The One-upmanship of Tourist-Catered Enterprises

Look at any major tourist site in the world today, there is bound to be an adjacent area with hundreds of shops serving the needs of hundreds of thousands of travelers coming through every year. They do a roaring business.  People need to eat, sleep, be entertained, and have their laundry done. And away from home and unfamiliar with the local prices, the tourists are willing to pay much higher prices than the local residents for services and products, some of them so basic as to not cost that much to provide.

The ease of making money and the low costs of entry encourage more and more locals to start businesses that cater to tourist demands, often serving up near-identical products and services, at similar prices, in similar settings, and often right next to each other.  As so many businesses of similar types congregate in small areas accessed by tourists, it becomes absolutely pivotal for each business owner to differentiate their establishments from those of competitors.

One way for business owners to set themselves apart from competitors effectively is to provide additional services that are free and desirable for tourists.  Some of them cost literally no money for the businesses themselves.  Examples include luggage storage at hotels for customers who checked out, provision of basic tourist information by hotels and tour agencies, and even offerings of refreshments (usually leftovers from attached restaurants) in various businesses.

But since these things are free, they have become standard practice for all businesses, and thus no longer have any effectiveness in distinguishing businesses from each other.  More services have to be provided to entice travelers, even if that means businesses have to invest in these extra services that will bring them no direct income.  The logic is that the more free stuff customers get, the more they will help market the business back home via words of mouth, eventually bringing in more customers over time.

And invest they have.  Between Cuzco and Machu Picchu, for instance, every restaurant and hotel now provide free fast wifi and payment by credit card without extra charge.  Some provide steep discounts for big purchases, giving away free food and drinks at all.  Some even go far enough to pay for live local bands to come play every night of the week, hoping to attract tourists with free "cultural performances." All the free services are advertised on brochures and big boards for all passersby to see.

Travelers, given the widespread availability of such free services, have really started to take advantage of them.  Some can even be borderline overuse through abusing the privilege of the free services.  Wifi is the best example.  Travelers who need the Internet simply walk into a cafe and order a cheap cup of coffee or tea.  Then they proceed to sit for hours and hours, uploading photos and streaming videos with the cafe's wifi with little sense of embarrassment or remorse.

For the business owners, what was originally designed to be cheap marketing trick has become a major business expense.  The many GBs of wifi used by the video-streaming tourist is of such a cost that it cannot be covered by the one coffee or tea s/he ordered, no matter how overpriced that one drink might have been.  Even as free wifi brings in more customers, the business owner is starting to realize that s/he is actually losing money on many of the customers the business gets.

Yet, no business can suddenly cut off these free services or charge higher prices to compensate for them.  The competitive atmosphere is such that if one shop raised prices, others are unlikely to follow suit, forcing the shop that raised prices to lower them again just to bring back the lost client base.  The only real way out for the business from continuing losses from the free services, honestly, is shutting down the business entirely.  In tourist areas where tourist income is everything, that is an unrealistic option.

It is an economic dilemma that can only be solved with extensive collusion among the businesses of the area, setting standard prices for each product or service to ensure that they are high enough to cover those free perks customers get.  Yet, with hundreds of businesses fighting for customers, there will always be "rebels" that undercut agreed upon prices in orders to capture all tourists.  The tourists' general lack of loyalty to any particular business will only make rebelling easier.