In the middle of August last year, Temu, a Chinese e-commerce platform, started to aggressively advertise in Europe. They bought up as much advertising space as they could to attract new visitors and outpace their competition. This has caused advertising costs to skyrocket, leaving smaller businesses with few options.
You can pay the increased costs for advertising and take a profit hit or reduce your advertising efforts and also lose out on profit since you attract fewer potential customers. But you can also stand up to Temu and fight back. Offset your profit loss by reallocating resources to efforts that increase your conversion rates for visitors that you attract organically. But before we get into all of that…
What exactly is Temu?
Temu is a Chinese online marketplace that directly connects consumers with producers, thereby saving on costs and bypassing traditional middlemen and brands. This approach allows them to offer exceptionally low prices on a very wide range of products. But their strategy isn’t the only reason for their low prices, a report from Toy Industries of Europe, an independent research organization, deemed 18 of Temu’s 19 products too dangerous for children.
Their strategy can be summarized by: low quality at even lower prices.
Flooding advertising markets and offering free shipping and returns are central strategies for Temu’s growth. This enhances the discoverability, appeal and accessibility of the platform for consumers. Temu even gamifies parts of its app to create a more engaging shopping experience that encourages user interaction and frequent visits. This strategy has shown that visitors on average spend twice as much time on Temu compared to Amazon or Shein, highlighting their ability to also provide an engaging and entertaining experience.
Why is Temu suddenly so important to watch out for?
They’re a new and more bold example of a challenge that businesses have already faced. In the past, Shein, Wish, and to some extent Amazon, have successfully executed aggressive advertising campaigns, similar to Temu’s strategy. This has cost the average business dearly, as millions of customers flock to large platforms rather than their local online businesses. But Temu is a whole new beast that’s taken e-commerce giant’s advertising playbook and dialed it up to 10.
Fueled by a massive bankroll and a very focused approach, Temu has been able to make unprecedented investments in advertising, increasing Google Ads prices by up to 40%. Although Temu’s aggression impacts some businesses more than others, given their scale, it generally impacts everyone. Small to medium businesses are particularly vulnerable since they can’t afford to increase their budgets or lose visitors.
How do we know that Temu is causing prices to increase?
Our partners at Obsidian Digital, a leading Danish Digital Marketing Firm, have collected insights from advertising data that show Temu’s impact on the market. This data is based on Danish companies and their advertising prices for Performance Max campaigns, but as mentioned, Temu’s broad reach and focused advertising strategy can be felt throughout European e-commerce. At the same time, Obsidian has noticed that lessons learned in the Danish market can be applied, with similar success, in other EU countries.
Average Impression Share
First off, the average impression share of all Obsidian’s customers (blue), remains relatively stable at around 60%. In August, as shown by the average Temu impression share (red), Temu entered the market. They ramp up in October, eating up 20% of the average impressions and by December they almost have 40%. That’s more than half of the average impression share that businesses had before, showing how Temu is capturing visibility, a crucial factor in e-commerce.
Avg. CPC
Next, when comparing the Obsidian client’s cost-per-click (CPC) from 2022-23 to 2023-24, a few things are worth noticing. From the 2022-23 period, the average CPC decreased by about 9% overall, going from just over 2.75 DKK at the start of the year, down to 2.5 DKK at the end of the year. On the other hand, 2023-24 saw an overall increase from just under 2.5 DKK to about 2.9 DKK, a 16% increase.
Most notably though, Temu’s advertising aggression is correlated with the intersection of the average CPC in the middle of August 2023. Although this intersection doesn’t definitively prove that Temu’s entry into the market and subsequent aggression is to blame for the increase in CPC, it’s unlikely that it’s just a coincidence.
So, what can you do about it?
The most impactful thing you can do is to make sure that the user experience is optimized for success. But if you’ve already optimized the user experience on your site, here are some alternatives to outshine Temu. Obsidian Digital points out that, given their business model, Temu struggles to offer certain services, like single day shipping and local language support. These services are valuable to e-commerce customers and by adding them to your arsenal, you offer benefits that Temu cannot match, winning over your customer’s loyalty.
