5 Reasons Temu Won (and Wish Lost)

00:06 – Dayu Yang: Why is Temu crushing it today? Whereas Wish, the previous darling of ecommerce, is now trading at less than 1 percent of its peak stock price? Today we’re going to talk about two seemingly similar ecommerce platforms, both shipping cheap products from China. But gonna talk about how they could not be more different and when one succeeded and one is failing. 

Hi, this is Dayu and my co-host Simon from The EcommOps Podcast. Today we’re going to talk about Temu versus Wish, where one has succeeded and where has failed.

So let’s get started. So, first, before we talk about Wish or Temu, let’s talk about the history of cross-border trade in ecommerce from China. And the granddaddy of it all was AliExpress. So, Simon, you’ve been in this business for longer than I have. Talk to me a little bit about the original history of AliExpress and how that grew into what it is today.

00:57 – Simon De Raadt: So Aliexpress belongs to Alibaba, as many people will know. And Alibaba is focused on 51 different industries, which is crazy. But in that industry, they have a domestic market where they’re selling to domestic consumers in China. And they thought, okay, let’s also create a market where we can actually ship out and target the international audience for that. They have a B2C and a B2B part. The B2B one is Alibaba.com. The B2C they created is AliExpress. 

So that one is really much focused on getting products from China and targeting international consumers. Actually, I think this goes back to 2014, maybe even a little bit, even earlier than that, where they just started to target it. Not knowing that it could be something, but just knowing that there was something, not knowing how big it is, and how AliExpress actually has influenced our work in a positive way by creating a supply chain from China and allowing international sellers to tap into that.

I’m sure you’ve been there as well, early in the journey to see that. I’ve looked at it from a supply chain perspective. So I saw shipping lines coming up. I saw postal companies becoming less valuable shipping lines coming up, such as Uniexpress. But on the other hand, there’s a lot of development also for the people that actually were selling products. And it’s not just purely the sellers on AliExpress, but also independent sellers leveraging the supply chain coming from AliExpress.

02:36 – Dayu Yang: Yes, you are right. And you’re talking about drop shipping, at least this traditional model of drop shipping back in the day where, well, given the efficiencies that AliExpress brought to cross-border trade, being able to send pretty cheap products at a very affordable rate at fast enough shipping speeds to customers around the world there then became a huge boom in what was then traditional AliExpress dropshipping, where dropshippers, they would just utilize AliExpress listings and they would sell the product and market it to international customers for three, four, five, sometimes, even more, the original COGs of AliExpress and make that margin in the middle.

Now this actually created a huge demand then, or increased demand at higher volume for AliExpress in general, which paired with the actual increase because there were a lot of consumers who actually just purchased directly from AliExpress anyway. But once dropshippers came into the mix and they started scaling, that’s where the volume really got a lot higher. And because actually there was this dropshipper in the middle representing it as a brand, then that actually pushed for additional pressure on the entire logistical supply chain in order to actually increase the experience for customers.

So let’s not talk about the products for now, but let’s talk about actually the pressure created on shipping logistics. So tell us a little bit about where AliExpress shipping first started and where it evolved into today.

04:19 – Simon De Raadt: Yeah, AliExpress actually just leveraged postal shipping, which is basically China Post. Someone comes to pick up your parcels from the warehouse where you prepared them. And then it’s being brought into the network of the China Post where they have four hubs which they use in China. And then by air, it’s flown to the final destination. 

But that was highly inefficient because the whole flow is not designed for B2C. It was designed for C2C on how to send a letter or a parcel or a gift, something you want to send and send it to the end consumer, not even consumer, but someone that you know. So it was a C2C flow which was not built on. How do I get a parcel from A to B in the fastest way? It was purely just how to get it from A to B. 

There was no efficiency. Sometimes even trucks were also very important to know that postal shipments are not on a plane with a high priority. It’s not a commercial flight in that sense. They go on a flight when there’s a space if they can sell the space for a higher price to someone else. The parcel with China Post did not go on board, which is very interesting how this actually went. And then it arrived at its destination. And the same happened for the local postal company who was then receiving it, because, with post, it’s post to post.

