorithm uses variables like the time of day, demand for a product, and even the popularity of a product on other competing platforms to determine how to price a given item.

This way, the company is able to offer users competitive prices on different products to keep them interested and coming back for more.

Temu also offers deep discounts and clearance sales regularly to help inventory move fast and entice you to buy the stuff you’re eyeing before it sells out.

These price slashes can range from 30% to 60% off during normal periods and can go up to 90% off during festive periods.

The huge discounts, clearance sales, and dynamic pricing dramatically reduce the prices of products on Temu and allow you to save a ton of money.

It’s like Black Friday, except it’s happening almost every day so you’re constantly getting good deals.

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3. Low labor and production costs

Despite being headquartered in Boston, USA, most of Temu’s suppliers are from China, the manufacturing capital of the world, where the cost of labor and production are much cheaper compared to the West.

The availability and low cost of raw materials and reasonably low taxes in China also help drive prices down so Temu can afford to sell a product for a fraction of the price that it’d cost if it was produced in North America.

Temu doesn’t run factories of its own, nor does it own a brick-and-mortar store so it doesn’t have to spend money on things like raw materials, utilities, or rent. As a result, its overhead costs are significantly lower than that of other retailers like Walmart.

The company constantly monitors its operators to pinpoint areas where it can optimize processes and reduce costs without lowering customer satisfaction or customer loyalty.

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4. Economies of scale

One of the reasons why Temus is so cheap is because it processes millions of orders daily. The massive volume of transactions on Temu makes it one of the largest retailers in the world and as such it can benefit from the economies of scale.

What this means is that Temu can leverage its enormous purchasing power to negotiate lower prices with manufacturers and suppliers so it can sell to customers at a cheaper rate than most retailers can afford.

Since the company places orders in bulk, it can convince suppliers to bring down the per-unit costs for products and secure incentives and terms that a smaller retailer would not enjoy.

In addition to the economies of scale which allow it to obtain goods at incredibly low prices, Temu prioritizes selling large volumes of merchandise instead of squeezing as much profit as possible from individual products.

This means that Temu can afford to sell some items at dirt cheap prices because it knows that the amount of sales it’ll end up making can offset the reduced prices and still allow it to turn a profit eventually.

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5. The De minimis exception

Under U.S. law, sellers can avoid paying import duties by keeping their shipments below $800. This is called the De minimis exception.

Temu takes advantage of this legal principle to keep prices low and side-step import taxes and duties by shipping products individually, instead of in bulk.

So rather than shipping the items in its inventory to a warehouse in the U.S and then distributing from there when an order comes in, every Temu order is shipped directly to customers from the factories in China.

Since Temu is not obligated to pay duties on small shipments below the De minimis limit, it doesn’t have to factor that into the prices of its products. It gets to save money on operational costs and these savings then pass to customers through cheaper prices.

Temu also takes advantage of slow shipping to minimize or evade the payment of import duties. You can forget about getting your products the same day or even the next day like you would when shopping on Amazon.

Standard shipping on Temu takes anywhere between 6 to 20 days depending on where you’re based and the supplier you’re ordering from. However, you can expedite delivery by opting to pay more for Express shipping which takes between 4 to 9 days.

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6. Sale of unbranded merchandise

Unlike other retail platforms like Amazon and Walmart where you can get branded products, most of the items sold on Temu are either unbranded or knockoffs.

This is not to say that the products are inferior, just that you’ll be hard-pressed to find name-brand merchandise on the platform.

The products may be of similar quality as the ones from popular brands, but since they’re unbranded Temu won’t charge you premium prices for them.

Since Temu is offering mass-produced dupes and unbranded versions of in-demand products, it doesn’t have to pay royalties or licensing fees to the original brands. So it can offer these items for way less than they would typically cost.

You can find knockoffs and unbranded versions of trending products like Stanley cups, Adidas sneakers, Apple headphones, and more on the platform.

You get to save a lot of bucks by shopping for affordable dupes on Temu rather than saving and scraping funds together to buy the original that’s out of your price range.

It’s the perfect tradeoff for people who care more about functionality and cutting costs than the prestige that branded products offer.

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7. Demand prediction

Another way Temu is able to deliver such incredulous prices is through the use of the company’s proprietary technology called the “Next-Gen Manufacturing Model.”

Temu uses this software to manage and optimize supply chain activities by analyzing consumer demand patterns and adjusting production to match.

By predicting product trends and scrutinizing demand, Temu can place orders and oversee inventory levels to maximize efficiency, ensuring there are no shortages or wastages.