Webshop Optimization
If you haven’t optimized your site’s user experience, you cannot fully leverage any additional services. Single day shipping doesn’t matter if a visitor doesn’t even make it to the delivery page because they can’t find what they’re looking for or get frustrated by navigating a webshop.
To optimize your webshop, you should focus on converting and retaining customers by providing a frictionless user experience with unique selling points. Toke Lund, CEO of Enterspeed, mentions how return on ad spend (ROAS) can be a misleading performance indicator when competing against giant companies like Temu, who themselves focus on ROAS but with endlessly deep pockets. So, if you’re going to focus on a single thing, let it be conversion rate optimization (CRO). This is the most impactful focus you can have to increase your revenue with fewer visitors. Once you’ve spent resources on marketing and advertising, you have to make up for those costs, which you can do by converting more visitors and having them return in the future.
While optimizing your conversion rate can be a bit of a rabbit hole in e-commerce, Clerk has simple solutions, centered around a single objective - displaying products and content that a given customer is most likely interested in. Clerk Search and Recommendations are excellent at this in each their right, while they both serve to improve business performance by driving conversion rates, average order value and retention.
Clerk Search
Providing a great on site search experience is incredibly important when it comes to CRO, because visitors who know what they’re looking for, use the search bar. They also have a much higher purchasing intent, by a factor of 5-6, than visitors who are just browsing. By quickly and simply showing high intent visitors what they’re looking for, they’re likely to convert. Targeting these customers is paramount if you want to generate more revenue with fewer visitors.
Clerk Search uses and combines several methods for this, but it can be summarized as artificial intelligence (AI) with a dynamic user interface. Our core AI, Clerk Core, helps to understand what a customer is looking for, not just typing. Clerk Search can thus anticipate whether someone who types “sho” is looking for shoes or shorts, before they’ve finished typing. Meanwhile, the user interface includes facets to filter for e.g. brands, instant live search to see results while typing, smart suggestions to guide users and more, all in a single dynamic search window. Visitors can therefore search however they’d like, including spelling mistakes or typos, and still find what they’re looking for. By empowering visitors with high purchasing intent to easily find what they are searching for, smaller businesses can increase their conversion rates and maximize the value of their existing visitors, mitigating the impact of Temu's marketing dominance.
Clerk Recommendations
Clerk Recommendations on the other hand is a great tool for capturing the attention of browsing visitors. Recommendations uses our AI to suggest products that visitors or returning customers are likely interested in based on a number of factors, the most significant being sales data. This allows for multiple suggestion logics like ‘Best Sellers’ , ‘Hot Products’ or ‘Customers also bought’ so browsing visitors always have new and relevant products to discover. For small and medium businesses struggling with Temu's aggressive advertising, Clerk Recommendations can help level the playing field. By engaging browsing visitors and suggesting relevant products, you can retain more customers, increase conversion rates, and boost their average order value without relying on costly advertising campaigns. If you want to learn more about Recommendations, visit our blog to discover other use cases and examples.
This is just a glimpse of how Clerk can help you win back revenue by optimizing your e-commerce customer experience, but it’s an ideal place to start. With tools like Clerk Search and Recommendations your business can survive and thrive under Temu’s pressure. Don’t let increasing advertising costs stand in your way, continue your growth with Clerk.
Conclusion
Last summer, Temu, a Chinese e-commerce platform, launched an aggressive advertising campaign in Europe, disrupting the online advertising market and increasing Google Ads costs by up to 40%. Their direct-to-consumer model bypasses middlemen to offer ultra-low prices, despite quality concerns. A leading Danish marketing firm, Obsidian Digital, found that Temu nearly doubled its share of impressions by the end of 2023, capturing more than half of the market's visibility and leaving smaller businesses struggling with higher advertising costs and reduced profits.
To compete amidst Temu’s disruption, Clerk advises businesses to focus on optimizing conversion rates through an optimized user experience, as well as emphasizing unique selling points that Temu cannot match, such as next-day shipping and local customer support. Clerk’s solutions, Search and Recommendations, are designed to enhance on-site user experience, drive higher conversion rates, and increase average order values by efficiently connecting customers with relevant products. With these strategies, small and medium businesses can convert more customers with fewer visitors and still grow their bottom line, despite Temu's advertising dominance.