So China Post to USPS or China Post to Royal Mail or China Post to whatever is the local postal company. That local postal company is also not incentivized to handle this with the highest speed possible. China was still considered an underdeveloped country, and therefore highly subsidized and loss-making for the final last mile postal company. There was no reason for them to even pick up the parcel faster and handle that in comparison with their actual paying clients that do have a higher priority.

That made the supply chain inefficient, not only at the start but also at the end. This was very key why it had so many issues on the deliverability, the speed, the user experience, et cetera, et cetera.

06:42 – Dayu Yang: I certainly remember those days, and I think that those who have been in ecommerce for a long time and maybe tested out China shipping, let’s say, seven, 10 years ago, that’s probably what you experienced. You probably utilize an e-packet or something similar. You probably had some customs issues, you probably had some Chinese on your label as well. And it was very inconsistent. But all of this pressure to improve customer experiences has really driven in a lot of innovation in courier choices as well. So, Simon, tell us a little bit about that.

07:15 – Simon De Raadt: Yeah, once the final last mile companies, postal companies realized there was a bunch of volume coming out of China, they were wondering, should we go there ourselves and should we try to get that volume ourselves? Well, that actually happened officially. They had difficulties to establish themselves because one country can only have one postal company, but they can have a commercial presence, which meant, who is actually shipping these parcels and can we reach them ourselves?

Postal companies were establishing themselves in China to find the seller and help them to receive the parcels and then pass it onward in that network. The main problem that worked really well, though, was that it worked really well. It was faster because the first mile was faster. The first mile was actually already a commercial flight and then landed in the port of destination, customs cleared, and then it was just into the last mile. So the first mile, everything went much smoother.

There was already only one very big error. So to say or thing that didn’t go as smoothly, which allowed the industry still to develop towards where it is today, is that most poster companies are partially government-owned or fully government-owned, and they don’t want to bear the risk of running the flights themselves or being responsible for that. As from China, there are still battery issues that could happen.

Especially since there have been explosions of planes. And all that risk is for a stock-listed company or government-listed company. It’s very tricky. Therefore they kind of stood away from it. And the other thing that was happening is that these sellers wanted to pick and pack. But for us, but even within the U.S., faster shipping with tracking, no tracking. So they have to basically make all these different piles, maybe even on postal codes. Their operations were not set up for that. 

So these two things not having running the air freight, but also picking up the parcels and then sorting it allowed companies like Uniexpress, like 4PX, like CE. All these companies kind of popped up because they were filling that gap. And for them, filling the gap also meant that they were the ones that were gonna manage the last mile companies. So they were looking for who’s gonna do the delivery.

So they make their own contracts with USPS. It’s no longer USPS driving it. Same with Netherlands Post or Royal Mail or all these companies, they no longer drive who is shipping with them. They just have to kind of keep the relationship with the consolidators. And these consolidators, I call them consolidators because they consolidate parcels from others, bring them all in. Bring them all in one bunch and then we’ll fly directly to the final destination. 

One that had a tremendous impact on, definitely shortened the supply earlier in the supply chain, not after it had arrived, and it just sped up the whole process, so to say. And that was fascinating because that has changed the game. Obviously, after that, there’s still a lot of issues that happened that have evolved, that have been tackled, or are still in the process of being tackled. 

But these volumes and these players have done a great job on getting us to the level where we are now. And what we see is that also China, a tiny part of Alibaba, part of AliExpress, the logistic arm of Alibaba, so to say their plan or their vision is to deliver globally in 72 hours. As the competition is so fierce, I’m confident that one day we’re going to experience that. It’s going to be three to five days from China directly to the end consumer, which is going to be a game changer for sure.

11:16 – Dayu Yang: So it makes sense now. Now, what I’m really hearing actually is since the early days of AliExpress, since the early days of inconsistent e-packet shipping, the shipping quality, the shipping consistency and speed has really stabilized and improved and it’s constantly improving. So what I hear then is that while shipping in itself from China to other markets is really less of a critical issue, there’s obviously then the product itself.

Right? But again, as we’re thinking about Wish and Temu, I mean, to be honest, both of them and as well as AliExpress, they’re all focused on selling cheaper products anyways. Right? Within reason. Now let’s segue into Wish and I’m going to briefly just talk about the original history of Wish in itself.

