Mystery Shopping & Compliance: Protecting your Business

Compliance is not just a box-ticking exercise. Get it wrong and the business itself could be in danger.

Threats of large fines, loss of business, forced closure, legal suits or even jail time are a real proposition for brands that can’t meet their obligations. Cases such as the Volkswagen “Dieselgate” scandal show the reputational and financial damage that can be incurred when brands find themselves on the wrong side of the line.

That said, the world of compliance is not solely limited to red tape, checklists, and legal repercussions. Compliance auditing can ensure that best-practice standards, cleanliness, and even the ethical approaches of sales staff are ingrained and consistent.

In this article, we’ll examine the most crucial aspects of legal and franchise compliance, looking at the important role of mystery shopping in monitoring adherence, before looking at industry-specific examples.

What Is Compliance?

Compliance is the act of adhering to a certain set of laws, regulations, rules, or guidelines that apply to a business’ operations. Within compliance auditing, these factors are generally divided into two areas; legal compliance and franchise compliance.

What Is Legal Compliance?

Legal compliance describes the actions companies take to adhere to the laws, regulations and policies which govern their operations, and which are intended to protect consumers and staff from potential harm.

These obligations are largely industry-specific. For example, staff at convenience stores have to verify customer age for sales of restricted products like tobacco or alcohol, restaurants have to meet minimum food and beverage safety standards, and retailers selling firearms have to conduct background checks.

However, some obligations, such as ensuring hiring and interview processes are free from discrimination, apply to all businesses, regardless of sector.

What Is Franchise Compliance?

Franchise regulations are a set of rules stipulated by a franchisor, and issued to vendors and branches that carry their brand name. When businesses sign up to a franchise agreement, they are contractually bound to adhere to franchise regulations, upholding specific requirements related to standards and brand identity.

As an example, McDonald’s operates as a franchise. People who are not directly employed by McDonald’s pay a fee for licensed use of its brand name and image. They also agree to serve menus designed by McDonald’s, to a standard that meets their requirements, and to adhere to many other rules that govern the way they operate.

The power of McDonald’s brand image is in the consistency of the experience, regardless of which location or operator a customer chooses. The company has been remarkably successful in ensuring that their restaurants throughout the world look the same, serve similar menus (with some regional variation), and meet the same customer service standards.

Given the importance of consistency in establishing a strong brand experience, it is imperative for the parent companies in franchises to regularly monitor whether standards are being upheld.

Franchise branding compliance

Logos, Colors, Fonts
Intellectual Property
Trademark Rules

Franchise front-of-house compliance

Customer Service Style
Hygiene Standards
Best Practices

Franchisees that fail to adhere to rules and guidelines could lose their brand endorsement, harm business relations, and even face legal action over damage to brand reputation.

How Do Businesses Monitor Compliance?

Companies with multiple locations will often hire a Compliance Manager, who is responsible for monitoring compliance and making improvements where necessary.

Companies will conduct risk assessments, provide regular training sessions, and conduct policy audits to ensure there are no gaps in their records.

While it’s important for companies to have figures within an organization that bear responsibility for compliance, there can be drawbacks to carrying out the whole operation in-house.

Internal managers are known to staff, who will understand when they are being monitored and adjust their behavior and practices accordingly. This means the monitored performance will be unrepresentative of a typical customer experience.

Audits conducted internally can also be affected by delays. Managers cannot be in all locations at the same time, and this necessary staggering of site visits alerts staff ahead of time, giving them time to prepare. The picture that is painted is also less of a time-specific snapshot of compliance across the organization.

Mystery Shopping and Compliance

Research conducted by Mystery Shopping agencies hold up a mirror to an organization’s operational practices, giving decision-makers a clear, objective view of their standards and conduct.

The benefits of mystery shopping for compliance

Unbiased Evaluation – Mystery Shopping audits give businesses a customer’s perspective, and show how their staff behave when they are unaware of being monitored.

