From #1 App To Burning Billions: How Temu Lost It All

Summary

Temu, a rising e-commerce platform, became an overnight sensation with rock-bottom prices, rapid growth, and huge marketing spend, overshadowing competitors like Wish. Backed by the billion-dollar Pinduoduo, Temu used tactics like gamified shopping and loyalty programs to create an addictive experience. However, despite its success, the app faced serious issues like poor product quality, dangerous items, and data privacy concerns. As the U.S. imposed tariffs on Chinese goods, Temu's 'de minimis' loophole was eliminated, leading to rising prices, falling user numbers, and crashing profits. Temu's meteoric rise has slowed, and its future remains uncertain.

Takeaways

• 😀 Temu emerged quickly as a popular online marketplace, featuring extremely low prices and a wide range of products.
• 😀 Temu's main competitor, Wish, struggled due to slow shipping, poor product quality, and a bad reputation, while Temu provided faster delivery and better quality.
• 😀 Temu's rapid growth was fueled by its massive advertising budget, including running two Superbowl ads in 2023.
• 😀 Temu's addictive shopping experience, featuring daily spins, timers, and gamified rewards, kept users engaged for longer periods.
• 😀 Temu’s loyalty program, Temu Circle, encouraged consumers to spend more to receive credit back, creating a 'spend more to get more' loop.
• 😀 Despite its success, Temu faced significant financial losses, with an estimated $1 billion loss in 2023 due to low margins and pressure on Chinese manufacturers to reduce prices.
• 😀 Temu exploited the U.S. 'de minimis' rule, allowing them to avoid tariffs on low-value goods, but this legal loophole was closed in 2024 due to new tariffs, driving up prices.
• 😀 Temu's reputation was hurt by complaints about undelivered packages, poor customer service, and unsafe products, including toys with dangerous chemicals and incomplete ingredient lists.
• 😀 The platform's parent company, PDD Holdings, faced further scrutiny due to concerns about data collection and privacy issues, including potential malware risks.
• 😀 The rise of tariffs and the closing of the 'de minimis' loophole led to a significant drop in Temu's growth, with a 78% decrease in downloads and a 43% decrease in active users.

Q & A

What is Temu's business model, and how did it achieve its initial success?

Temu's business model relied on offering extremely low prices for a wide variety of products, often sourced from China. It quickly gained traction through massive digital ad spending, particularly on Meta platforms, and utilized strategies like gamified shopping and loyalty programs to keep users engaged. Temu's parent company, PDD Holdings, provided substantial financial backing, allowing the platform to scale rapidly.

Why did Temu's prices initially seem so appealing to consumers?

Temu's prices were significantly lower than those of competitors, offering items like hair bands, socks, and makeup at absurdly cheap rates. While some products were low in quality, the sheer affordability made it an attractive option for budget-conscious shoppers, with many items priced under $10.

How does Temu compare to its competitor, Wish?

Both Temu and Wish offered extremely low prices on products from China, but Temu surpassed Wish in several areas. Temu’s shipping was faster (two weeks compared to Wish's much slower delivery times), and the platform offered a broader range of products, especially in fashion. Additionally, Temu built a reputation for delivering quality products, while Wish had been plagued by complaints about scams.

What was Temu’s marketing strategy to increase its visibility?

Temu used aggressive marketing strategies, including running two ads during the 2023 Super Bowl, making it the youngest brand to ever do so. Their digital ad budget for 2023 was a staggering $2 billion on Meta alone. This huge ad spend helped boost the app's popularity and ensured that Temu quickly became a top player in the market.

What psychological tactics did Temu use to keep users coming back?

Temu employed several psychological tactics, such as 'gamified shopping' with daily spins for discounts, timers to create urgency, and offering limited edition or 'last in stock' products to create the illusion of scarcity. Additionally, their loyalty program, Temu Circle, encouraged customers to spend more by offering credit back on purchases, creating a cycle of continuous spending.

Why did Temu lose money despite its growth?

Although Temu grew rapidly, its business model focused on extreme discounts and low-cost shipping, which resulted in the company losing money on every order. In 2023, Temu was estimated to lose $1 billion, with the app losing an average of $30 per order. They also pressured manufacturers to lower prices, making it impossible to turn a profit.

What legal loophole did Temu exploit to keep prices low?

Temu exploited a 'de minimis' customs exemption in the U.S. This rule allowed goods worth less than $800 to be imported without paying tariffs, taxes, or additional paperwork. This exemption allowed Temu to sell products at rock-bottom prices, bypassing costs that competitors would have to bear.

What impact did the U.S. tariffs have on Temu?

In 2025, the U.S. government eliminated the 'de minimis' rule specifically for China, imposing tariffs of up to 145% on Chinese imports. This significantly raised Temu’s costs, resulting in price hikes of up to 25%. To cope, Temu had to shift from shipping directly from China to using warehouses in the U.S., which also led to slower shipping times.

How did Temu’s app performance change after the tariff changes?

After the tariff changes in 2025, Temu saw a sharp decline in performance. Prices increased, sales dropped by 17%, and their app’s ranking on the Play Store fell from the top 5 to 58th. User engagement also decreased, with weekly active users dropping by 43%. This marked the end of its rapid growth trajectory.

What are some of the safety concerns associated with Temu's products?

Temu faced significant safety concerns regarding its products, particularly in Europe. Testing revealed that some toys had dangerous small parts, cosmetics had conflicting ingredient information, and certain children's products contained hazardous chemicals, such as hormone disruptors. These issues raised alarms about the legality and safety of some of Temu's offerings.