Actually, most of you probably experienced Wish as it launched—but when it first launched, it was really positioned as a competitor to Amazon or a competitor to Walmart. And it’s like the innovation in ecommerce and not really talking too much about shipping from China or cross-border trade, in general.

However, you know, the concept is that, well, you’re leveraging the learnings from AliExpress and there’s much more consistent shipping and creating that supposedly better experience. Now this is where I will say that there’s two areas that they really did not do very correctly. The supply chain and then how they actually marketed and branded themselves to their customers. So Simon, given your experience, let’s talk about the supply chain first.

And how would you compare what you know about how wish manages the supply chain versus the original inspiration, AliExpress?

13:08 – Simon De Raadt: Yeah, obviously Wish branded themselves as an international player. That was a very key thing. But from the supply chain perspective, it’s not doing that much differently, to be honest. It’s actually allowing sellers to put the products on their platform. And the platform model is something that’s very key in China. Main ecommerce industry in China is very platform driven. That’s something that’s really good to remember.

Just we can discuss that in another episode later on. But the platform, the ecosystem around the platform is crucial. And that’s something, that is what AliExpress was developing. And Wish was saying, ‘okay, if AliExpress can do it, we can do it too. We just have to tap into the sellers, have to allow them to provide them a shop on our platform, and let them manage it themselves. And then we’re going to arrange the shipping with whatever is available and whatever is the cheapest, which makes sense’.

So it was very much focused, very transactional. We have a platform, let’s just put a bunch of products on there, allow the sellers to put all their products there, and then make it available internationally. And also, I think it’s mainly us. The main target for Wish has always been the U.S. market. So it’s been very much centralized towards that, especially also the shipping. Somehow they didn’t really succeed in it, but I’m sure you’re going to share more about that.

14:37 – Dayu Yang: Yeah. So it’s this marketplace play. I come from Silicon Valley back in the day and it was this whole idea of marketplaces taking over the world, becoming big unicorns with all the rage you had like Uber back in the day, Doordash. I mean, it seemed like every other company was trying to get into the marketplace space. And that’s exactly what Wish’s entire strategy was based on being this marketplace in the middle.

And like you said, Simon, their whole strategy, hey look, people are selling anyways on AliExpress, wherever people are buying, whether it’s from AliExpress or from dropshippers, then if we come in the middle and facilitate that and kind of cut out like these middlemen, then you cut it out and then Wish makes the money in the middle, right? So theoretically it made a lot of sense.

Similar to how Uber makes sense. Well, nowadays marketplaces, it’s questionable how profitable they are going to be in the long run. However, the reason why something like Wish is actually different from something like, let’s just say Uber is because Uber is actually very strict over its control over its entire platform, including the drivers, including the delivery folks. If the drivers or delivery guys make major mistakes, they get reported, then their feedback scores get dinged, they get banned from the platform, right? So especially for those drivers who actually utilize Uber as a significant portion of the income, they don’t want that to happen.

That is not really the same for something like Wish, especially working with many, many suppliers, many, many sellers, third-party sellers that are based in China who maybe they have established relationships with AliExpress and they’re actually scared that AliExpress is going to shut them down. But then you have this new player from the U.S., Wish and they have really kind of no long-term motivation to necessarily say that they want to maintain a great reputation on this platform. So then in a way that becomes a situation where it’s actually even worse than AliExpress because there’s just less incentive for these sellers to actually do right by the end customers.

And you have Wish, who has this kind of marketplace type of strategy and attitude in the middle where hey, they’re just coordinating things and they’re not necessarily responsible for what actually happens, but therein what lies the mismatch in their branding and their marketing. So when you hear something like, okay, something that replaces Amazon right now, maybe consumers don’t see deeper than that. However, if you’re in DTC ecommerce or Amazon FBA, you actually know that especially, we’re talking about FBA.

A big part of the reason why Amazon is so consistent is because even though they’re third party, sell the third party brands, they go through the Amazon logistics system and they’re forced to go through that if you want to access FBA if you want to access Prime. So it’s fundamentally completely different because Wish doesn’t have control of that and because Wish had this expectation that it was this new age Walmart, new age Amazon. That’s what people expected.

