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Zero-Fee Tours: An Irresistible Bargain or a Sinkhole?  
Product Ref: 12/505C Company: Trendy Travel Limited

Product Type: Case Industry: Hotels, Restaurants, Leisure

Related Product(s): Teaching Note
Authors: Wen Zhou   Penelope Chan
In early 2003, an outbreak of SARS in Hong Kong led to a plunge in inbound travel to the city. Many local travel agencies started hosting below-cost inbound tours, dubbed "zero-fee tours", for mainland Chinese tourists. They make a profit by bringing these tourists to shop in designated retail outlets that charge them inflated prices but offer lucrative commissions to tour operators. Zero-fee tours first caught the public's attention in October 2006 when a group of tourists were abandoned at a pier because they spent too little while shopping. Then in June 2010, a tourist died of a heart attack after a heated argument with a tour guide over a shopping arrangement. Despite preventive measures implemented by the industry association, tourist complaints keep increasing and high-profile cases in which tour guides insult or even fight with tourists continue to happen. Trendy Travel Limited is a local travel agency that hosts regularly priced inbound tours. Facing strong market demand for zero-fee tours, it would like to understand the business model of zero-fee tours: what is the driving force, is it sustainable, and what are the impacts to the company and the entire industry? It also wants to determine how to position its inbound tour business in the short and long term.
Functional Area : Economics & Business Policy
Strategy & General Management

Issues: Consequences of information asymmetry between sellers and buyers for market transactions. Adverse selection resulting in a low-price, low-quality business model. Management challenges in a market environment strongly influenced by information asymmetry.
Length: Text: 14 pages
Exhibits: 13 pages
Country: Hong Kong SAR

Pub. Year: 2012 Level of Difficulty: 3
This product type is available in the following language(s):      English
Related Information: N/A
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