If there were a label most applicable to slapping enthusiastically on to the South African market in 2024, it would probably be one along the lines of “Best Place to Set Up Shop”.
Believe it or not, despite the obvious logistical headaches that the local economy offers, it’s one of the most desirable regions for global brands to prospect for new customers.
Don’t hold your breath, but yes… Amazon is supposedly still coming this year. The Dubai-based Millat Group has already brought the Canadian convenience store brand, Circle K, here, and plans to introduce the swanky, quick-service restaurant brand Pret a Manger shortly.
Coca-Cola is opening more and more Costa Coffee outlets and the number of new and old car brands, including the likes of GAC and MG, now knocking on the South African buyer’s door, is encouraging.
Along with Shein and TikTok, there is yet another new Chinese brand that is already having a big impact on the country.
Launched in mid-January this year and already the #1 most downloaded app in South Africa, Temu is “an e-commerce platform that was founded in 2022” that sells incredibly cheap goods (often of questionable quality), very aggressively.
With the catchy slogan, “Shop like a billionaire”, the brand has leapt seemingly from nowhere and become astoundingly popular almost overnight.
Some analysts estimate that Temu will generate a global gross merchandise value of more than $30-billion this year thanks to enthusiastic demand from more than 350 million users.
How did Temu go from zero to hero?
The strategy seems simple enough.
First, it’s important to point out that it has invested a shocking amount of money on advertising. Last year alone, it spent more than $3-billion on promoting the brand; a mountain of money that is equivalent to the entire market capitalisation of Old Mutual.
It was spent on things like multiple Super Bowl ads in the US, subsidising sales on the site itself, and helping Mark Zuckerberg buy yet another superyacht.
Then there is the shopping experience. What Temu has managed to successfully pull off is a gamification of the mind-numbing process of buying stuff online.
The enormous number of “shoppers” it acquires then psychologically disassociate the spending of their money with actually spending money. Crafty, right?
Instead of the usual endless searching and clicking, the app is littered with games of chance. You can buy things together with your friends in a kind of virtual shopping club, and everything is hyped with surprise discounts and gimmicks lifted straight from a casino’s playbook.
A stylish men’s workwear jacket will only cost you R308… hold on, what’s this? A drone for only 500 bucks? People tend to stay on the app longer because of the mental enjoyment it offers and spend more money on stuff to further soothe themselves.
What they are doing very well is training consumers to be better consumers of value. They are reframing the consumption of value as a form of entertainment, much like playing a couple of rounds of Candy Crush.
Users aren’t buying things to get things – they’re playing a game and getting a dopamine hit by finding bargains. The quality of whatever arrives at the front door a few days later then almost becomes irrelevant.
It’s a classic case study of disruption by serving mass market consumers who are predictably overlooked by traditional e-commerce brands. The twist in the tail is that the lured market is then introduced to a brand-new category of gamified e-commerce that Temu alone owns.
A key part of the business model then comes into play.
What Pinduoduo – the holding company that owns the brand – has set out to achieve with Temu is to take better advantage of the vast ecosystem of merchants it represents by levelling the commercial playing field for all of them through the design and framing of its approach.
The intention is to “democratise success” for its many merchants, regardless of the quality of their products.
By offering things to buy, as a game, the focus falls away from the product itself. Users are incentivised to buy volume, not brands.
Now what?
Temu may appear to be yet another international brand coming to South Africa on a hunt for new customers, but don’t be fooled by the deceptive innocence of its childlike interface.
Its debut should be seen as part of the dawn of a new era in consumerism; one where giant marketing megalodons unleash a firehose of propaganda at a region to capture an outsized wallet share for as long as possible.
This is not just the capturing of a marketplace by a single company, but rather a tectonic shift in the structure of an economy conducted by a coordinated ecosystem of value teleported in from abroad.
It is not just retailers that should be taking note of this trend, but business South Africa as a collective should be paying very close attention to what is happening here, and making sense of just how its popularity will affect trading forecasts over the medium to long term.
Categorising Temu as simply an e-commerce business is woefully inaccurate. Its value proposition is more in line with Fortnite than it is with Amazon.
Discounting its impact by labelling the products that it sells as crap isn’t helpful either.
Because of its almost infinite capability to scale, its impact on consumer behaviour as it grows– as well as others just like it that are still on the way – will be unexpected if simply viewed in a traditional way.
In the US, authorities are responding to the threat with regulation, but companies like Pinduoduo move way quicker than policymakers.
A better countermove would be to understand more deeply exactly what it is that these strategies are offering people, and then to solve that in a more constructive way.
For now, though, the conditions are just right for “the Temu approach” to dominate. DM