On July 28, the Financial Times reported that cooperation between Pinduoduo’s cross-border e-commerce platform Temu and U.S. suppliers was hampered by Amazon’s dominance in the e-commerce market. U.S. companies and sellers have told Temu that branded goods sold on its platform cannot be priced lower than Amazon, according to two people briefed on recent talks.
"We have told them that the price of the same product cannot be lower than Amazon. The price must be lower for products with substantial differences." said an executive of a large third-party seller.
Amazon’s pricing power
A third-party seller executive said Temu had offered sellers incentives such as lower fees to persuade them to list goods on its platform. But the person said they warned Temu that Amazon would take action to match the lower price.
Amazon aggressively drives down product prices and sets a price floor for most items. The sheer scale of its business allows Amazon to sustain losses for a period of time to keep prices low, something smaller rivals like Temu struggle to do.
“Unless Pinduoduo is willing to lose billions of dollars every year for the next five years in exchange for market share, it has to deal smarter,” said Martin Heubel, a consultant who advises Amazon and its suppliers on negotiations.
Brands and third-party sellers risk losing Amazon’s Buy Box if they offer lower prices on other platforms. This feature allows customers to add items directly to their shopping carts and facilitates the majority of purchases on the site.
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Since Amazon has a huge sales network and many businesses rely on it to complete the majority of their sales, this means that price cuts on Temu will have a clear knock-on effect on their revenue.
In response, Amazon said: "Sales partners can independently determine inventory, product selection and pricing strategies."
According to the terms of cooperation between suppliers and Amazon, suppliers sometimes need to bear the profit losses caused by price reductions on the platform, which essentially protects Amazon's profit margins.
Amazon said its suppliers can choose whether to enter into these agreements "with the ultimate goal of allowing customers to enjoy low and competitive prices."
Another strategy Temu uses to achieve low prices is to follow the lead of retailers such as Nordstrom Rack and TJ Maxx, which focus on returns and discounted items. "The only way for Temu to compete in the field of high-quality goods is to sell non-branded goods...or provide significant discounts." Huber analyzed.
Amazon's low-price platform Haul, which competes with Temu, is already selling discounted products from well-known brands such as Under Armor.
Temu responded: "We believe in the principles of fair and open competition...Sellers should have the freedom to choose where and how to do business without being restricted."