Prevent Legal Repercussions – Identify and address areas of non-compliance before they become a legal issue.

Protect Your Brand Image – Ensure all locations and staff follow company guidelines, engage in ethical upselling and cross-selling sales practices, and provide customers with accurate information.

Prove Due Diligence – In the event of legal or regulatory inquiries, Mystery Shopping audits provide evidence that reasonable efforts have been undertaken to address compliance issues.

How mystery shopping agencies audit compliance

Mystery Shopping assessments can be conducted on single-regulation programs (e.g. Food Hygiene Standards, Discrimination Policy, Consumer Protection Laws) or can be more widespread, assessing compliance more generally over a long period of time.

The evaluation process usually consists of an initial pre-assessment stage, to equip the research agents with detailed knowledge of brand expectations and relevant legal regulations, and a secondary stage with overt or covert on-site analysis.

Second-stage activities can include, but are not limited to:

Interviewing facility or site representatives.
Purchasing age-restricted products.
Interacting with staff and stakeholders.
Assessing front-of-house customer service.
Collecting samples.
Audio and visual records.
Viewing bathrooms for cleanliness.

Examples of Mystery Shopping in Legal Compliance Audits

Finance

The world of financial services presents many opportunities for rogue and unethical practices, and is therefore subject to a raft of regulations to mitigate malpractice. Mystery Shopping audits are used to ensure customers receive accurate information and advice, and are not mis-sold products.

Healthcare

Healthcare is another industry that is heavily regulated, due to the potential danger to life from malpractice. Mystery Shoppers provide essential information on staff communication, knowledgeability, and compliance for patient care and non-emergency services.

Firearms

Firearms sales are governed by state and federal laws, and retailers must perform background checks before selling or transferring firearms. Mystery shopping assesses whether protocols and procedures are being followed, and can identify areas where additional training is required.

Retail

Mystery shopping is commonly used to assess compliance in the sale of age-restricted goods such as alcohol or tobacco. Agents who are either below, or appear to be below, the minimum age typically assess whether they are checked for identification.

Welfare

Local authorities will work with Mystery Shopping agencies to assess whether benefits are being correctly issued for people who qualify under state law. They will also test whether it’s possible to claim benefits under false pretenses.

Examples of Mystery Shopping for Franchisee Compliance

Food & beverage services

Franchising is commonplace in the food service industry, particularly for Quick Service Restaurants. Some of the world’s most recognizable brands – McDonalds, Taco Bell, Subway – operate as franchises. Mystery shoppers evaluate whether customer experience in every location conforms to brand expectations and guidelines.

Retail

Operators in the luxury sector are fiercely protective of their brand image. A good example is Rolex, who use mystery shoppers to ensure their products are exclusively sold by authorized dealers. Rolex can revoke licenses from their authorized retailers in cases where they have transferred or sold stock to non-authorized dealers.

Final Thoughts

Adherence may be uninspiring – children don’t grow up with posters of their favorite Compliance Manager on their walls – but it’s necessary to ensure that customers, staff and business leaders are protected.

Partnering with a Mystery Shopping agency to assess compliance, rather than relying on internal auditing, gives firms a more accurate and time-sensitive picture of the state of play for their organization.

Mystery Shopping allows companies to take measures to address compliance shortcomings before they become a regulatory or legal matter. It can also identify areas where further staff training is required.

At Service Evaluation Concepts, we have been successfully partnering with companies worldwide to provide compliance solutions for over 35 years. We have helped both businesses and regulators to monitor, measure and manage adherence. We draw on the expertise of over 600,000 Mystery Shopping Agents in over 90 countries, and offer made-to-measure services that deliver meaningful and actionable insights.

Arcadio Roselli

CEO & Managing Director of Service Evaluation Concepts. Dedicated to driving brand experience forward with the tools that ensure the reality in the the customer corridor is aligned with the promoted brand value proposition.

Mystery Shopping & Compliance: Protecting your Business

Mystery Shopping & Compliance: Protecting your Business