How Temu Keeps Prices Cheap - DTNSB 4958  ## Metadata - Author: [[Daily Tech News Show]] - Full Title: How Temu Keeps Prices Cheap - DTNSB 4958 - Category: #podcasts - URL: https://share.snipd.com/episode/9edf0191-b5e4-4d8d-abc8-55317b0aa01d ## Document Notes ## Highlights - **Temu's Business Model** - Temu's low prices are achieved through a unique business model. - This model involves bulk orders, social media trends, and no sales commissions. Transcript: Tom Merritt Tom Merritt. I'm Jen Cutter. Let's start this time with what you need to know with the big story. Henri Isaac, a scientist at Paris Dauphin University, has an article in The Conversation about how Timu keeps its prices down. If you don't know Timu, it's like really cheap shopping. They had a big Super Bowl ad. Everybody talks about how you buy things on Timu. They're like less than a dollar. Maybe they break in two weeks, but who cares? It only cost you 80 cents. Now, some of you may have learned a little more about Timu and Shein recently when the U.S. Temporarily stopped giving customs exemptions to packages with a value less than $800. The EU has a similar exemption for goods less than 150 euros. That is one of the way Timu, Xi'an, AliExpress and others keep their prices down. They ship cheap things as individual packages and then they don't need to be examined by various countries' customs enforcement. But that is not the only way. Timu's parent company, Pindu Duo, has offered low prices through Pinhaoho in mainland China for years. And Timu is really the international addition of Pinhaoho. It started by using WeChat's group buying model to make bulk orders of fresh fruit. I think I remember hearing this on an Economist podcast. They just got a bunch of people together on WeChat to agree to buy a pound of oranges each. And then they would make one huge order for oranges and get them to people. And a lot of times in rural areas where they didn't have good supplies of fresh fruit through the local markets, the platform got a good price on the bulk order and then passed the savings On to the individuals in the group. Everybody wins. It no longer works that simply, though. That's how it started. But the principle is kind of the same. It still makes bulk orders for things that it knows it can sell fast. And it finds this out by driving sales through social media trends. In fact, Timu really doesn't do any ordering at all. It creates the demand, it identifies the demand, and it assists with the logistics, but the manufacturers actually do the rest. Now, domestically, Pinduoduo uses a reverse auction with suppliers. So let's say they identify a demand for teacups. The manufacturer with the lowest bid for teacups will send its stock to a Pinduoduo warehouse and the manufacturer pays the storage cost. The manufacturer agrees to take back any unsold items and Pinduoduo doesn't pay until the quarter is up based on what is sold. So it's essentially a big consignment model. And that works in China because there are so many low-cost manufacturers. You can get a nice bidding war and the manufacturers are like, we'll take it versus nothing. Now for Timu, the process isn't managed as fully end-to as that. They don't have warehouses for the international version. Merchants will ship products by ocean freight into a warehouse overseas for local distribution, and the manufacturer has to pay for that warehouse space. So sometimes these warehouses are Chinese families overseas who do cheap labeling and reshipping from their garage. But the manufacturer is paying either way, and that's why you get a lot of families doing this, because it's an affordable way for the manufacturer to do it. So you might ask, why do manufacturers agree to do that? Many of these manufacturers would never find big enough markets otherwise, right? They can make teacups all day long, but if they got nobody to sell them to, they're not going to make any money making teacups. And unlike Amazon, Timu doesn't take a cut of sales. That sink in. There's no commission. Timu only charges manufacturers for the marketing and the promotion. So Timu will plow ads onto social media. It'll use gamification in the app to spur you to buy stuff that maybe you wouldn't have bought otherwise. And the platform makes 38% of its revenue logistics services and 62% from that marketing. So if you add those up, that's 100%. It doesn't take commissions. One of the keys to Timu winning a market was to focus on underserved customers in smaller cities and rural areas where it didn't have to compete for wealthier urban customers. That goes back to the fruit days, right? It still does that. Timu and Pinduoduo find those shoppers and