And sure, for Wish, they had cheap products. They had situations where they usually were rather honest about their shipping speeds, one to two weeks. But the problem is, let’s talk about shipping speeds. Even if they tell their customers to expect one to two-week shipping speeds, because that’s roughly how long it takes to process an order and ship it to the U.S., for example, from China, they have very little control over that seller themselves. So their seller could actually just be dragging their feet and at one, two weeks to the processing time.

And therefore even their generous expectations that wish send to customers, they’re not really meeting those expectations anyway. And Simon, actually, just given your experience in dropshipping as well, I’m sure you have some experiences and stories of where there’s that even for DTC brands that mismatch in customer expectations and what actually arrives.

19:03 – Simon De Raadt: Yeah. One of the key issues, especially with drop shipping, is if you don’t have an existing stock or an existing supply, things get delayed. And that delay can go up to a week or more. Even having the goods physically in your hand or even put in a parcel, that’s crucial because if you don’t have access to the supply, you have an order, but still someone needs to fulfill. It’s not a magic button. 

The order comes in and then somebody is picking it automatically and then wrapping it and making it ready and the next day it’s shipped out, there’s a ton of process happening behind. Especially when these sellers are also running their own stores. They’re competing with each other. And so basically the consumer decides who they’re going to buy from, which can be on review or price. And with these low-price platforms, it tends to be on price. 

But somebody needs to cut the corner somewhere to be able to offer the lower price, whether that’s on human resources, whether that’s on material, whether that’s on speed, whether it’s on shipping lines. So in this way, you actually are allowing your suppliers to put the products there for a low price, but no consequence if it doesn’t work. And that’s kind of like the tricky part.

20:16 – Dayu Yang: Yeah. And by the way, when you talk about competition. Now we’re not even just talking about competition for, let’s say, the same AliExpress seller. A lot of these sellers, they’re actually on AliExpress as well. They’re actually on Wish as well. They’re on Taobao. Maybe they’re selling across multiple channels. And anyone who’s ever tried dropshipping, especially off of AliExpress, should know that inventory numbers are never accurate. 

Right? So there’s all these competing channels for potentially the same inventory. And Wish really has no control over that. And not only that, though, and this is something that I especially want dropshippers to be aware of, is Wish is a perfect example of focusing way too much on front-end marketing. So at one point, they were actually the biggest spender of Facebook and Instagram ads, and they spent billions of dollars on marketing their platform, but very little, comparatively, on actually solving these supply chain issues.

So essentially they were just focusing on growth, focusing on scaling up, and all these supply chain issues started compounding with itself. Actually, there was a big story that essentially it was a scam shop. There was this store called Bestdeal9, and they were actually selling, supposedly selling like $2,000 TVs for one dollar. And there was this whole community of folks on Reddit who were just like, hey, let’s try to buy, and let’s see what happens.

And they just never get delivered. Right. Now, I guess you don’t lose out on that much. I mean, I guess you lose out on $2 and you get a refund anyway, right? But that’s just a perfect example of just creating this artificial demand and not really backing it up. Now, to be fair, from what I understand, it’s not an actual Wish platform, right? It is actually a third-party platform that seemingly was just trying to scam its customers, maybe try to collect customer information, right? So I’m not going to blame that whole fiasco on Wish, but it’s more of the fundamental issue with being this pure marketplace play with very little control or virtually no control over your supply chain, right?

22:35 – Simon De Raadt: All right, so enough about Wish. Let’s shift gears and go to Temu because that’s now changing the market today. Can you share a little bit more about the history of Temu?

22:46 – Dayu Yang: We can’t really talk about Temu and how it’s different without actually addressing first its parent company. So its parent company is called Pinduoduo. That’s PDD. They’re actually listed on, I believe, NASDAQ. So PDD is a massive company, by the way. And I think a lot of folks don’t realize that PDD supports Temu and how big Temu is at the time of this recording, sometime in 2024, they have a market cap of 170 billion whereas versus Alibaba right now, they have 180 billion market cap right now as we speak.

