Temu sellers show massive discounts to boost perceived savings and win customers. The strategy is working.
Launched in September of 2022, Temu has grown rapidly. By December 2023, Temu had captured 17% of the U.S. dollar store market — Five Below, Dollar General, more — according to Reuters.
Certainly Temu’s prices are low. A recent comparison from Omnisend showed shoppers can often save 40% on Temu versus similar products on Amazon (but not Amazon Haul).
However, seller success on Temu relies as much on discount psychology as the savings.
Temu’s success relies in part on the psychology of discounts.
Cheap Headphones
Consider a hypothetical contract manufacturer that sells on Temu. Among the many products the company produces for various brands are noise-canceling, over-the-ear headphones that retail for $99.
This manufacturer-turned-Temu seller has the materials, models, and expertise to build a nearly identical set of headphones. Stopping short of using the original brand’s patented and expensive noise-canceling technology, the company tweaks the earpieces.
The “nearly identical” headphones cost $5 to manufacture. This company lists the headphones on Temu at a regular price of $99, with a 75% discount. That $24.75 price could produce more profit than it gets from building the client’s high-end version.
This made-up scenario is extreme but instructive.
Temu Prices
Remember that Temu is a marketplace with thousands of sellers. Temu does not buy and sell inventory. It connects manufacturers and brands to shoppers.
Thus the prices are not Temu’s but those of sellers. Yet Temu’s success relies on low-cost and, perhaps, low-quality alternatives to popular and brand-name products.
For example, the Omnisend comparison found that Temu listed an item that “matched” a product in Amazon’s camera and photo category about 96% of the time. But none — 0.0% — of those Temu items were the same brand or known quality as on Amazon. Instead, the items were unbranded and generic and “closely resemble well-known brands, often with blurred logos or modified packaging,” per Omnisend.
For identical items and brands, Temu’s prices are roughly the same as Amazon’s.
Temu Discounts
Sellers on Amazon and Temu differ significantly on the frequency and amount of discounts.
“While Amazon offers discounts on around 47% of its products, 65% of Temu’s listings are marked down. In addition, some items on Temu see discounts as high as 98%, compared to Amazon’s highest discount being 67%,” according to Omnisend.
Collectively, Temu’s deep discounts make products feel significantly cheaper. This is the psychology part.
For example, a February 2018 study in the academic journal “Fashion and Textiles” found that deep discounts can enhance shoppers’ perception of savings, making them feel like they are getting a better deal.
The study noted that discounts elicit an emotional response impacting shoppers’ perception of savings, quality, and value.
These findings are more or less common sense to seasoned marketers and precisely what is happening with Temu.
Product Perception
Yet deep and frequent discounting can be dangerous. Substantial markdowns may lead to doubts about product quality or authenticity, and rightly so.
Imagine a machine with three dials:
Ecommerce sellers can manipulate the dials. Changing one has the opposite effect on another. The proper mix leads to an ecommerce sale.
Many Temu sellers have learned that turning up the perceived savings dial overcomes the associated decline in perceived quality. Temu customers presumably realize they are buying what could be a subpar item, but the perceived savings make it worthwhile.
To be sure, Temu’s success does not rely solely on psychology. “Many of Temu’s products ship directly from manufacturers to consumers so that product prices can remain low by bypassing distributors and other third-party handling fees,” explained Greg Zakowicz, senior ecommerce expert at Omnisend, in an email to Practical Ecommerce. “They also use the least expensive shipping method to reduce prices further.”
Nonetheless, the quality-savings-value exercise is a lesson for all ecommerce sellers. Every merchant has access to the purchase intent machine with its various dials, knobs, and switches. Good marketing is tuning the mix for success.