Editor’s note: Andrew Gemmell is a Toronto-based freelance writer who writes frequently on marketing and technology.

It’s really no big mystery. Say you’re the CEO of a large retail organization. You decide to do a couple of store checks while you’re running your weekend errands. Store A is understaffed on a busy Saturday; Store B is out of stock on a couple of key seasonal items. The staff is pleasant, but they don’t attempt to cross-sell, and you wait longer than service standards call for at the checkout counter.

Monday morning you discreetly let your findings filter down to the appropriate operations managers. Two weeks later you return to see if the issues have been dealt with. That’s the essence of mystery shopping. Every organization wants to know if its brand’s promises and customer expectations are being met where it matters most - face-to-face with customers. The last place you want to learn that you’re not executing at the store level is on the bottom line.

The urge to mystery shop is self-evident. But spot-checking each location periodically can be nearly impossible for companies with dozens or hundreds or thousands of stores. That’s where mystery shopping comes in. As a qualitative market research tool, it gives retail organizations an unbiased, objective snapshot of their organization at any given moment.

Not widely understood

Partly because of its nature (anonymous), and partly because it is relatively young as a discipline, mystery shopping is not as widely understood as other tools such as focus groups or customer satisfaction surveys. These research tools yield the information needed to ascertain what customers want, and what they expect from an organization in terms of products, quality and service. Based on this information, an organization can implement policies, design products and set service standards to meet customer needs and expectations. Mystery shopping is the connecting link to such research tools. Properly designed, a mystery shopping program tells you if your efforts are really fulfilling your brand’s promise. Although mystery shopping can be applied to a variety of businesses, it has been used most effectively where the end result depends on a face-to-face exchange with customers.

Many providers

It is difficult to quantify such a growing and changing industry, one that has international, national and regional players, but John Swinburn, executive director of the Dallas-based Mystery Shopping Providers Association (MSPA), estimates mystery shopping to be a $500 million industry.

For a relatively new area of specialized research, there is no shortage of companies claiming to be in the business. The annual Quirk’s directory of mystery shopping providers lists over 300 firms. MSPA lists 115 members, including some companies in other fields of market research. The Web site www.volition.com, for people who actually do the mystery shopping, lists hundreds of companies offering mystery shopping services, although many of these are local, or focus on a specific industry in a particular region of the country.

Does mystery shopping really work?

As far back as 1954, business guru Peter Drucker observed that, “The main task of business is to create a consistent customer experience.” McDonald’s has built its brand around Drucker’s advice ever since the franchise started almost five decades ago.

Jerry Calabrese is a McDonald’s vice president in Chicago. Part of his job includes providing McDonald’s field personnel and store owner-operators with store-specific metrics that they use to help assess and identify training opportunities in relation to overall customer experience standards. “We pretty much know why customers come to McDonald’s,” Calabrese says. “Some of the reasons include such things as hot, fresh food, accurate orders, clean facilities and fast, friendly service. Based on some of our earlier results we have seen a correlation between great execution against customer expectations and higher sales and profit performance. Our ongoing challenge is to measure store performance consistently and objectively against these important customer expectations. Mystery shopping is one of the tools we are using.”

While this is the first full year the company has used mystery shopping to help measure performance, early indicators show that top performing stores receive higher mystery shopping scores than their lower performing counterparts. “And while there are many factors affecting sales and store profitability, it is safe to say that providing a great customer experience is a key ingredient to driving a store’s overall profitability,” Calabrese says.

Mystery shopping also helps retailers that can’t depend on several years’ worth of repeat business to understand their customers. Mother’s Work is a Philadelphia-based chain of 900 maternity fashion stores. “We have a very different set of customer service specs than other apparel retailers,” says Samy Verdekal, communications manager at Mother’s Work. “It’s not as if we offer a brand experience that builds over many years. We only have a chance with customers two or three times in a nine-month cycle so we have to make an impression if we want to grow ahead of the birth statistics.”

Obviously, the firm presents a challenge in the shopper recruitment process. “We first have to find mystery shoppers who ‘fit the profile,’ as it were, and secondly we have to design a shop with unique criteria. A provider has to have these means and resources, otherwise mystery shopping wouldn’t give us the information we’re looking for,” Verdekal says.

“The quality and character of the shoppers are keys to the integrity of the shop and ultimately our credibility with clients,” says Sandy Kancylarski, director of operations for Calgary, Alberta-based mystery shopping firm Service Intelligence. “Shoppers have to understand and accept our quality standards and conduct code in order to meet our certification criteria. Once we have accepted shoppers for an assignment, we provide them with background on the company, objectives of the shop, and our performance expectations.”