Very similar market cap as Alibaba. Now, what is Pinduoduo? Pinduoduo was an innovation in China ecommerce. So this was focused on domestic China ecommerce, where they innovated this idea of crowd buying from factories and delivering for cheap to those who put in the order in that crowd buying. So how it worked was that they would offer a $2,000. So how it worked is, for example, they would offer toilet paper for 30% the retail cost, but they required at least, let’s say, 2000 buyers who get into this deal in order to unlock that price. And then once it’s unlocked, then everyone gets that at that extremely discounted price. So this was huge in China, especially with the lower to middle class, which actually makes up most of China.

And I mean, it made sense, right? So first of all, in China, there’s a very heavy element of social buying, social commerce, and they wanted to buy things for cheaper, right. Everyday goods. And it worked for the factories as well, because factories love to have more consistency in their orders. And it worked for Temu because they still made a certain percentage because they still made a certain percentage in the middle and everyone wants [it].

So that was the original parent company that then utilized that foundational supply chain and applied it to how they operated Temu. Now, Temu doesn’t have that same crowd-buying element. However, by the time that Temu launched, its parent company, PDD, had already established a very mature process for dealing with their vast factory network very efficiently. Now, so, Simon, you’re the supply chain expert here, so let’s talk a little bit about your thoughts. Even theoretically,

Like, you know,  what are the benefits of. We don’t even have to talk about Temu right now, but what are the benefits of even Pinduoduo’s original model of working directly with factories and selling it to consumers at scale?

25:18 – Simon De Raadt: Before we go, maybe I can tell a little bit of a story because actually my wife is Chinese, right? So our aunt was living with us. She was buying all the time. She was 75 and she was in Pinduoduo swiping all the time. So the audience is not a certain younger age, it’s actually the lower and middle class. The audience is not an age group. It’s huge. So that’s very good to remember. When we go further into this, when it comes to the supply chain and how they run, obviously the group buying was a big element just to be able to get the baseline and get factory involvement, because that’s the key.

Most factories, they don’t produce unless there’s a minimum order quantity—or, an MOQ, as we call it. If they don’t get that MOQ, they’re not going to produce. This is something that’s crucial for the group buying because you need to have enough orders, especially if you’re targeting consumers. They’re not going to buy one pallet of toilet paper, at least I hope they don’t. But they will buy smaller quantities, still larger than they would have bought in the supermarket, but not as big as in pallet loads. 

That’s a very key thing. So then you are actually aligning. You’re kind of in sync with the factory. The factory gets what they at least need as a minimum, and you get a consumer that’s happy. The consumer itself also, obviously, is relatively. Chinese consumers are relatively spoiled, so they are driving the demand as well. If you are not delivering on time, you get an issue, you get refunds. People will just make bad comments on your post. They’re very vigorous Chinese consumers in that aspect.

So, that means you really have to sort out your supply chain. Even China is huge. So having ordered from having your factory warehouse in Beijing and then having a delivery in the south, for example, in Shenzhen, that’s a challenge to get that done at a very fast speed. So the infrastructure in China has kind of grown because of the consumer demand it was needed to make the production go through the country. But also the logistic companies internally, they’re all competing with each other. So logistics companies internally in China are different companies that the ones are shipping outside.

But, the mindset is the same. The mindset is that the parcel is here, it needs to be shipped today and delivered the next day, or maybe even the same day, if possible. That network that they built internally is the basic foundation of what Pinduoduo is now using to scale globally. That’s a key, key thing to remember that they haven’t built this since last year when they launched. They’ve been for most of the consumers or operators or industry leaders.

28:07 – Dayu Yang: So Simon, actually one very interesting thing you just said there is that the Chinese market is kind of spoiled, right? Because usually when we think about DTC or ecommerce, we think Americans are spoiled by two-day shipping from Prime. But actually, you are completely right. Chinese consumers are actually even more spoiled. Sometimes you buy something on Taobao and it comes the next day.

