Lifestyles, Spring 2002 Volume 30 Number 178. David Lipton

If anyone has really ever had a fly in his soup, or been on the receiving end of a rude bellhop, David Lipton wants to know about it – he just may ensure that it doesn’t happen again. The Toronto native is in the business of helping corporations improve customer service and through Sensors Quality Management Inc.., or SQM, the venture he founded in 1994 with his partner Craig Henry. Lipton advises service-sector industries on how to keep their patrons happy and coming back.

It’s an idea fit for the modern, competitive corporate environment. Today’s consumers have an unprecedented number of options and they tend to take their business to establishments that make them feel most comfortable. That’s where SQM steps in. Combining current marketing research and computer technology, SQM designs customized programs that determine, among other things, how well a company is adhering to its own standards of service and efficiency. For Lipton, it’s all based on the simple philosophy that a happy customer is a returning customer, and returning customers make for greater profitability.

It should come as no surprise that in only eight years Lipton and his partner have grown SQM into a $2 million a year enterprise. The entrepreneurial 34-year old began showing his business acumen as early as the second grade. After getting his first newspaper route at the age of seven, the savvy youngster scouted out, eventually took over, all the nearby vacant routes. Before long, he was delivering 500-600 papers daily to the tune of a fair bit of spending money.
As a teen, Lipton was at it again, running a lucrative valet parking service with a few friends. The business did so well that they were able to sell it several years later.

Today, Lipton spends his time developing cutting-edge marketing research techniques to help other companies succeed. Among his innovations is “Comments Café,” an online, interactive forum for customers to commend or complain about the service they have received from SQM clients. SQM’s specialty, however, is “mystery shopping,” and it is here that Lipton has carved a niche for himself in the field of management services.

Used by a growing number of consumer-orientated businesses, mystery shopping provides a third-party evaluation of service from a customer’s perspective. Businesses hire SQM to send “mystery shoppers” – SQM employees pretending to be ordinary customers – into their establishments to evaluate all aspects of their visit, from the courtesy with which they have been treated by unsuspecting staff, to the promptness of their acknowledgement, the selling behaviors of personnel, and the general appearance of the environment. Shoppers then file reports, which are shared with SQM’s clients and used as the basis for improving customer relations.

While SQM’s database now contains 5,000 active and 50,000 prospective shoppers in Canada and English-speaking countries throughout the world, Lipton and Henry had to do all the inspections themselves when the company first started out. “A local restaurant franchise was one of our first clients,” says Lipton, “and we’d always have to do the inspections on Friday and Saturday night. Sometimes we’d double up on dinners so that we could finish our assignments on time,” laughs Lipton, who admits to having put on a few extra pounds in SQM’s infancy.

As SQM grew, Lipton began to recruit mystery shoppers through his college and community networks, by word of mouth, and eventually, with the help of human resource agencies. Shoppers come from a broad demographic base of ages and racial and ethnic backgrounds. Explains Lipton, “We have to send different kinds of people to different establishments to see how they’re treated.” In Lipton’s mystery shopping days, he and Henry were known to have gone into exclusive men’s clothing stores clad in ripped T-shirts and three-day old beards, and to have disguised their voices on telephone surveys. By pushing the limits of staff tolerance, Lipton and Henry can gain a clearer sense of the extent to which personnel adhere to the company’s customer service policies. Now that they’ve “retired” from mystery shopping, they’ll send women into garages, men into lingerie stores or other unusual shoppers into unlikely scenarios.

“Mystery shopping is especially popular with women,” adds Lipton. “Women like to shop,” he quips. In exchange for their labor, shoppers are paid directly by SQM or receive discounts on purchases. Either way, it’s a win-win situation, as shoppers earn benefits in their spare time and businesses gain a valuable edge in improving customer satisfaction.

