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Zero-Fee Tours: An Irresistible Bargain or a Sinkhole?

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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.

Learning Objective:

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.

Year of Publication: 2012
Ref. No.: 12/505C
Discipline: Economics & Business Policy, Strategy & General Management
Industry: Hotels, Restaurants, Leisure
Country: Hong Kong SAR
Company: Trendy Travel Limited
Languages: English
Pages of Text: 27