The relationship between shoppers and providers extends to the second half of the process as well. Once the shops have been completed, shoppers must file reports, or assignment-specific forms in Service Intelligence’s case, within 12 hours. “The turnaround time is critical,” Kancylarski says, “because if a client’s brand delivery is deficient, clients should be in a position to respond and bring customer service levels up to standard before more customers drift away.”

Involve and inform employees

Mystery shopping is anonymous because it is designed to measure unrehearsed, real-life, and spontaneous employee behavior. By the same token, the mechanism that makes it effective can backfire if mystery shopping is used for the wrong reasons, or if it is implemented while employees are kept needlessly in the dark.

Providers cannot manage their clients’ motives, but they universally recommend that companies involve, or at least inform, their employees about the program, or risk having it be seen as Big Brother-style employee surveillance. Industry best practices show that employees expect to be evaluated, and accept the logic of anonymous, third-party participation as long as the standards are fair and the objective is to improve customer service. As a result, employees know they are subject to spot evaluation, they just don’t know when or by whom. In the company’s favor, it can be shown that customer service improves across the board in anticipation of a mystery shop evaluation.

REI is an outdoor gear and apparel co-op based in Seattle with 63 stores in 24 states. Carolyn McKernan, REI’s marketing research manager, explains how REI has folded mystery shopping into an employee program that promotes customer service excellence - one of the organization’s seven core values. “REI’s reputation is based on great customer service,” says McKernan, “so mystery shopping is one of the tools we use to both measure performance and recognize and reward employees.”

Appropriately enough, REI has labeled its mystery shopping program ROCS - an acronym for Recognizing Outstanding Customer Service. Any employee who achieves a perfect mystery shopping score gets a ROCS lapel pin attached to his or her signature green REI vest. The results of each mystery shop are available to the stores, so employees can monitor their own performance levels. In addition REI uses the results, in part, to determine the compensation bonus structure for its stores. “Our seven core values are part of REI’s culture,” McKernan says, “so no one minds an unbiased performance audit - especially if we are being rewarded for the results.”

Who are these mystery shoppers?

If you want to know who mystery shops, go to www.volition.com’s chat room. That’s where college students, soccer moms, flight attendants and retirees all go to swap shopping tips and techniques with fellow mystery shoppers.

Larry Estep of Springfield, Ill., has been shopping for three years and enjoys the anonymity, the experience and the supplementary income. “It’s great for an independent contractor,” he says. “Typically I choose the number of shops I want for the first half of the month from hundreds of postings in my area from dozens of providers. By now I know the providers and the clients I want to work for, and I’ve built up a good relationship with the schedule makers.

“On a busy day, it can be tough to make mental notes of everything, and you can’t walk in with a Palm Pilot. That’s why we develop techniques like doing work in a restaurant or making notes in the fitting rooms,” Estep says. “It’s important to remember that we all have good days and bad. What’s noteworthy is when I re-shop the same store in the second half of the month and all the issues have been resolved. I really enjoy revealed shops. That’s when an employee is rewarded on the spot for outstanding customer service. Then it’s smiles all around.”

Florence Black has been mystery shopping southern Alberta for the past two years. “I love doing it,” she says. “I tie the shops into my other chores and visits, and with the variety of clients I shop - Honda, Canada Post, Winners - it’s like putting the pieces of a puzzle together. I’m a stickler for details, especially in restaurants, but I try to find more good ones than bad. What I really notice is what a difference it makes in the atmosphere of the whole store when employees seem to be working as a team. Things just seem to work better when that’s happening.”

Cathy Stucker of Sugar Land, Texas has taken mystery shopping to the next level. As a veteran shopper, she saw a need for greater proficiency among shoppers. So she wrote a manual for mystery shoppers which is now in its fifth printing. She based the manual on the providers’ need to strengthen the shoppers pool or risk losing credibility with clients.

In her experience, customers are reluctant to tell retailers the truth, or at least the whole truth. They’d rather just not come back. Customers are either not honest, won’t look for things, or are inconsistent. According to Stucker, mystery shoppers represent the opposite of all of the above, and therein lies the value of their services.

Improve brand equity

Mystery shopping helps you determine if you have the programs and processes in place to improve brand equity, transaction by transaction. For most companies, brand equity appears on the balance sheet in the form of goodwill. The real question is: can you quantify that number, and more importantly, make it move in your favor?

“Customers relate to the sum of a variety of experiences when they think about brand,” says Joe LePla, author and partner in Parker LePla, a branding consulting company. “All these elements, including the products and universal service standards, contribute to brand identity. And ultimately it is the brand to which customers become loyal more than the company or its products. So using mystery shopping to keep score of your brand, as it were, in terms of whether or not you are delivering your promise, only makes sense,” he says.