SQM’s client list reads like a who’s who of the retail and service industry, including many well-known stores, hotels, banks, auto manufacturers, airlines and even such plum locales as Club Med. “Not everyone gets an assignment like that,” says Lipton, sensing a sudden interest in mystery shopping by this interviewer. “Shoppers have to work their way up and pass an evaluation at each level.”
In the early days, communication between SQM and mystery shoppers was handled the old-fashioned way – by mail, fax and phone. Now, through an innovative Internet website created by Lipton and his team o talented webmasters, most communications is conducted on-line. Shoppers log on to retrieve their assignments to download orientation manuals and company newsletters, and to file their reports electronically. Clients can then retrieve their individualized evaluations through the site in the privacy of their own offices.

For Lipton and his partner, making customers happy is familiar territory. Both have degrees in hospitality and tourism management, and both worked extensively in hotels and restaurants before launching SQM. They know what makes for satisfies patrons, and over the years they have developed a wealth of ideas to share with their clients.

Still, their experience and creativity didn’t make for a smooth start to their joint enterprise. Sitting in his newly expanded, spacious north Toronto office, and surrounded by 25 full-time employees, Lipton recalls the bumpy road SQM took to get to where it is today.

In 1993, after the recession left them unemployed, Lipton and Henry decided the time was right to start a business of their own, even if they didn’t have the money to do so.
“We couldn’t afford a real office,” says Lipton, “so we each put about $100 into a bank account and SQM was born.”

The pair started up in Craig Henry’s house. “Our first boardroom was Craig’s bedroom,” Lipton recalls. Soon, they opened a post office box at Toronto’s Sheraton Hotel. “We chose the Sheraton because we liked the address, 123 Queen Street,” says Lipton. Coincidently or not, the hotel later became one of SQM’s first clients.

Armed with only a few dollars worth of business cards, letterhead and a phone line, Lipton and Henry began by cold calling local business to offer their services. Unable to afford postage, they delivered all of their correspondence themselves at night. Lipton does recall one advantage to SQM’s shoestring budget – since they couldn’t afford daycare, they minded Henry’s two-year old son while his wife was at work. “Sometimes potential clients would her the baby in the background when we were on the phone with them,” he says. “It worked well with the women.

While business was slow in coming, friends and family often questions Lipton’s judgment in starting his own company, especially in a period of economic instability. “People were pessimistic,” says Lipton. “They told me to ho find a job that would pay the bills. That kind of talk can wear you down.”
Still, Lipton persisted, even as he saw his friends settle into stable jobs, get married and buy their first homes, all the while he was living with his parents and devoting most of his time and energy to his nascent company.

“You can’t compare yourself to others,” says Lipton, “and I like to think I did the right thing by not following the mold.”

It took about six months before companies showed any interest in SQM, but word got out about the unique service SQM was providing. And as it did, SQM expanded – first to Craig Henry’s living room and then to his dining room. Eventually, his wife decided that the company had sprawled a bit too much into her living space, and booted her husband and his partner out, forcing them to rent a “real” office in the Toronto suburb of Richmond Hill. In its new home, SQM continued to grow and Lipton began to hire staff. Business has doubled every year since, and so too has Lipton’s excitement and enthusiasm for his venture.

Now, despite a wealth of glossy public relations materials and write-ups in newspapers and business journals, SQM’s growth continues to depend on Lipton’s aggressive campaign to recruit new clients and to ensure a steady supply of mystery shoppers. But for the “company mouthpiece,” as Lipton calls himself, it’s all part of the fun. A natural schmoozer, Lipton has an easygoing, affable style that puts people at ease. His regular office attire is jeans and sneakers in keeping with his laid back persona. “Everyone knows they can talk to me,” he says.

He likes meeting people and maintains a wide circle of friends – the guest list of his annual end-of-summer barbecue is never less than 200 and includes many of his elementary school peers with whom he has managed to stay in touch over the years. He also enjoys being involved in his community. He is active in his synagogue and in several charities and runs a hockey league in his spare time. By his own admission, he’ll try just about anything. He scuba dives and is currently looking into getting his helicopter license. He even ran for municipal office last year. He campaign started off as a joke, but ended up being an eye-opener. “They don’t pay public officials enough,” observes Lipton, “and that keeps many capable people away from politics.”

