Mystery Shopping & Compliance: Protecting Your Business
Retailers and small businesses can often find themselves at the mercy of compliance.
Maintaining regulatory standards can be more than intimidating. Threats of large fines, loss of business, forced closure, legal suits or even jail time aren’t just heresy – they’re very real punishments for brick-and-mortar brands that can’t meet their obligations.
While business compliance may seem like a needless red tape checklist, its purpose is to protect your brand, the people you employ and you as a business owner. In this article, we’ll examine the most crucial aspects of business compliance, helping your brand understand its obligations and drive long, successful business tenures.
What Is Compliance?
Compliance is the act of adhering to a certain set of rules, laws and obligations that apply to a business’ operations. Specific industries can be subject to a wide range of legal, regulatory and franchise requirements based on their location and niche. To achieve compliance, they need to be aware of these standards, and meet them coherently.
What Is Legal Compliance?
National and international laws govern the way brick-and-mortar premises do business. Legal regulations are in place to protect the public from less reputable business practices like scamming, discrimination and racketeering.
While legal compliance can often be seen as a “grudge” exercise, its intent is to protect the consumer and employee from potential harm. As such, the penalties for breaching legal compliance can be severe. It’s critical that your business remains compliant, even if the behavior of every individual employee isn’t being visibly monitored. Examples of legal compliance include:
- Food and Drug Administration (FDA)
- Federal Trade Commission (FTC)
- Environmental Protection Agency (EPA)
- Data Privacy Law
- Finance Regulations
- Workers’ Rights & Employment Law
What Is Franchise Compliance?
Franchise regulations are a strict set of rules governed by a franchisor, and issued to specific vendors and branches that carry their brand. When businesses sign-up to a franchise agreement, they agree to represent the brand in a specific way to preserve its identity and standards. This agreement can cover anything from brand recognition (logos, colors, fonts), to set front-of-house expectations like customer service, hygiene standards and business best-practices.
Franchisees will typically be held to a legal agreement with its parent company that dictates their expectations. Those that fail to adhere could lose their brand endorsement, scupper their business relationship or even be sued for damages to brand reputation. Household-name franchises can be particularly steadfast with their demands, with multiple locations influencing their awareness, identity and topline figures.
How Do Businesses Monitor Compliance?
By monitoring for errors in compliance, organizations will mitigate the risk of substantial fines and the negative public perception that can result. However, monitoring compliance is not simple – especially in larger enterprises. A growing number of “influencers” will play a role in a business meeting its obligations: HR teams, branch managers, front-of-house and more. Across multiple locations, this can quickly become a huge undertaking.
Many brands will choose to hire or assign a regional ‘compliance manager’ to specific branches. These individuals will actively monitor specific codes of conduct-related behaviors to ensure obligations are being met. The outcomes are then documented in a report and sent through to C-suite executives to tailor programs, focus efforts and inform decision-making.
This approach is not without its drawbacks. The expense of physically employing someone will naturally interfere with net-margins, especially when multiple officers are required across numerous operation zones. Internal bias can also hinder its effectiveness. An internal ‘compliance manager’ is far less likely to provide an impartial account, especially if they are known and recognized by branch employees, who can adjust their behaviors on compliance assessment visits.
Mystery Shopping and Compliance
To curb the influence of bias, and extensive long-term operational fees, businesses have turned to independent research agencies to assess compliance. Research conducted by mystery shoppers is known to “hold up a mirror” to operational practices, giving decision-makers a clear, objective view over their current standards and code of conduct.
Mystery shopping initiatives enable brands to actively test employee compliance with industry-specific regulations. It is a real-time, interactive approach to monitoring whether obligations are met, and whether employees are delivering upon the designed brand promise.
Assessments can be conducted on single-regulation programs (Food and Hygiene Standards, Discrimination Policy, Consumer Protection Laws etc) or can be more widespread, assessing compliance fully over a long period of time. They are usually two-staged, consisting of a pre-assessment to equip research agents with detailed knowledge of brand expectations and relevant legal obligations, and a secondary stage with overt or covert in-store analysis.
Secondary-stage activities can include:
- Interviewing facility or site representatives.
- Purchasing age-restricted products.
- Interacting with staff and stakeholders, disguised as a buyer.
- Assessing front-of-house customer service.
- Collecting samples.