So rather than placing orders for 1,000 units of a product that won’t sell out, Temu can anticipate that it only needs 300 units based on consumer data and buyer behaviors. It will then order only that estimated number of units.

Leveraging this technology and other innovative tools like automation, Temu minimizes supply chain-related costs like storage, transportation, and order fulfillment, which then enables it to offer customers unbelievably low prices.

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8. Subsidized losses

Another answer to the question of why is Temu so cheap is that the company heavily subsidizes the cost of its products. Temu is willing to do anything to keep costs super-low even if that means not making a profit or incurring a loss on a sale.

Why? To grow its market share, build a loyal customer base, and gain an edge over the competition.

After analyzing Temu’s supply chain costs, WIRED estimates that the company loses an average of $30 per order and between $588 million to $954 million per year to penetrate the U.S. market.

Sanford C. Bernstein, the wealth management firm, estimates that Temu is incurring about $3.65 billion in losses globally in its bid to overthrow Amazon and other big-name retailers in the Western world.

Temu is happily sacrificing profit in the short term to increase brand exposure and generate sales. If you’re wondering how a new company can afford to take such risks, the answer is because it has the backing of its parent company Pinduoduo also known as PDD Holdings.

Pinduoduo successfully implemented this loss leader strategy in China to emerge as one of the biggest ecommerce retailers in that market. With a current net worth of $197.46 billion, Pinduoduo is the 58th most valuable company in the world by market capitalization.

In 2022, the company made around $19 billion in revenue so thanks to its financial strength, Temu can afford to operate at a loss and sell products for cheap to attract more customers.

Already, Temu’s tactics appear to be paying off because it was the most downloaded app on the App Store and Play Store for most of 2023 and is still one of the top apps on both platforms to this day.

In April 2023, Temu hit a major milestone in the U.S. market: getting over 100 million active users. Temu’s user numbers have already surpassed that of its fast-fashion rival, Shein. By June 2023, Temu had already crossed $1 billion in monthly total sales value.

This is no small feat for a company that’s less than two years old, so its road to profitability is looking good.

9. Aggressive pricing practices

One of the ways Temu is able to offer cutthroat prices is by compelling sellers to lower the prices of their products, which sometimes means the vendors are forced to sell their goods at a loss.

According to WIRED, Temu pressures manufacturers to decrease the cost of their products to keep customers happy. If they agree, Temu decides what the price for the product should be regardless of what that means for the seller’s bottom line.

And if they don’t agree to Temu’s price, their products will get removed from the platform. Some vendors are still able to turn a profit because of the high volume of product orders that Temu places, but for others, the math doesn’t even out.

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FAQs about Temu’s Affordability

Is Temu legit?

Yes, Temu is a legitimate business owned by Chinese eCommerce giant Pinduoduo. The company was established to help Pinduoduo penetrate foreign markets.

It aimed at providing average-income earners in those locations with affordable products of all varieties from fashion to homeware and electronics.

Temu is duly registered in the countries it operates in and its owners are well-known so you don’t have to worry about the platform being a scam.

The low prices that seem too good to be true are simply a part of the brand’s appeal and short-term customer acquisition strategy.

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Are Temu products genuine?

Most of the products on Temu are of decent or great quality. However, the platform also carries some substandard products so before you buy any product, take some time to read the product description and reviews from other customers before you leap.

If you’re planning on ordering an item in bulk, consider buying one piece first to sample it and confirm that it looks right and does what it’s supposed to.

Is Temu safe and secure?

Contrary to what you might suspect, Temu is not offering products for unbelievably cheap prices is not a gimmick to lure you in so it can steal your data or defraud you. The brand leverages reputable payment services to maintain transaction security.

All the payment links on Temu are PCI-certified, which is the highest level of security available for online financial transactions. The platform also allows you to process payments using providers like Apple Pay, Google Pay, and PayPal for added security.

Does Temu have a return policy?

Yes, Temu has one of the best return policies in the eCommerce industry. It gives customers a 90-day window from the date of purchase to return items if they’re unsatisfied with the order.

Twmu also has a Purchase Protection Program, offering complete refunds when you buy an item that doesn’t match its product description, doesn’t arrive at all, or arrives in poor or damaged condition.

You can check out Temu’s websites to find a full breakdown of how to initiate returns if you’re not happy with your order.

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Conclusion

Temu is one of the hottest online shopping platforms available today. It offers very low prices that are hard to beat and sells a wide variety of products.

The company’s prices are low by design thanks to its marketing strategies, supply chain optimization, and direct collaborations with manufacturers.

Temu is as reliable as your favorite retail websites so if you’re looking for the best deals, don’t hesitate to check it out.