then connect them with the makers of the products. And that's valuable enough on its own to make everybody a profit. ([Time 0:02:25](https://share.snipd.com/snip/24002164-8c76-4222-98e7-336bd10b6f1b)) - **Pinduoduo's Origins** - Temu's parent company, Pinduoduo, started with group buying on WeChat. - The platform made bulk orders of items like fruit, passing the savings on to consumers. Transcript: Tom Merritt And Timu is really the international addition of Pinhaoho. It started by using WeChat's group buying model to make bulk orders of fresh fruit. I think I remember hearing this on an Economist podcast. They just got a bunch of people together on WeChat to agree to buy a pound of oranges each. And then they would make one huge order for oranges and get them to people. ([Time 0:03:39](https://share.snipd.com/snip/5d550362-9e9c-4791-9650-785c4f3b86d6)) - **Reverse Auction Model** - Pinduoduo uses a reverse auction system with suppliers in China. - The lowest bidder sends stock to Pinduoduo's warehouse, paying storage costs and taking back unsold items. Transcript: Tom Merritt Now, domestically, Pinduoduo uses a reverse auction with suppliers. So let's say they identify a demand for teacups. The manufacturer with the lowest bid for teacups will send its stock to a Pinduoduo warehouse and the manufacturer pays the storage cost. The manufacturer agrees to take back any unsold items and Pinduoduo doesn't pay until the quarter is up based on what is sold. So it's essentially a big consignment model. And that works in China because there are so many low-cost manufacturers. You can get a nice bidding war and the manufacturers are like, we'll take it versus nothing. ([Time 0:04:43](https://share.snipd.com/snip/02a82966-c127-482a-993a-97af7fa49eff)) - **Temu's International Logistics** - Temu's international process involves manufacturers shipping products overseas for local distribution. - Sometimes, Chinese families overseas handle cheap labeling and reshipping from their garages. Transcript: Tom Merritt Now for Timu, the process isn't managed as fully end-to as that. They don't have warehouses for the international version. Merchants will ship products by ocean freight into a warehouse overseas for local distribution, and the manufacturer has to pay for that warehouse space. So sometimes these warehouses are Chinese families overseas who do cheap labeling and reshipping from their garage. But the manufacturer is paying either way, and that's why you get a lot of families doing this, because it's an affordable way for the manufacturer to do it. ([Time 0:05:21](https://share.snipd.com/snip/cdf0d6af-ea18-4300-abd9-398a183fc3d8)) - **Gamifying Pinball** - Ron Richards, co-founder of Scorbit, discusses adding achievements to older pinball games. - This adds a new layer of engagement to classic games like Medieval Madness. Transcript: Tom Merritt Talk about bringing pinball games into the present and even the future. I know there's a lot of what I might call video gamification of pinball, right? Pinball, I think in a lot of people's minds is, just stand there, you play the game, maybe you get a high score up on the LED screen, and you're done, right? What are some of the things, Ron, that you're doing to bring that more into the internet age? Ron Richards Well, yeah, and that was really what the whole kind of premise was, is that initially when, you know, myself and my co-founder, Jay Adelson over at Scorbit were dreaming it up back in 2015, you know, I initially had the idea of like, you know, I'm really tired of writing down my high scores. Wouldn't it be cool if there was an app to keep track of it? And then, you know, Jay kind of pushed it one further and goes, yeah, that's But, you know, anybody can make an app. Wouldn't it be cooler if we could, you know, build a device that went into pinball machines to actually connect them? And then we can extract all other sorts of data that we can, you know, from there to see what's going on there. And that's really when we're like, oh, God, that'd be so cool. And it took us a whole bunch of years, but we did it. We reverse engineered a bunch of machines. We understood how every machine from every era worked from the solid states all the way up into today and to figure out how we could extract that data. And once we did that, not only are you able to extract scores, which allow you to keep track of your own personal high scores, we plug into pinball tournament software to make sure that The scorekeeping is accurate and things like that. But then it said, oh, wait a minute, we can do a lot more here in that we can create a layer of achievements on top of an old game. So you can have a game