- Taking photographs.
- Observing day-to-day site operations and compliance with regulatory demands.
How Does Mystery Shopping Improve Compliance?
Mystery shopping’s purpose is not to resolve compliance shortcomings, but to identify them. It can reveal compliance failings that would have otherwise gone unnoticed, or details that would have been missed by an internal audit.
Internal audits can also cause discrepancies in results, as staff ensure to comply with their obligations as they know they are being audited. These audits usually come with a forewarning, giving branches time to prepare. In contrast, mystery shopping is wholeheartedly vendor-neutral as a practice, leaving little room for bias and reacting with staff exactly as a standard customer would.
In both situations, the agent will report back on the successes and failures they found. Now, this on its own will not stop poor legal compliance, or convince a franchisee to adhere more closely to brand guidelines. What mystery shopping can do is act as a deterrent. If staff and their managers understand that assessments can take place randomly, their likelihood for compliance consistency naturally improves.
The overarching purpose should not be to threaten employees, but to reveal hidden compliance shortcomings that risk business continuity. Results should inform decision-making and provide tangible, verified evidence, rather than necessarily being used to justify staff dismissals. Compliance is a team obligation, not always an individual obligation. If businesses are unable to meet their obligations, it usually stems back to the executive level.
How Can Brands Benefit From Mystery Shopping Compliance Assessments?
Government guidelines affect every industry and business across the globe. They can vary based on the nationality, but usually feature the strictest policies and standards relating to advised practices. In some instances, mystery shopping is even used by legal regulators, with government bodies sending research agents to assess brand compliance. By auditing processes early, businesses can ensure they meet obligations before their failings are revealed by a legal assessment.
Financial services pose huge opportunities for racketeering, rogue practices and unethical practices. It’s for this reason that companies in this bracket are common recipients of mystery shopping audits, both at their own behest, and that of regulatory bodies. The industry has a real variety of regulations in place to prevent these practices, with enormous penalties in store for any individual or business that breaches them.
Healthcare is another example of an industry that is heavily regulated due to the damage that can be done through medical malpractice. Of course, there are some areas of healthcare where it would be highly unethical to send mystery shoppers, such as the ER, but there is merit to sending mystery shoppers to assess compliance in patient care for non-emergency services.
Social services will have varying regulations from state-to-state, and mystery shoppers are often used to assess whether welfare benefits are being given to those who qualify for it under federal or state law. This can cut in both directions. It may be used in states with more restrictive laws to ensure those who do not qualify are denied. On the other hand, it may be employed in states with more liberal laws to ensure that those who do qualify aren’t given unneeded aid.
The industry most commonly associated with mystery shopping also uses these services to judge compliance with regulations around the sale of age-restricted goods, such as liquor, tobacco, pharmaceuticals and firearms. This could involve sending in a minor, or young-looking shopper to see if they will be asked for identification for an age-restricted purchase.
Food & Beverage Services
Franchises are abundant in the food service industry, especially in fast food. Examples include McDonalds, Taco Bell and Subway. All of these will have very specific rules and regulations dictating restaurant operations, employee behavior, expected wait times and the like, all of which can be assessed by mystery shoppers.
Some manufacturers of high-value products will have restrictions on who can and cannot distribute their products. Rolex is a good example of this. They will send mystery shoppers to every watch store in a city to inquire about Rolexes. If any of the stores that aren’t authorized to sell Rolexes reveal that they have some in stock, there is then an effort to determine the serial number on the timepiece to where it was acquired from. If it transpires that an authorized retailer had sold them to this business, Rolex can then revoke that authorization for non-compliance.
Regulations may be frustrating for those within the industries and brands impacted, and certainly not enjoyable to adhere to measure and manage, but they are vital for protecting the brand, the consumers and the general public market at large. It’s for this reason that the penalties for breaching them can be incredibly severe.
By partnering and commissioning a mystery shopping company to assess compliance, rather than relying on internal audits, you gain a more accurate representation of how staff and locations behave when they deal with customers, rather than being cited and severely penalized by regulators.
At Service Evaluation Concepts, we have been deploying mystery shoppers to monitor, measure, and manage compliance across the globe for over 35 years. In that time we have helped both businesses and regulators ensure that policies, procedures, rules and laws are being appropriately and respectfully upheld.
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.