|Ted R. Jagielski|
Back in 1950, an idea emerged that caught on nationally: S&H Green Stamps. This marketing concept has lasted for six decades. The idea was to entice customers to shop at participating grocery stores or gas stations. Customers earned stamps for each purchase. These stamps could be redeemed for various household items including appliances and tools. American Airlines followed the lead in the 1980s with frequent flyer miles and this concept quickly caught on. Many of us use these consumer loyalty programs daily at businesses like car rental companies, pharmacies, hotels, restaurants, etc. Many, if not most, retail companies are now offering a consumer loyalty program of some kind. Most of these programs offer the consumers discounts on future sales, free offers with the purchase of other products or points systems that award consumers with incentives that are not available to non-members. Most programs are available to the consumer at no cost; however some companies charge a one time fee or annual fee for their benefits.
Statistics show that customers who join a loyalty program will spend more at the cash register than those who do not. One such study suggests that a company can increase its profits by 100 percent simply by adding five-percent more new customers. In these difficult economic times, loyalty programs are appealing because they are generally a low cost way to market the company’s products and services and, at the same time, tap into the high value loyal consumer.
Companies are now focusing internal training efforts on these programs. To drive these programs, sales associates are trained to invite new customers. To accomplish this, many companies offer incentives to hourly employees. Additionally, management may be subject to performance reviews on customer participation statistics. Many managers are offered bonuses or incentives for meeting certain customer signup goals. If the goals have not been reached, pressure from district or regional staff increases. Staff may then begin to create fictitious signups to meet their goals. This leads to honesty and ethics issues. Staff could simply create a name and address, scan blank consumer loyalty applications and destroy the forms. This is one of many ways to falsely raise these statistics to meet goals. Many times, due to these and other programs, a fine line is created between ethics and dishonesty in the workplace. Frequently we have found that the unethical associate may be involved in more undesirable and dishonest behaviors. These behaviors significantly damage the profits or reputation of the business.
The Role of Loss Prevention
A company’s Loss Prevention department should evaluate the integrity, goals, objectives and incentives of such programs. Investing time and effort in the monitoring of loyalty programs can often lead to the identification of other risk area’s including unscrupulous sales and management staff. Discovering fraud in loyalty programs usually requires cooperation with the loyalty program vendor or internal statistical departments (including your own exception reporting analyst). You may need to investigate where the loyalty data is kept and managed. Once you identify the department(s), schedule a meeting to see what data is available for analysis. Then develop or request reports that can identify unusual and unrealistic patterns. These reports will prove to be a valuable tool to add to any existing exception reporting system or program. Our Hallmark Loss Prevention analyst works directly with our loyalty marketing company. Together we are able to develop reports that identify areas of risk. Some of these risk areas include:
• Employees scanning their own loyalty cards
• Cards activated at Point of Sale and scanned more than four times daily
• Cards activated with no customer information entered
In my 29 years as a Loss Prevention Manager, I’ve seen many small ethics issues turn into large loss prevention cases. One such case involved a newly activated loyalty card. This card had been loaded by the same cashier on more than 24 separate transactions. This was highly unusual since we have determined that the average newly activated card typically is processed one to three times daily by the customer who enrolls. The sales are normally processed within minutes of each other. In the case of the 24 transactions, we learned that each was processed randomly throughout a five-hour shift. Using our exception based reports, video when available and general loss interviews, our investigation lead to the discovery of several associates, including management, who admitted to many violations. Some of these included abusing the loyalty program policies to falsely increase their statistics, authorized discounting and theft of cash and product. Clearly, our loyalty program potential abuse reports were critical in identifying these cases.
One of many challenges related to investigating loyalty fraud includes what I call “blind eye” management. An employee may be receiving accolades for their loyalty sign-up performance. Because of this, management may turn a deaf ear to any possibility that the statistics are grossly overstated. This can be challenging since your investigation often must convince management and decision makers that a gross misconduct occurred. The interview of such associates has created another set of challenges i.e., did they know what they were doing was wrong or against policy? As interviewers we know that this kind of “naïve” admission may sometimes cause confusion for decision makers. If ethic rules and clear direction were not provided during training, and there was a failure to properly document this training, this makes establishment of a “dishonest or unethical act” or “intent” more difficult.
Take a Hard Look Internally
The focus of any initial customer loyalty investigation should look intently towards the review of company policy and procedures. Are areas of statistical falsification covered? Are the rules clearly defined? Are consumer loyalty programs spelled out clearly to the associate? What are the company’s expectations? We have to identify weaknesses in these areas and make recommendations for improvement to avoid confusion. To accomplish this, the LP professional must partner with policy writers, employee relations managers, training departments and, in some cases, internal communications departments. Once procedures are clarified and other loopholes are addressed, the next step is to clearly communicate these rules and regulations to the organization’s leaders, management, and sales staff. It is recommended that each associate sign an “Employment Conditions” form when hired. This form is the cornerstone of all ethics, policy, and procedure regulations. It establishes an agreement between the employee and the employer related to company expectations and policies regarding honesty and ethical behavior. This form may become a legal document during unemployment hearings, wrongful terminations, etc. This document provides proof of training. Once this foundation is in place, it is easier to prove a case of ethics or dishonesty versus a missed training opportunity.
Get the Word Out
Often the best business practices are defined by those companies who are proactive in addressing new areas of ethics or dishonesty. Many of the training and policy manuals may have been written prior to establishing a new program of some kind, including loyalty programs. Most policy manuals address employee falsification but, in the new retail climates, this can be far too general.
Establish “Best Practice” rules by benchmarking with other leading retail organizations loss prevention programs. Explain to all sales staff that this type of behavior is unacceptable, and is monitored. Ensure that all store staffs are clear on the acceptable ways to entice new customers. Inform district or regional management when problems or suspicions are discovered. Often this awareness can change how they approach sales staff regarding low statistics. These practices will reduce the distorted increases in loyalty programs. Any distortion might mislead management into believing their loyalty program is making a difference when, in fact, it may not be!
About the Author:
Ted R. Jagielski, CFI is the northeast regional loss prevention manager for Hallmark Cards. He has more than 29 years of experience in retail loss prevention. He can be reached at email@example.com or 302-376-8402.