Think you’ve snagged a bargain online? It’s you who’s been snagged

In a cost-of-living crisis, I’m sure I’m not the only bargain hunter who has put giant e-commerce sites Temu, Shein and Wish to the test.

I’ve heard all the arguments against shopping online, and like most of my generation, I’ve shrugged off most of them, too. It’s how we do things when money is tight. Get with the program, or get old.

Illustration: Simon LetchCredit:

One friend splashed cash on a giant stuffed pig from Temu for my birthday, and another told me their “mate” (sure, sure) had tried buying some “weird stuff” from Wish, including weapons and sex toys. By weapons, they meant pepper spray. I didn’t press on the sex toys.

“Verdict?” I asked. “Worth someone switching suppliers?”

“Feel free to trust the online reviews,” they replied. “I can’t speak for it myself.”

You might think you’ve bagged a bargain, or something you wouldn’t buy in person, when using these sites. And in some cases, you probably have. But whether you’re stocking up on knock-off essentials, or chasing a quick hit of retail therapy, there are some risks to keep in mind.

First, there’s the good chance you’re spending more than you bargained for. Sneaky sales tactics have been used by bricks-and-mortar shops for decades. Switching up the floor plan every few weeks or months, for example, forces customers to spend more time in the store and discover products they may not have noticed before on their well-worn path.

But online shopping is a different ball game, and has ushered in a raft of new sneaky techniques. One of these strategies is gamification: where e-commerce sites turn shopping into a game-like experience. Hop onto Temu, for example, and you might mistake it for an online casino.

Timers count down how long you have before you’ll miss out on a deal. And when a roulette wheel of discounts and store credit pops up with tantalising rewards (and seemingly no possibility of losing), it would seem silly not to give it a shot, right?

The dopamine hit from activities like spinning a wheel and landing a discount help reel us in, keep us engaged, and get us invested in making use of our reward, which, of course, means spending. The countdowns, meanwhile, fuel a sense of scarcity and urgency which compel us to act now (often impulsively), rather than abandon our cart.

Gamification, of course, is not just an online phenomenon. McDonald’s, for instance, runs its Monopoly promotion every year, encouraging customers to collect tokens, some of which can be exchanged instantly in-store for discounts.

But there are few e-commerce sites which have used these tactics so heavily, and converted so many people into customers. Despite only launching in 2022, Temu has become the fifth most popular online retail brand in Australia, with an estimated 1.2 million Australians checking out on the platform, and $1.3 billion spent by them annually.

Of course, part of this comes from the hundreds of millions of dollars the company has splashed each year on advertising. This includes money spent to flood social media platforms with ads and, in the US, even a spot at the most sought-after marketing opportunity: the Super Bowl.

Since Temu’s debut, its Chinese parent company Pinduoduo has seemingly gone from strength to strength. In the first three months of this year, it raked in nearly $5.4 billion in profit, triple its earnings from the same period last year.

Apart from its mammoth marketing budget, Temu has probably also benefited from launching at a time when inflation pressures, especially across developed economies, have driven customers to intensify their hunt for bargains.

Amazon, the US behemoth which launched back in 1994 as an online bookstore, still holds the top spot in e-commerce when it comes to profits and sales globally. But companies such as Temu have come under particular scrutiny because of a Chinese intelligence law which allows Beijing to access sensitive information held by Chinese firms.

While information on the $2 phone case you bought from Temu might not be too consequential, there are suspicions the Chinese government could be accessing personal information which could expose customers to fraud or cyberattacks.

And while misbehaviour by multinationals isn’t an issue unique to Chinese companies, regulation and compliance in China can be looser. Temu, for instance, has been accused of selling products built with slave labour. And authorities in Seoul this month found women’s accessories sold by companies including Shein, Temu and AliExpress contained toxic substances, some at hundreds of times above the legal limit.

Discounter marketplace Temu has made a big dent in online sales.

There are also wider economic implications of shopping with these platforms. A tactic often used by new companies is to temporarily sell at loss-making prices; that is, they sell their goods for less than it costs to make and ship them.

It can’t be done forever, but businesses with money to burn can use these aggressive strategies to drive smaller competitors into the ground or steal customers away from bigger rivals. Consumers benefit, for a little while, from cheaper prices, but competing businesses may suffer and so, eventually, will consumers.

Then, there’s the issue of sharing data. The internet has made it easier for companies to collect personal and minute behavioural information at an unprecedented scale.

While this can be beneficial when companies can match you with products you actually need, at prices that can’t be beaten, it can also help them take advantage of our weaknesses and play to our psychology in ways that make us spend more than we should.

There’s little doubt heavy use of gamification on sites such as Temu is already hooking us in. But by engaging with these tactics in the first place, we’re also feeding into the algorithms they use, and helping these companies figure out what makes us tick.

Temu’s tagline is “shop like a billionaire”, but unless we stay alert to the risks and tactics used by these e-commerce giants, it will be their pockets we end up lining.

While new and competitive businesses are a good thing for consumers looking for a bargain, we should keep a careful eye on these firms. After all, they’re keeping a close watch on ours.

Millie Muroi is an economics writer at The Sydney Morning Herald and The Age. She is based in Canberra.

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