There’s a reason brands spend millions of dollars on 30-second ads during the Super Bowl — they work.

Temu’s 90 seconds spent telling American football fans to “shop like a billionaire” last month cost the Chinese shopping app an estimated $21 million. That was a drop in the bucket in a global marketing strategy, which according to JPMorgan is expected to total $3 billion this year alone and will encompass television ads, digital marketing and influencer partnerships. The goal is to transform the previously unknown Temu, which launched in the US in September 2022 as an Amazon-style “everything store” selling everything from fashion to home goods to electronics at shockingly low prices, into a name brand as quickly as possible.

That effort appears to have succeeded. In January and February, Temu generated sales of $346 million — up from $77 million in the same period last year, according to Facteus, a data insights firm that tracks debit and credit card spending. US consumers directed 0.65 percent of their online spending toward Temu, surpassing Shein, the previous Chinese-owned app to storm the US market, which held a 0.47 percent share, according to data provider Consumer Edge. (Amazon still has a healthy lead, at 16.5 percent).

Temu’s parent, Chinese online retail giant Pinduoduo, reported three-digit revenue growth in its fourth-quarter earnings Wednesday, posting revenue of 88.9 billion yuan ($12.5 billion), up from 39.8 billion yuan in the same period in 2022. The company does not break out sales or earnings for Temu, though its knockout results were surely driven in part by the meteoric rise of the platform on the Western landscape.

Online shopping has seen plenty of discount retailers enter with a splash of advertising and a surge in sales, only to fade just as quickly. Wish.com is a case in point. Launched in 2012 as a digital version of the dollar store, Wish spent exorbitant amounts on advertising but that never translated into a loyal customer base. Last month, it sold for $143 million to mobile e-commerce company ContextLogic.

But Temu may have more sticking power. Its low prices resonate more at a time when consumers are still worried about inflation, and have already been primed to seek out the cheapest possible clothes by ultra-fast-fashion retailers like Shein. The app is also designed around product discovery, creating an addictive shopping experience that Amazon, with its endless grid layout, never managed to crack.

Industry observers have questioned whether Temu’s approach is any more sustainable than Wish’s. A recent Financial Times report highlighted Temu’s bare-bones physical infrastructure, and the opaque financial structure of Pinduoduo. Analysts believe Temu is losing billions of dollars annually, between the cost of advertising and subsidising those low prices.

“Regarding media reports and third-party analyses that suggest significant losses for Temu, these do not reflect our actual financial situation and are far from reality,” Temu said in a statement to BoF.

Still, many aspects of the Temu playbook are similar to how other tech giants started out: Swoop into a market and aggressively acquire customers in the hopes that consumers will develop a loyalty to the platform, allowing prices to rise, marketing costs to fall and profits to be had.

“Our recent Super Bowl advertisement demonstrates our confidence in the potential of the US market and we’ll step up our investment even further this year,” a Temu spokesperson said in an email statement. “However, an under-appreciated (and under-reported) gem in our strategy is the power of word-of-mouth endorsements.”

There are early signs Temu is making progress along this path. According to Earnest, more than 28 percent of Temu customers made a second transaction on the platform 16 months after their first purchase — nearly double the rate of Walmart and Target in the same period.

“The growth they’re seeing now is from massively subsidising new customers,” said Drew Thomas, chief executive of Kleen, a retail AI services provider. “But [when] all their gamification and sharing and referral mechanisms kick in, and their acquisition costs will be lowered, because people are recommending it to their friends.”

What People Shop for on Temu

While Temu offers a vast assortment of products, clothing and accessories make up its most popular category. In a Jefferies survey of US consumers, 56 percent said they purchased such goods from Temu, compared to 37 percent for toys and hobby-related items and 27 percent for beauty.

Customers say quality is hit or miss. Unlike Shein, which sources its own inventory (and has generated plenty of complaints about shoddy merchandise of its own), Temu’s marketplace allows more than 100,000 vendors to reach users directly. The result is a striking array of products, with similar listings using similar photos but from different suppliers, often at different prices. The one constant is that those prices are very low — jewellery under $1, $3 leather belts, etc.

It’s a dizzying, chaotic experience, akin to the treasure hunt of perusing a secondhand store or visiting off-price retailers like TJ Maxx. When something turns out to be a miss, items are often cheap enough so that an entire cart can be chalked up to be a net positive, shoppers say (Temu also allows for one free return per order).

Whereas Amazon optimises for convenience and utility, Temu — like its predecessor Shein — is a cornucopia of discovery. Its product recommendation engine takes into account users’ browsing habits, serving up an endless scroll of subtly related products, which is coupled with insanely low prices and incessant promotions. The more time spent on browsing the site, the more addictive the experience.

“It seems out of this world,” said one fashion publicist who has made multiple purchases.

High income earners — those who make $130,000 or above — make up Temu’s biggest customer segment, accounting for over 44 percent of Temu’s sales, according to Earnest data. They’re also growing at a faster pace than those in lower earning segments.

“Yes, Temu is over-invested in advertising, but its message of ‘shop like a billionaire’ is totally landing,” said Debbie Ellison, global chief digital officer at VML, a global marketing agency.

The Universal Appeal of Bargains

Typically, product recommendations are driven by one of two types of data: identity-based information gleaned from creating a profile for an app, often linked to e-mail or social media, or behavioural data based on browsing and purchase activity. Temu leverages both because so many shoppers engage with the platform via their mobile app, which requires signup, according to Rishabh Jain, co-founder of AI-powered retail solutions start-up. This model of recommendations was first perfected by Shein, which is the third most downloaded free app in the US Apple store as of March 19. Temu is two spots behind, at No. 5.

Temu’s recommendation engine is also discovery-based, which means it’s “trying to get you to buy something that you didn’t know you wanted,” Jain said, “compared to Amazon’s search-based product recommendation.”

This mode of recommendation may be especially salient today because it mimics current trends on social media, AI experts said. Whereas 10 years ago, the norm on Facebook and Instagram was content from the specific profiles that users follow, today, the TikTok algorithm of random recommended posts has infiltrated every one of its competitors.

“Temu is very in line with how people are interacting with their social media platforms and the other digital experiences in their lives,” said Thomas, of Kleene. “It feels like an extension of their digital experiences.

Room to Grow

Rival retailers are eyeing Temu warily, though Amazon and Shein executives, at least, have yet to publicly identify the company as a threat.

Temu’s rise comes with one critical caveat: analysts estimate that the company is currently operating at a loss ($3 billion last year alone, according to JPMorgan). This means its colossal marketing budget is almost certainly not sustainable, nor are the ultra-low prices, which likely require some form of direct or indirect subsidy.

For Temu to survive in the long run, it must convince consumers it has value beyond low prices. No matter how on-the-nose, a personalisation algorithm alone isn’t going to drive repeat orders.

“If [Temu] ever wants to move away from customer acquisition, it has to rely on organic growth and word-of-mouth,” said Jamie Ray, founder and chief executive at influencer marketing agency Buttermilk. “Look at Amazon, which has become a media company and streaming platform, a conglomerate completely involved in culture. To stay [relevant], you have to go beyond selling cheap stuff.”