Is cheap the new black? E-commerce's existential crisis

As another holiday season approaches (cue Black Friday campaigns and pumpkin spice lattes), CMOs face a new and existential challenge. Platforms like Temu and Shein have redefined e-commerce with ultra-cheap, price-first/last models, upending consumer expectations and challenging e-commerce performance marketing as we know it.

Amazon’s recent launch of Haul, which promises “crazy low” prices and slower delivery times, shows how deeply Temu’s model has disrupted the market. For a company synonymous with convenience and quality, this pivot is significant—and worrying.

Temu thrives on offering impossibly low prices, disrupting consumer behaviour and the entire digital advertising ecosystem—especially at the top of the funnel.

Here’s the fallout:

• Skyrocketing CPCs: Temu floods Google’s ad auctions with cheap products, driving up ad costs for everyone.
   
• Ad saturation: Price-first brands dominate, squeezing out quality-focused players.
   
• Erosion of trust: Consumers increasingly associate paid search with low-quality products, diminishing ROI for all advertisers.

This creates a vicious cycle for marketers: rising ad spend driven by soaring CPC leads to reduced visibility for quality brands unable to compete with Temu's aggressive bidding strategies, ultimately resulting in declining consumer trust that undermines ROI for everyone. This effect isn't limited to Google; but Temu's massive ad spending on Meta is blamed for rising CPMs, highlighting broader challenges for DTC marketers as well.  Experts urge diversification and creative strategies to adapt to the evolving ad landscape. The Temu model is turning performance marketing into a zero-sum game and forcing consumers to adapt to the evolving ad landscape.

For CMOs, this represents the erosion of brand equity painstakingly built over decades. While Asian CMOs may find some temporary respite due to government intervention and regulatory efforts to curb the runaway growth of platforms like Temu, the underlying challenges remain. The key challenges facing CMOs include the need for greater ad spend efficiency in the face of rising CPCs and diminishing returns, the difficulty of differentiating brands in a price-driven market that reduces brands to mere commodities, and the need to adapt to shifting consumer expectations that demand deals many brands cannot sustainably offer.

To survive and thrive in this new era of ultra-cheap commerce, CMOs must shift their focus from short-term price wars to long-term resilience. This requires a strategic rethinking of advertising strategies, diversifying away from an over-reliance on platforms like Google Ads and prioritising channels that effectively showcase brand quality and compelling narratives.

Programmatic connected TV (CTV) advertising presents a promising avenue for this approach. Furthermore, CMOs must invest in narratives that highlight the unique value propositions of their brands, emphasising quality, sustainability, and innovation—attributes that price-first competitors struggle to replicate.

Protecting profit margins by strategically implementing loyalty rewards, exclusive bundles, and premium experiences is also crucial. Competing solely on price is a recipe for irrelevance.

Building direct-to-consumer platforms and strengthening first-party data strategies are essential to reduce dependence on third-party marketplaces. Finally, empowering consumers by highlighting the hidden costs associated with ultra-cheap commerce, such as poor product quality and ethical concerns, can help shift consumer perception and preference.

In conclusion, while Temu appears to be an unstoppable force, CMOs must resist the temptation to engage in a destructive price war and instead focus on building long-term value. A bold approach is necessary to avoid the pitfalls of prioritising volume over value and short-term gains over long-term brand equity.

The brands that will ultimately thrive are those that flaunt the courage to chart a different course, building direct engagement with their audiences, prioritising value and trust over gimmicks and aggressive marketing tactics, and emphasising storytelling over mere shouting. In a world saturated with misleading discounts, the enduring power of quality remains, and it is the responsibility of brands to remind consumers of this fundamental truth.

Ramakrishnan Raja is the principal at marketing consulting firm, Resonant.