As for his own political future, Lipton keeps a wait and see approach, and in the meantime prefers to focus on growing his business. That means developing and improving their marketing research techniques, accumulating more clients in Canada and expanding into international markets. “With the global economy, companies have to think about customer service,” explains Lipton. “Everyone is fighting for consumer dollars. That bodes well for businesses like ours.”

Even the current recession doesn’t frighten Lipton, who is loath to decline a challenge. “In times of recession, companies need to provide even better customer service than before.”

A self-proclaimed “ideas person,” Lipton has a binder with over 100 business proposals that he hopes to develop some day. “There are a lot of good people out there with good ideas, but they don’t ever start their own businesses,” he says. “Some can’t take the risk of having no income. I’ve been very fortunate because I could do that.” Still, Lipton has now turned at least some thoughts to settling down a bit, getting married now that the right person has come along, and starting a family.

And what does the expert say about the state of customer service in Canada? “Canadian companies need a wake-up call. Service here isn’t nearly as good as it is in the U.S.” As more American firms enter the Canadian market, says Lipton, local companies will have to meet the challenge to survive.

And that is exactly what Lipton is counting on.

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The Toronto Star, December 10, 2001. Catherine Porter

Firms turn to sleuthing by mystery shoppers to check out how customers are treated

David Lipton surveys each store as a mother does her child's unkempt hair.

“There's a light bulb out,” he begins, scanning the window display of an electronics shop.

A few paces away, past the smelly soap shop and into the men's section of a department store, he continues: “The display's a mess. Nobody's taken the time to tidy up.”

Then, sauntering into a lingerie shop, where the young woman behind the counter flips through a magazine, he whispers: “Nobody is even acknowledging us.” Each second she doesn't look up to offer assistance clangs like a hammer on an anvil. “I'm a guy in a lingerie shop. I basically have dollar signs on my forehead.”

Patrolling Fairview Mall, Lipton looks like your average innocuous afternoon shopper. But don't let his disguise of baggy jeans and a purple T-shirt fool you.

Perceptive, discerning, demanding – he's every store's nightmare.

Only he doesn't pay for their service. They pay him for his.

Lipton is what's called a “mystery shopper.” He's hired by companies to be a retail spy, masquerading as a typical customer and then reporting on their service. Which means he's not only paid to shop in stores, eat in restaurants and spend the night in hotels, he's also paid to complain.

“People hire us for an unbiased third-person's look at things,” says Lipton, co-founder of mystery shopping company Sensors Quality Management. “The reality is the boss can't always be there. And even when the boss is, chances are his employees probably work a little bit differently.”

Companies are shelling out for these “mystery” eyes – anything from $25 for a quick stop at a fast-food restaurant, to $2,500 for a three-day stay at a hotel.

In return, drafting their own checklists, which can stretch for pages, managers are demanding real undercover work: Were you welcomed within 30 seconds of arriving? How many minutes did it take for your meal to arrive? Did the salesperson up-sell, or show you things you hadn't thought of?

There are hundreds of companies specializing in the service in North America, Europe and South America. In Canada, where there was only one major player two decades ago, now there are at least 20.

“The companies are coming out of the woodwork weekly,” says Sean Cavanagh, vice-president and general manager of Tenox Appraisal systems – the grandfather of mystery shopping in this country.

Books have been published on the subject. It's covered in retail and hotel management courses. And three years ago, an association of mystery shoppers was formed to start setting industry standards.

There's another sign the industry has come of age, says Lipton, whose own business has long grown out of his partner's home into a 27-person company contracting some 4,000 shoppers around the world.

It's no longer the yard-stick of only the standard service industry – hotels, restaurants and retail stores. Government offices, airports and doctors offices have begun to pick it up as a measurement of service. Even the LCBO, which has a monopoly on hard booze in the province, has hired some customer snoops.

When Cavanagh got into the business in the 1950s, it was called “integrity” shopping. Then, undercover licensed inspectors were hired to catch an employee dipping a hand into the till. But, with the advent of bar codes, scanners and electronic cash registers in the early ‘80s, the job became obsolete.