And actually, Chinese Consumers actually are pretty picky about quality as well. Right? So this is where I do want to emphasize that there can be a misconception that things from China or things shipped from China are lower quality. It’s less consistent. Right. But the ironic thing is that that tends to manifest itself exactly when you’re utilizing drop shipping or cross-border trade, right? And the big driver of that is not actually just because the product quality is very bad, just because the shipping is bad.

It’s literally because whoever is selling you that product does not have enough control over the supply chain. Pinduoduo. And then now Temu, because they have that direct control over their supply chain. Even though Temu’s model is not crowd buying. If you think about it, if they launch a product, they sell 2000 of it just like that, because it’s so cheap. That’s effectively crowd buying anyway. Now, what Temu can do is that they actually utilize their supply chain network and they can actually have oversight over the product quality and also the shipping speeds as well. 

Now, they’re obviously not selling the highest premium versions of the products now, by the way. I think in the future they might get into that. But for now, they’re still selling relatively cheap. But good value products are calling. But they can control that and with shipping speeds as well. When they say something takes five to ten days, which is about how long it takes to ship from China, it’s going to take five to ten days because they control that supply chain. And this is something that we have really seen recently as one of the most important considerations as you’re thinking about running and scaling a DTC brand.

I think traditionally, years ago, it was really all about the marketing. Or you have large production runs and you store it and fulfill it from the U.S., from a local warehouse, for example. Right now, if you’re talking about cross-border trade and all the efficiencies that shipping from. Right. That is where you have to actually control, or have some control and oversight over your supply chain in order to actually make that work because the supply chain is at least, I think, at least half of your business as a DTC ecomm seller. Right?

If you had inventory in the U.S., you obviously would spend a lot of time and effort managing that. Just because you have inventory from China does not actually mean that you don’t have to manage it. You don’t have to think about that at all. And this is where Temu is able to maintain its consistency. We’ve also seen similarities in Shein, for example. And actually, Simon, I mean, this is something that a lot of our know, they’re not big marketplaces, they’re not big platforms, right?

But they’re actually kind of utilizing this philosophy as well to optimize for their customer experience. So tell us a little bit about your insights. Even for just a normal DTC brand out there, which I’m sure that’s what a lot of audiences are, how do you take insights from something like Temu and actually improve their business?

31:45 – Simon De Raadt: Yeah. One thing that they didn’t come up with till now, which I think is very important to mention, which came up with Wish, but didn’t come up with Temu, is that there’s a carrot-and-stick model, which means that you are rewarding good behavior and you punish bad behavior. Actually, Wish was open up for, if you remember, it was open up for any supplier who wanted to sell any product. Temu is selecting the supplier. 

So let’s say this microphone, I’m not going to sell this microphone hundreds of times. I’m going to let the suppliers bid against each other themselves to get the best one with the best quality, best price. And that one is going to get listed. Once they get listed, they will get the orders. That’s their benefit. The same they do even with the supply chain, with the logistic companies, anyone that wants to do their shipping, they have certain criteria that they have to fulfill. Otherwise, they get a penalty.

There’s a lot of penalty clauses for both suppliers, logistic companies, any service provider around their platform. That’s very much the different model compared to Wish, where it was much more open for anyone to participate. And there are very strict criteria, but there’s also a lot of punishments and risks that come with it. It’s crucial to understand that that is the way how they control the quality, the supply, the supply chain, the price point. And everything that comes with it. But in that sense, not every factory, because I get to Shein and Temu how they are different, but not every factory is equipped to run a B2C model.

It also requires significant investment in systems, in technology, in processes. They’re facilitating that. They actually also are aware that to be able to reach their goal, they need to invest further back in the supply chain. It’s not like I need you to do this and you need me to give this for that price. They understand it doesn’t work that way. It is a give-and-take. Like I need to help you to open up for the things that we want to get out of you.

It’s really much of a dialogue. It’s not as much, here’s the platform, here’s your login, go do your thing. These are our criteria. If you can operate it, within it and you do a good job, we measure it, we reward you. If you do well, we’re going to help you get set up. The systems you need to excel. It’s a complete difference. And you see that same model with Shein as well. Shein is more focused on fashion, which is very complex as well.