like Medieval Madness that came out in 1995. The code is finished. The company is out of business. The game is what it is. And anybody who's played pinball a lot has played it, played it to the wizard mode. And then at that point, you think you're done with the machine. But wouldn't it be great if you could create uh targets and create quests and create games within the game by using that connection and that's really what we're doing um and it's been Great to see what we're doing at scorebit validated by uh the largest current pinball manufacturer stern uh who has a system called insider connected where they're basically doing That on games that are shipping today so all of their new games come uh come out connected they built the they built the game the game rules and things like that but on top of that they've Created achievements and targets and quests and things like that to to pursue and so really what you've got is you've got this whole kind of whole world of giving a pinball machine a new Life so to speak um the newer games it's just like another thing, another feature. But for what really gets me excited is, you know, like, so Tim on Comet, you know, we can create a whole bunch of new goals that you can, you know, layer into while you're playing Comet. So you're not just going for the score, you're going for how many times do you, you know, do you hit the hit that right ramp? ([Time 0:22:28](https://share.snipd.com/snip/d11eae6b-9b88-4b45-8456-1e52279db3aa)) - **Pinball Evolution** - Tim Stevens and Ron Richards discuss the evolution of pinball, from simple to complex. - Newer machines cater to younger audiences with video game-like features, like quests and modes. Transcript: Tim Stevens That's great because if you are only used to playing modern pinball machines and you're used to really complex modes and cycling from one to the next and quests and things within the Game, which manufacturers have added over the past five or ten years. But if you go back to the earlier machines, there's really none of that. It is basically three balls and you're out. And there's not a lot of saving state even between from one ball to the next. And in a lot of games of even through the mid-80s, if you had two balls locked for a multiball and the second player comes in and triggers multiball, they get your multiball. So it wasn't even shared from one player to the next. But now we see machines like we have the new Dungeons& Dragons machine coming out from Sturm this year, which has persistent characters. So you can basically level up your character in the game as you go from one game to the next and unlock new features and that kind of thing. It's really been an interesting evolution. You know, if you do get to go to one of those shows, like Ron mentioned, or there are quite a few places out there that have collections of pinball machines that date back over different Generations. On the East Coast, for example, there's the Electromagnetic Museum in Rhode Island, or there's a place called Pastime Pinball in Manchester or Sanctum in Connecticut. I'm sure there's a ton on the West Coast as well. Ron Richards Silver Ball in Asbury Park in New Jersey. The Pacific Pinball Museum in Alameda actually is one of the best collections on the West Coast that people want to check out. Tim Stevens Yeah. If you get to go to one of those, I highly recommend you pick a table from the 60s, then step up to the 70s and 80s and see the evolution as the games become more and more complicated. And, you know, the earlier games are slower, but they're really hard. And they tend to get a little bit more momentum and a little bit more flow as you go into the 80s. And then as you go into the 90s and into the modern day machines, that's when you start to see this layering on in different modes and different gameplay challenges, really to kind of Cater to a younger audience who are more used to playing video games, who are more used to moving up from one thing to the next. ([Time 0:25:15](https://share.snipd.com/snip/f3d94647-93c9-401a-a861-b37b675e1ad3)) - **Head-to-Head Pinball** - Scorbit promotes play by enabling challenges and head-to-head competition. - Players can challenge anyone globally on the same game, turning single-player into a connected experience. Transcript: Ron Richards And then another piece, at least what we're trying to do with score, but as we're trying to promote play. And so what we've added also is the ability of a concept of challenges or head-to play. So I could step up to a comet, get a great score, and then challenge you, Tim, saying, hey, can you beat this score? And it becomes kind of a great way to take what was a single-player