Free tours can be very effective as a loss leader marketing strategy and they can turn a profit. But you need to look at the full picture before you start running them
One of the big questions tour operators are asking is: should we run free tours? Of course, the answer is that it depends. A lot of this will come down to your market segment, price points, and target market. You need to ask what you hope to get out of free tours, how it will affect your business, and what difficulties you may face.
Free tours are a trend in the tours industry that has gathered pace over the past few years. They can now be found in most major cities and are usually walking tours. Guests pay through tips and the end, and this is expected to cover the operational costs. Many of the tours are a standard walking tour, but a lot are also food or graffiti walks.
These days, travellers understand how free tours work. They know that they’re expected to tip a higher amount — and they’re expecting a quality tour. Generally, the tourists who take them are younger people or backpackers looking to discover a city on their first day or two in destination. However, if they have good reviews, older and wealthier travellers and families will come along too.
Using free tours as a loss leader
Most free tours are run with one of two objectives: as a loss leader, or to make money. It’s perfectly possible to do both. Making money will often be what a solo guide is aiming for. These people are passionate about their interests and want to tell everyone who visits their destination. Larger businesses would be better to think of it as a loss leader until the kinks are ironed out.
If you provide luxury tours, have high price points or your target market is older, free tours aren’t something you should consider. They work much better for mid-market or high-volume operators who aim for a younger audience. However, there’s no reason why you couldn’t position a free tour as specifically for older tourists or families. Day tour operators should also consider using them as a way to show off your storytelling skills.
When running a free tour as a loss leader for the rest of your business, it needs to be just as good as any of your other experiences. You’re not going to upsell anyone from a poor-quality product. You also need to be careful about the upselling process. One of the main complaints tourists returning from a free trip have is that the guide tried to get them to take more trips too often. This is feedback that is unlikely to be passed onto the guide, although it might make it into a three-star review.
Express tour, self-guided tours and partnerships
While it needs to be a great tour, it could be an express version of one that you are already running. For example, a four-hour walking tour could be shortened to two. This would speed up planning and implementation. But you would still need to market it and add it to your listings on the OTAs that you use.
Another option you could look at is to partner with one of the free tour providers that operate in your location. There are likely to be quite a few if you work in a big city. They range from online platforms that operate like OTAs for the guides who sign up, to people running one for a bit of fun through Airbnb, to others who have a small business and leaflet every hostel they can find.
A partnership such as this could work best if the free tour ran in the morning and ended close to the starting point of an afternoon tour, or your offices. That would give the guide the opportunity to upsell your products immediately and direct them to your sales staff for further information.
This might be an option if you run tours that are more specific, such as a food tour, or are a local attraction. For example, a museum could ask to be included on the route with information provided to the tour’s guests. An issue here could be measuring any visitors from the tour, and therefore paying the guide. This could be managed by providing a small discount code but is more difficult if your attraction is free. You would also want a level of exclusivity so the guide is not offering any alternatives.
Setting up free self-guided tours may be a solution. There are a range of self-guided tour platforms out there that will help and guide you through creating your content. These platforms range from delivering a simple solution through writing, pictures and a map, to ones that are significantly more advanced with voice-over artists, video and interactivity.
Essentially the concept is the same — the traveller uses their phone to find their way through the locations. There are some places where self-guided may not be recommended. A tour with a phone out in Bogotá would quickly become an interesting experience for the traveller.
As well as creating the tour, you would need to ensure that you are able to cover it with your branding and be able to add further information about your other products. Having a reputable brand would help with users choosing your tour. However, if you choose to go down this route, you would want to ask the supplier questions about the number of active users and how many complete a tour.
There are marketing costs involved. A product page needs to be built for the site and time needs to be spent uploading the trip to online travel agencies. The largest marketing expense could be leafletting the local hostels and hotels as this is where many of your customers will find you, and ask other travellers if they’ve taken the tour.
What costs are involved?
Because it needs to be as good as any other tour, a free tour will cost you money at first. The route needs to be planned, a script must be written, and the guide needs to be paid. You should also consider which guide to use. A better guide with lots of experience may bring in more business but take them off other trips where they may be more use, while a new guide learning the ropes may not have any repeat customers.
There are also marketing costs involved. A product page needs to be built for the site and time needs to be spent uploading the trip to online travel agencies. The largest marketing expense could be leafletting the local hostels and hotels as this is where many of your customers will find you, and ask other travellers if they’ve taken the tour.
Another cost that is possible and difficult to quantify is the risk of fraud. With no money taken up front, little paperwork, and mostly cash payments, there is always the chance that a guide may pocket some extra for themselves. If possible, a system for receipts using a portable point of sale should be used to keep track of all payments and may be required in some jurisdictions.
If you are comfortable with these and operate in a segment where you think it could work, then you should consider running free tours. Sketch out a quick plan to make an estimate of your costs to see if it is feasible, discuss it with your team, and then put it into action. Results may be slow at first until the marketing kicks in. However, once it does, you should see an increase in sales across your other products. And if everything goes perfectly, the free tours could begin to turn a profit.