Amazon has dominated the ecommerce landscape for over a decade and is on track to overtake Walmart as the largest retailer in the U.S. Amazon’s vast marketplace, combined with its rapid fulfillment and Prime business, effectively calcified its position.
Now, we’re witnessing a new wave of ecommerce in the U.S. driven by Chinese competitors. Shein and Temu have launched massive advertising campaigns paired with optimized sales tactics to carve out a new niche and redefine the standards of ecommerce success. Finally, TikTok has rapidly entered the U.S. ecommerce market with TikTok Shops, delivering the most complete social commerce experience to date.
By understanding how these brands approach targeted advertising and sales tactics, legacy ecommerce retailers can modify their own strategies to achieve a higher level of customer engagement.
How Newcomers Took Market Share
Temu launched in the U.S. in Sept 2022. In just over a year, the discount retailer boasted over 50 million active monthly users, a feat that took Amazon nearly three decades. Both Shein and Temu offer cheap Chinese wholesale goods, but they didn’t only win on competitive pricing. Their aggressive approaches to marketing and merchandising enabled them to capture a massive portion of the retail market, and their sales tactics encouraged rapid customer engagement.
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For Temu in particular, establishing a brand in the U.S. was expensive. The company spent nearly $1.8 billion in advertising during the first year of its U.S. operations. As it entered a new market, it needed to establish brand awareness and attract customer interest on a national scale. However, this marketing spend came at the expense of profitability, with some estimates showing that Temu loses an average of $30 for every order placed.
Temu achieves generalized brand awareness with strategically timed ad spend that coincides with moments when the greatest number of people are online. For example, it was the world’s top buyer of Facebook ads during the Super Bowl and has purchased Super Bowl ads each of the past two years. This concentrated effort effectively edges out competitors for a short time, as advertising purchases like these make ads on the platform more expensive for everyone.
Like many ecommerce brands, Temu and Shein target users on social media platforms to reach a younger, tech-savvy audience that is more inclined to shop online. Both merchants also make extensive use of influencers to tap into established follower bases and build credibility. Paired with broader brand awareness campaigns, this strategy made Temu a household name within just a few months while driving traffic to the storefront. Likewise, TikTok’s retail ambitions are anchored in the content (videos) generated by influencers on its platform who also want to monetize their audience with commerce.
A Master Class in Customer Engagement
What truly sets Temu, Shein and TikTok apart from established retailers like Amazon, Walmart and Target is their approach to customer engagement. These newcomer platforms fundamentally make shopping fun by adding gamified elements and embedding entertainment within the shopping experience.
Both Temu and Shein bombard users with aggressive promotions and discounts that require some form of active engagement. While Amazon might offer a discount to all customers, Shein and Temu treat sales and coupons as gated assets, with discounts typically only available for shoppers who open an account. Temu takes engagement a step further with spinning discount wheels and special deals on a ticking countdown timer. These encourage immediate action from customers lest they lose their opportunity to get the best price.
Personal data is another integral part of Shein and Temu’s success. Both leverage user data and past purchases to present each customer with a personalized shopping catalog. TikTok’s business model is also founded on an algorithm that is inherently personalized, adapting content recommendations based on users’ every action. By comparison, Amazon and Walmart shuffle sponsored products through their internal retail media advertising platforms and prioritize top-selling products in their catalogs.
User data may also be paired with artificial intelligence to enhance the customer experience. Shein uses user data insights to predict what products customers will want in the future, effectively taking fast fashion to the next level. By coupling these AI systems with Chinese manufacturing partners, Shein is able to add around 1.3 million products to its catalog daily, compared to 35,000 products a year for the fast fashion retailer Zara.
These engaging elements all contribute to the establishment of a repeat customer base and an increase in customer lifetime value, which is necessary in today’s aggressive and expensive advertising landscape. Because these companies spend so much on advertising, their customer acquisition costs (CAC) are comparatively high, often requiring new customers to make three or more purchases to turn a profit. The use of these gamified elements, personalized offerings, competitive prices and gated coupons work together to encourage much-needed repeat business.
Emerging Ecommerce Brands Should Seek Inspiration from Temu, Shein and TikTok
The true test of an online retailer is whether it has brand recognition and an established customer base. The most effective way to achieve that is cultivating long-term customers who place repeat purchases and become brand advocates, instead of relying on ad spend. At the same time, Chinese retailers have made many smart moves to rapidly generate brand awareness and reach more niche subsets.
Gamified sales tactics, tailored offerings, leaning into video and a personalized, AI-driven shopping experience all encourage customer loyalty, increasing conversions as well as repeat business. Site experience and a deep understanding of the psychology of retail are what set emerging ecommerce merchants apart from traditional retail giants.
In a space with an increasingly high cost per acquisition, these strategies are critical for any online retailer chasing long-term profitability and sustainable growth.
Jordan Jewell is the Analyst in Residence at VTEX, where he leverages his deep expertise in analyzing market trends and data insights to ensure that commerce brands have the critical information needed to unlock growth and achieve their business objectives through actionable insights. Before joining VTEX, he was an industry analyst at International Data Corporation (IDC). At IDC, Jewell launched and ran the Digital Commerce research practice, where he analyzed technology markets, including digital commerce platforms, product information management, order management and digital marketplaces. He authored studies including IDC MarketScape evaluations on B2B, B2C and headless commerce.