And then you have Temu, which is less on fashion but aligns the supply with the actual demand so the shift is not so much. I’m going to place an order because I expect the orders are going to come in or I’m going to expect I’m going to sell 1000 pieces. No, I am having a store and you know, already, based on the clicks, based on the views, based on the likes, or you have the last seven days’ average of sales, this is the stock that I need.

Your investment is limited, your supply needs to be available. And then you can ship like you said, five to ten days to be able to have that supply chain. Not until the logistics company, but all the way to the manufacturer of the raw materials, even that’s really much the game and incentivizing them. And it means also that our brand owners, our clients, they’re actually visiting the factories themselves as well.

It’s not a black box, it’s a very transparent box. And they are also educating their suppliers on, this is our store, this is what we do, this is what we want you to create or to participate in so that we both can grow and create a win-win. It is a game of where you are. I can create this demand, you can create this supply. How do we find each other and cooperate?

35:50 – Dayu Yang: Exactly. And that comes back to this idea of having more of an integrated supply chain or at least an integrated view into your supply chain. And look, the biggest retail brands in the world have supply chain teams that visit their factories and even smaller DTC brands. A lot of our clients either have visited their factories before or they have a sourcing agent in the middle who represents them to the factory.

And more and more these days, if you want good quality products, efficient inventory planning, it is very much a mutual conversation that is required with your supplier, with your factory, both in terms of things like making sure that your product quality is on par and also making sure that your inventory is produced and shipped on time as efficiently as possible. And this is really the supply chain innovation that came from PDD, utilized in Temu and really the biggest driver of Temu’s success.

Now, supply chain aside, let’s talk about their branding and marketing. A question to viewers out there who think that Temu is not shipping from China. I mean, virtually no one, I mean, everyone knows that Temu ships from China, and their entire slogan is ‘Shop Like a Billionaire’. Now obviously that’s not literal. I mean, shop like you feel like you’re a billionaire because everything is so cheap. Everything is ridiculously cheap, right?

And they’re very honest about it. And again, they say they ship from China. They say it’s going to take a week, 14 days, and it’s going to arrive in a week and 14 days and it’s going to be from China and it’s going to be something that you pay $2 for and you’re happy you paid $2 for. Right. And that’s their entire model. And this is kind of where it’s such a big difference from. Especially when Wish first started out, this new Amazon, right, where they were actually kind of iffy about where it’s from. People figured it out, obviously, right? 

But it was just all smoke and mirrors, like trying to hide that at first. And this is something that I also really want the audience out there, especially if you’re a smaller brand or you’re a dropshipper, to be very careful, especially these days, not to over-market. Look, if you have an amazing product made in the U.S., shipped out of the U.S., advertise that, right? You have a warehouse in California, advertise that. That’s going to be a great angle for you.

Now, if you don’t have that, if you’re actually shipping from China and it is made in China, be obvious, set the right expectations. And look, some of you might say that, well, no one’s going to buy and I can’t make money. Well, I’ll just be completely frank with you. Well, maybe you don’t actually deserve to have a profitable business then. If no one’s going to buy your product that, you know, is shipped from China at a certain quality that you decide and that you market that way. Right. And I’ll just be completely frank there. Right.

Because yes, maybe you can make some quick bucks, but that is exactly why a lot of dropshippers out there do not see that long-term consistency. So be honest with your customers. If you want to build a consistent brand, please actually think about how your supply chain works. Learn about it. We’ll put out a lot more content about this as well. And don’t over-market to your customers. 

39:15 – Simon De Raadt: One thing that does come up all the time is why can AliExpress ship it out so cheap? Why are the other products on Temu so cheap? Why are the products so cheap because basically they’re buying market share. In the case of Temu, it’s buying market share. It’s not about profitability at all. It’s very important to understand that. It’s really about how you grab market share in a marketplace.

By luring the consumers in. How do you get the consumers to offer them free or cheap products? By that, you can get a market share and from that market share, you can expand. And the expansion doesn’t stop at word just selling the product. The expansion is going to go into engagement. The engagement. That’s what the platform is going to facilitate. That’s exactly what Pinduoduo has been doing in China. 

