What: Temu's ultra-low pricing strategy relies on a sophisticated Consumer-to-Manufacturer model and customs loopholes, enabling unprecedented market penetration but facing mounting regulatory challenges.

Why it is important: The success and challenges of Temu's pricing model represent a pivotal shift in global retail, demonstrating how digital platforms can bypass traditional supply chain costs while prompting regulatory responses that could reshape cross-border e-commerce.

Temu, the international arm of Chinese e-commerce giant Pinduoduo, has emerged as a formidable player in global retail through its innovative pricing strategy. Within just two years, the platform has achieved remarkable success, ranking fifth in France's online commerce and second globally. At the core of Temu's competitive advantage is its Consumer-to-Manufacturer model, which employs reverse auctions to secure the lowest possible prices from manufacturers. This approach, combined with a consigned inventory system, eliminates traditional storage costs and financial burdens for the platform. The company's success stems from its parent company Pinduoduo's established practices in China, where it has amassed 694 million users through group-buying features and strategic targeting of underserved market segments. Unlike traditional marketplaces, Temu generates revenue through logistics and marketing services rather than sales commissions, enabling its ultra-competitive pricing. However, this model faces increasing scrutiny, particularly regarding customs regulations and market practices, as evidenced by recent regulatory changes in major markets.

IADS Notes: Recent developments have significantly impacted Temu's business model and market position. In November 2024, Amazon launched its "Haul" platform in direct response to Temu's pricing strategy, while regulatory pressures intensified with the EU's implementation of stricter platform liability rules in February 2025. The elimination of the USD 800 de minimis rule in the US particularly threatens Temu's cost advantage, which has been central to its rapid growth. These challenges coincide with Forrester's October 2024 prediction of declining growth rates, suggesting that Temu's ultra-low pricing model faces mounting obstacles. The company's struggles in Southeast Asia, exemplified by its December 2024 suspension in Vietnam, further highlight the increasing scrutiny of its business practices. This evolving landscape indicates that while Temu's innovative approach to pricing and supply chain management has disrupted traditional retail, its long-term sustainability depends on adapting to stricter regulatory environments and intensifying competition.

The secret behind Temu’s rock-bottom prices