Temu, Pinduoduo’s cross border affiliate, has taken the global ecommerce market by a storm. In April, its 8th month since launching in the US market, Temu’s US GMV was approaching US$400m. The platform has also expanded to be available in 10 markets. 

At business dinners in Hangzhou, Panyu, and Shenzhen, where the cross border ecommerce ecosystem concentrates, discussions are centred around Temu. You often hear questions such as “How did Temu achieve an average order value of above US$30 even though its average item value is less than US$5?” or “Will Temu be able to move up the value chain to attract Amazon’s core middle class and affluent customers?” 

Temu’s quick traction obviously drew a lot of attention from its peers and competitors, in a typical Chinese fashion. Many ecommerce platforms seem to
have concluded that Pinduoduo’s “全托管”(“fully managed” or “all inclusive”) model is at least worth trying

Under this model, sellers, manufacturers or brands will just need to agree on a price (to the platform), and ship the goods to the platform’s warehouses.
The platform will handle everything else: front end marketing to consumers, logistics & fulfilment, as well as customer service

The platform also sets the price to the consumers. Instead of commission or fees, the platform’s revenue will come from the price differences between what it collects from consumers and what it pays to the sellers, manufacturers or brands. 

Yes, it is effectively
a retail (rather than marketplace) model without undertaking heavy working capital requirements or inventory risk. Or we can call it the “consignment” model. 

Lazada launched its consignment model to cross border sellers on 25 April; TikTok announced its “all-inclusive” consignment model on 16 May; AliExpress started last December and according to various reports is happy with the preliminary results; while Shopee is also reported to be working on launching its own version. 

The benefits of a well-run consignment model is obvious:

  1. Sellers/manufacturers/brands do not have to manage the complexities of marketing, fulfilment and customer service. That would encourage more suppliers to join the platform; 
  2. Consumers will get a consistent experience (e.g. when I order six items from different suppliers, they all arrive at the same time in one package) and customer service;
  3. The platform can maximise the operational efficiency without worrying about working capital requirements or inventory risk;
  4. Logistics providers will just need to interface with the platform, instead of a myriad of sellers – a boost in productivity as well. 

However, there are also many caveats and nuances to this model. 

First, will the platforms run it well? Because the consignment model is different from the marketplace model, which many platforms are based on. Under the consignment model, the platform needs to do much more (marketing, fulfilment, customer service). It needs the capabilities to do all these effectively. 

Shopee and a few other platforms have tried to copy SHEIN’s model, without much success. The reason is not that hard to understand – it is just a difficult proposition when a model is not your core and yet demands a lot of leadership attention and organisational resources to do well.  

Secondly, while it might seem like a win-win situation, the platforms, upon achieving a certain significant volume, will squeeze the suppliers and the logistic providers as much as they can. The extreme case would be what Temus is doing, as documented in the article
Inside Temu: the fiery culture and the perpetual efficiency machine

However, this is something that suppliers and logistic providers need to be prepared for, as they have been encountering through other platforms anyway (through commission, advertising etc.). 

Ultimately, the platform and each stakeholder will need to find a (perhaps dynamic) balance where everyone is willing to play the game, perpetually. 


Thanks for reading The Low Down (TLD), the blog by the team at Momentum Works. Got a different perspective or have a burning opinion to share? Let us know at [email protected].


Previous articleTikTok Shop starts copying Temu… in the Middle East
Next articleE03 – The Impulso Podcast – [In Depth] Making Sense of Alibaba’s Biggest Restructuring in History
Jianggan Li is the Founder & CEO of Momentum Works. Prior to founding Momentum Works, he co-founded Easy Taxi in Asia, and served as Managing Director of Foodpanda. The two years running Rocket Internet companies has given him a lifetime experience on supersonic implementation, and good camaraderie with entrepreneurs across the developing world. He holds a MBA from INSEAD (GMAT 770) and a degree in Computer Engineering from Nanyang Technological University. Unfortunately he never wrote a single line of code professionally - but in his first job he was in media, travelling extensively across Asia & Europe, speaking with Ministers & (occasionally) Prime Ministers. Apart from English and his native Mandarin, he is also fluent in French and conversational in Cantonese & Spanish. He tried to learn Latin (for three years) and Sanskrit (for six months) as well. In his (scarce) free time, he reads, travels, hikes and dives. Pyongyang, Tehran & Chisinau are among the interesting cities he has been to.