With video, with live streaming, with engagement of content, with events, with promotions, with anything that will capture the consumer’s ears and eyes. That data is a model itself. There’s so many levels to make money that it doesn’t always come down to the finished product. That’s the end game. So it’s been set into motion and everyone always asks us, why can they do it so cheap? And I cannot? 

Well, obviously they’re not making money. The goal is not to make money, and they don’t have to because they have this money-making machine duo running in China for the past few years that is leveraging their expansion into the vertical that’s called international.

40:49 – Dayu Yang: So that’s great, it’s actually, it sounds crazy, but it’s honestly a very common traditional business. Now, why did Uber lose? I think Uber is still losing money. Like total, right? I mean, it’s a very standard strategy to operate at a net loss in order to capture a ton of market share. Now, over the long run, the only reason that actually makes sense is that eventually, they have to make some money, right? Because they can’t just keep running at a loss.

So Temu is bleeding cash right now, and that’s part of their strategy. Obviously, they’re not going to keep trying to bleed cash until Pinduoduo is just completely dead. They have some long-term, five-year, ten-year strategy then to actually monetize off of their customer base, whether it’s data-driven or just literally the customers buying more. And then it starts to think about the potential LTV of all those customers that they actually acquire.

So, I mean, I have friends, I have family members who now only buy from Temu. They don’t buy from Amazon anymore. They don’t buy from AliExpress anymore. They bought like a hundred things so far from Temu. And they’re probably going to buy hundreds of things in the future. And that is where Temu is eventually getting at. But in order to do that, you have to be able to trust Temu. The moment you have a very bad experience with Temu, you’re not going to trust Temu anymore.

So that is something that actually is not just a Temu thing, but all DTC brands out there should really think about is, first of all, it is okay to lose money at the front end if you can actually make it back on your future revenue potential on that customer. But in order to achieve that long-term LTV, you actually have to have a great or fantastic experience, or at the very least, an experience that meets or exceeds the expectations that you set forth for your customers to motivate them to buy from that first purchase and going forward as well.

All right, Simon, so I think we’re on time. Maybe you can wrap up a little bit on a couple of takeaways that we both had from this podcast.

42:57 – Simon De Raadt: Yeah. So the main takeaway for us, for me at least, definitely, is the platform model works. Unless you don’t have control on either the supply or the demand. No longer. This can be seen separately. This is crucial. And then the consumer, in the end, is going to be the winner, in my opinion, whatever platform is coming afterward that might want to compete, the fight that’s going to happen between fight with TikTok, with Temu, with all the players in the industry, with wish, with Amazon, there’s going to be sort of like an ecommerce war going to happen internationally.

In the end, the consumer is going to benefit. So if you want to fight that war, it’s going to be hard to compete against these giants. You will have to find your unique space as a DTC brand owner. There is plenty of space. Don’t worry about that part. But you have to find it. And it does mean that you have to make some tweaks, you have to make some adjustments, sometimes have to lose a little bit of money to get you to the long-lasting position that will excel your brand.

43:59 – Dayu Yang: My big takeaway from this is really just thinking about focusing on the consumers themselves. To your point, Simon, I think at the end of the day, the consumers tend to win after everything is sorted through in every industry. Now, that’s on average, which means that there’s going to be a lot of losers in terms of storefronts, businesses in the middle. Right? However, if you as a DTC store owner or brand are thinking about the long run, you really have to think about the consumers, your end consumers themselves.

It is not just about marketing to them and not just about branding to them. That’s really just half the battle. But the difference where Wish and Temu really struck out was the fact that Wish was just marketing something that was kind of broken in the first place. Whereas Temu actually resolved a lot of the issues that were inherent with a platform like AliExpress and then smartly marketed and branded that in the right way to the right consumers. And they love it. 

Not everyone’s going to buy from Temu. That’s fine. But you’re going to have a very significant and growing population of customers who are going to love Temu, who are going to buy from Temu over and over again. And potentially Temu, ironically, may actually be the replacement to Amazon that Wish has always strove to be.

All right, thank you everyone for listening in. This is Dayu with my co-host Simon for The EcommOps Podcast. And we were talking about Temu and Wish and how they fundamentally had completely different models and why once succeeded and once failed.

Thank you guys for listening, and we’ll see you guys next time!