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In recent years, prominent Chinese e-commerce platforms have entered the European market. These players differ in many ways but share a common strategy of providing absurdly low prices in exchange for sacrificing quality and convenience (e.g. delivery times).
They can ship items from China to Europe and the US cheaply by taking advantage of subsidised cross-border postal rates and avoiding tariffs and customs inspections due to the low value of average orders and shipping goods individually directly to consumers.
It would be impossible to overlook Temu, as they have blanketed the internet with ads in the past year. They have completely taken over paid search results and social media and are fearless in spending money to acquire new customers. As Mike Ryan of SMEC stated: “To me, it is imaginable — but unproven — that they are the largest advertiser in history”.
We can use Google Trends to compare the relative search interest for Amazon, AliExpress, Wish, Shein, and Temu. In less than one year, Temu is already closing in on Shein and Amazon in popularity in Denmark.
Temu has surpassed all other players in Norway and Finland, including Amazon.
The Danish Chamber of Commerce recently published the results of a survey showing Temu jumping directly to 4th place among most used foreign online shops in 2023. This is the first time Temu has appeared on the list, and it seems probable that both Shein and Temu will overtake Amazon when the survey is conducted next time (Shein's score doubled from 2022 to 2023).
Temu is currently the most downloaded free app across many European markets. Temu was already popular in the US enough to be the most downloaded iPhone app in 2023. Despite Temu not holding back their spending, getting users into their app allows them to reach users again without repurchasing the customer through advertising.
Temu uses games and rewards to entice shoppers to spend longer in their app, and according to some analysis, users spend almost double the time on Temu than Amazon and other major competitors.
During the Q3 2023 Earnings Call, Etsy's CEO, Josh Silverman, referred to Shein and Temu, saying, “I think those two players are almost single-handedly having an impact on the cost of advertising, particularly in some paid channels in Google and in Meta.”
Looking across our portfolio of advertisers, we can see when Temu entered the game in Europe. Many e-commerce companies felt a sudden headwind in the second half of 2023, and this is precisely when Temu started appearing in the Auction Insights report for most companies. The Auction Insights report is available to advertisers inside Google Ads and compares the advertiser’s performance with other advertisers participating in the same auctions. A higher score means the competitor appears (and therefore competes) more often in the same searches.
Temu is not only buying up paid search ads, but also ads across social media. Average cost-per-click data from our portfolio of hundreds of advertisers on Meta confirm the exact timing shown by the Google Ads chart above. While Meta CPCs were lower in 2023 than in 2022, the relative difference changed significantly from August 2023.
Google Shopping ads are perfect for an advertiser like Temu due to the extreme focus on price. When users search for a product, they will be presented with a product listing ad consisting of a product image and a very visible price. The relative price is incredibly important for the ad's click-through rate, and this works as a positive feedback loop where every extra click will signal to Google that this ad is attractive to users, thereby making Google show the ad more often and at a lower CPC.
Most e-commerce companies are feeling the effect of Temu, but some categories are more exposed than others. Generally, categories like toys and hobby products with lower average basket sizes compete the most with Temu in the search results.
Reading about experiences from real people across Reddit and Trustpilot makes it clear that not all reviews will see the light of day. These platforms are filled with stories of people trying to submit a less-than-5-star review on Temu and having it altered or simply removed.
Temu’s Q&A states that “reviews are generally submitted by genuine customers”. The keyword here seems to be “generally”. For comparison, Amazon goes into more detail about their reviews, and you don’t have to read through many reviews on both sites to see a significant difference.
On Trustpilot, Temu is getting a more realistic score. Customers' experience with Temu is often a hate-it-or-love-it experience, with 80% of the ratings being either 5-star or 1-star. This horseshoe distribution is typical for controversial products and services. As a joke, someone posted a 5-star review pointing out how they believe Temu is the worst company to buy from and how all replies from their support are automatic copy/paste. Temu replied to the review, stating how happy they were that the customer had a great experience!
More concerning than reviews is the actual quality and safety of the products. Toy Industries of Europe (TIE) bought 19 toys from Temu and sent them to an EU-accredited independent safety testing laboratory for testing against the EU’s toy safety rules. They found that none of the toys comply with EU legislation and, therefore, should not be on sale in the EU and that 18 out of the 19 toys did not meet toy safety standards and, therefore, present risks for children.
The problematic products are not unique to Temu but have been highlighted frequently based on samples from Wish and other non-European platforms. In 2018, the Danish Consumer Council tested 39 cosmetic products from Wish and found that more than half didn’t have the EU-required ingredients list. Some products were similar to products sold in Denmark, but they contained allergens that are illegal in Denmark. In 2020, together with their fellow European consumer organisations, they tested 250 products from Wish and other marketplaces, finding that 66% of products failed the tests. Smoke alarms didn't warn about smoke. Light chains were starting a fire. Toys had batteries that could be swallowed.
It is clear that Temu is currently buying a lot of traffic from Google Shopping ads, but Google clearly states that they prohibit the sale or promotion for sale of counterfeit products. Specifically, they give these examples of what's not allowed when advertising through Google Shopping:
For many European advertisers, it is a constant battle to make sense of the often mysterious ways of Google’s automatic disapprovals, resulting in products or even full accounts being prevented from advertising on Google Shopping for seemingly incomprehensible reasons. It is, therefore, understandable if some advertisers have a hard time understanding how some of the products sold and advertised by Temu do not violate Google’s policies.
By some estimates, Temu is losing around 40% on international orders when shipping, discounts and administration costs are considered. Temu will eventually have to revoke free shipping on orders below a certain amount and reduce their marketing spend. They might also be called out on fake reviews and counterfeit products, which can limit their marketing opportunities to some extent.
For most European e-commerce companies, the current battle with Temu is not entirely fair. Organisations like Ecommerce Europe are aware of the impact of Temu, and we recommend e-commerce companies share experiences and data with their local representatives.
It is worth noting that almost a decade ago Wish came in with a similar proposition as Temu (selling everything at extremely low prices), and it went downhill for Wish even before Shein and Temu entered the scene. Poor experiences resulted in users not returning after the initial excitement and impulse buys, so when Wish’s paid user acquisition slowed, the users dried up. Last month, Wish was sold to Qoo10 for just $173 million, around 1% of its value at its IPO three years earlier.
Competing on price is not an option against Temu, and while price significantly impacts performance - especially in Google Shopping - there are other essential factors to consider. European e-commerce companies should make sure to communicate selling points that are unique to them:
Luckily, some unique elements can be communicated directly in Google Shopping ads using product ratings and local inventory ads.
When players like Temu take traffic share, getting the maximum value out of the traffic you acquire is even more critical. Most e-commerce sites are under-prioritizing investments into conversion rate optimisations even though there is an enormous potential in improving post-click experience as relatively few clicks result in conversions.
Big budget players like Temu can do the most short-term harm on Paid Search and Social which are the “lower funnel” channels often making up most of many e-commerce companies' budgets. Temu might be a reminder to examine whether marketing activities should be diversified and why investments in building a brand can be valuable.
Frederik Hyldig
Group CPO
[email protected]
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