game or a multiplayer game, only if you're all four of you are physically there, into a head-to game with anybody in the World who has access to that same game. ([Time 0:27:10](https://share.snipd.com/snip/bfe7703e-810a-4740-80a9-fd650bb61f07)) - **Scorbitron Functionality** - The Scorbitron device connects to pinball machines, extracting data and sending it to a cloud platform. - This allows for features like score tracking, achievements, and challenges. Transcript: Tom Merritt You were to put Scorbit on Comet, how does that work? Ron Richards So basically, it's real simple. We have a device called the Scorbitron, which, you know, I did not name after myself. I just was trying to... Scorbitron. Tom Merritt Yeah, I know. Ron Richards It really reminds me of that. I just like the idea of like the 1950s, like the Magnatron. Yeah, yeah, yeah. Anyway, but so we have a device called the Scorbitron, which is basically what we invented coming off of that idea that Jay and I had years ago, which was a single circuit board that goes Into a pinball machine. And then we've developed a series of connectors for the different types of pinball machines. So for Comet, there would be a specific type of connector, which is different than a more modern games connector, that sort of thing. And what happens is that as the data is flowing around inside the pinball machine, we kind of siphon it off and then send it up to our cloud platform that we built in our infrastructure Where we absorb all that data. And then we send it back down to the mobile app to the user in order to use it. And so it takes maybe five minutes to install. Maybe you just got to plug it into power. There's a whole bunch, as Tim, as you probably know, a whole bunch of sources of power in a pinball machine. Imagine like the inside of a computer or the motherboard. You got those white power cables. You can siphon off those power cables. Tim Stevens Some are more dangerous than others. Ron Richards Exactly. Please be careful. We have very explicit instructions to show you what to do. And then you plug in a cable within the machine to our device, and that's what gets the data, and that's how it works. It's pretty simple. And for the more modern machines, we work with a lot of manufacturers, and they are able to bypass our device completely. We're working with them on the software level so that their code incorporates our SDK and sends the data up to our cloud service without a device even needed. ([Time 0:27:38](https://share.snipd.com/snip/77c159db-29f4-4c6c-9b6d-b411e570eb33)) - **Affordable EVs in Thailand** - James Brucker shares examples of affordable EVs in Thailand, like the BYD Dolphin and Neta V. - He contrasts these with the higher prices of EVs in the US. Transcript: Tom Merritt James writes, in the February 11th DTNS briefing, we mentioned EV prices in other countries. He says, I'd like to offer a few examples of good quality, reasonably priced EVs here in Thailand. So the BYD Dolphin standard model is 570,000 baht. That's about $16,900, nearly the same size and shape as a Honda Fit, maybe a bit longer than a Volkswagen Golf, 60 kilowatt hour battery, range of about 400 kilometers, says it's very Popular not only in Thailand, but Australia. The Neta V version 2, N-E standard model is 430,000 baht. That's about 12,800 bucks. It is a brand of Hoseon New Energy, Hoseon Motors of China. It's about 10 centimeters shorter, so not much shorter, and 500 kilometers lighter than the BYD Dolphin. 36 kilowatt hour LFP battery still gets you 320 kilometers of real world driving range. He says, I like this car. It's a very basic car. Manual seat adjustment instead of electric motors. Real door key in addition to passive entrance system. Spacious interior without a lot of clutter. And then he points out the BYD Ato 3, A-T Standard model list for $1,099 But that's $32,600. So this one's on the more expensive head, but looks similar to a Tesla Model Y. In fact, he says, Jim says the Atto 3 looks better to him. 480 kilometers real world range, but the real world range, he says, is more like 400 to 420. Also very popular in Australia, as well as Thailand. Jim says, sorry that the US is stuck with a lot of expensive EVs. They don't need to be expensive, as the above examples show. Thank you, Jim. I really love getting these on the ground reports from people. This is the thing that makes an email really stand out to me and want to share it with everybody is when someone's like, I have a piece of information maybe not everybody else in your audience Has. So thank you, Jim, for that. Really appreciate it. I ([Time 0:32:05](https://share.snipd.com/snip/afabe100-c889-4741-b893-618f1b6a4fba))