It happens all the time. One minute you've never heard of an up-and-coming startup, and then suddenly it's everywhere. This appears to be the case for the millions of users actively flocking to the viral shopping app Temu.
Temu isn't the first app of its kind, but it's quickly becoming the most popular.
Previously, Alibaba Group Holding Ltd. grew in popularity by allowing U.S. consumers to buy cheap goods directly from Chinese manufacturers. But issues with customs, hefty shipping costs and unreputable manufacturers hindered the experience for many.
Don’t Miss:
- Until 2016 it was illegal for retail investors to invest in high-growth startups. Thanks to changes in federal law, this Kevin O’Leary-Backed Startup Lets You Become a Venture Capitalist With $100
- Billionaires are making their money in the private markets, and This Startup Is Revolutionizing Healthcare Investment so anyone can get involved.
In response, Alibaba released AliExpress and ContextLogic Inc. released Wish, which exploded in popularity by solving many of those issues and letting consumers easily buy products from manufacturers without the hassle.
Temu rocketed onto the scene doing much of the same stuff. But it has differentiated itself in one key way: hyper-aggressive marketing, lots of free stuff and a strong referral program. It's also jam-packed with gamification.
Startup Marketing
These types of strategies are fairly common in the world of startups. Companies often spend heavily upfront for a maximum return on investment (ROI) on their marketing spend. If you hear about a company once, you might not think much about it. But if you hear about the company dozens of times over the course of a few weeks, you're probably going to look into it.
The strategy isn't foolproof, even for companies with resounding success like Temu. The growth is often unsustainable and once the budget runs out, the company is tasked with taking its user base and turning it profitable. But the freebies users have come to expect suddenly go away, so might the users.
Platforms like Thumzup recently have popped up to help democratize influencers and the potential for hyper-growth marketing. As social marketing programs become an increasingly vital part of a brand's growth strategy, Thumzup allows users to get paid to post. When users share new and exciting companies and products with their friends and followers, brands can easily track and measure ROI. The company recently launched an equity crowdfunding campaign, which means anyone can invest in Thumzup for a limited time.
The upside to this strategy is rapid growth as platforms spend millions of dollars to acquire tens of millions of users in a few months. But it's often an all-or-nothing strategy — if the company fails to find a market for its product, it won't be able to fund continued expansion.
While these approaches can be scaled over longer periods of time to build sustainability, there are downsides to that as well. Because Temu and startups with similar strategies spend a lot on staffing and office space, scaling costs even more money.
Temu's Approach
How aggressive is Temu's marketing? Once users create their accounts, they can expect to be given a time-sensitive deal. Typically this is in the form of a buy-three-get-seven-free deal. This pressures users to start spending before they even look at the app.
Users can expect to receive three to five emails, texts and phone notifications per day. They might offer an apology for delays that didn't happen but conveniently come with a buy-one-get-one coupon.
Temu also has a referral rewards program. The more friends you get to join, the more free things you are rewarded with. This can be for items as valuable as PC monitors or cash.
In many instances, the deals on Temu are cheaper than those on the AliExpress app.
See more on startup investing from Benzinga:
- Don’t just buy from your favorite brands, own them so you own the upside. Learn how Retail Investors Are Taking Stakes In Their Favorite Startups To Own The Upside
- Gamers are selling their old gaming items for millions. Learn why everyday gamers and investors are claiming a stake in their side hustle and how they invested over $1.2 million in this startup.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