The same technological forces also heralded the onset of the global market. And with the sudden arrival of corporate mammoths like Wal-Mart, and the deluge of foreign, cheaper products, local companies needed to do more than flip the “open” sign to sell a product, says York University marketing professor Alan Middleton. Customer service suddenly became the crucial selling point.

The motivation also came from the other side – most of the new arrivals were large brands that insisted on standardization.

“Companies like Marriott wanted customers to know that if you go to any Marriott around the world, you can rely on the Marriott standards,” says Paul Clifford, president of the Southern Ontario Hotel Employees, Restaurant Employees union. “Did you get your coffee served within 30 seconds of sitting down, whether you were in Paris, Toronto, Moscow or New Orleans?”

Today, many restaurants, hotels and major retailers in the city use mystery shopping to check on their competition. But most use them to monitor their staff.

The Armadillo Texas Grill, for one. It has been using mystery shoppers for seven years.

General manager Todd Attridge says regularly circulating among his customers wasn't enough. “People aren't always honest about that either. It's very Canadian to say to the manager that everything was fine. When, quite honestly, it was horrible,” he says.

Every month, one of the thousands of customers at the Front St. restaurant is a mystery shopper in disguise. Armed with a 10-page questionnaire, they are asked to gauge the length of time it took to be greeted, seated and served, to check the waiter's memory of specials, test the warmth of the food, and patrol the washrooms for cleanliness, among other things, says Attridge.

Once the report is delivered, management goes over it with the staff members targeted and later it's posted. While it may raise a red flag, a poor mystery shopping report has never cost a worker his or her job, he says.

“You're assuming that all these things are bad. They're not. We get really, really good scores,” he says, adding a good score means the server is commended in a ceremony before the entire staff and rewarded with a “wow” pin to wear during his or her shift. “It can be a real bonus for them.”

That's exactly what it's designed to be, says Tracey Conners, mystery shopping manager at Corporate Research Group, an Ottawa-area marketing company. Combined with increased training, it should be used as an incentive to do well rather than a means to mete out punishment, she says.

“You can get better results if you use it as a carrot rather than a stick.”

Many mystery shopping companies like Conners' draw up contracts explicitly stating their results cannot be used for job termination.

But that doesn't stop them from doing so, says union president Clifford.

“We occasionally have to deal with cases when members are terminated or disciplined by employers using mystery shoppers,” he says. And that's not taking into consideration the workers who aren't part of a union and have no recourse.

“It's an imperfect system with imperfect people doing it…There are no real checks and balances there.”

The result, he says, is more pressure on an already fragile job in a fragile industry.

“The retail and hospitality sector has the lowest average hourly wage in the economy and the shortest average week. It's notorious for part-time work and fluctuating hours,” he says. “It just adds to the stress and insecurity.”

Just ask Mara Ambrose. She worked shifts at a busy, downtown Starbucks for three years to pay her way through art school. The constant threat of being mystery shopped only added to the already screaming stress of serving an endless line, she says.

“You totally live in fear of these people because you don't know who they are. It put this huge pressure on you to do everything perfectly. And it's impossible to do everything perfectly at a busy store like that. You're always thinking, is this the secret shopper? Is this the secret shopper?”

So who are these secret shoppers, then? Chances are you've rubbed elbows with them in a packed restaurant or busy mall.

They're hard to spot. Their uniform is that of an average shopper, which could be anything from jeans in a music store to a three-piece suit in the local Jaguar dealership.

Most have aliases – they don't work as shopping spies full-time, because as veteran mystery shopper Linda Walsh puts it, “it's not enough to pay the mortgage.”

What it does pay is perks – a free purchase at a store, a pass to a movie, or a night out at a restaurant, along with $10 to $20 per shop.

For that reason, many are retired, students or – like Walsh – homemakers looking for a little extra pocket change.

Unlike an undercover spy, it doesn't take a gruelling application or subsequent boot camp to become an undercover shopper. Nowadays, it all takes less than an hour online.

The main requirements of a good undercover shopper, says Lipton, are a discerning eye and a reliable temperament.

And it doesn't matter whether you are a natural-born shopper.

“I hate shopping. As you can see I'm a T-shirt and jeans kind of guy,” he says, pushing through the mall's glass doors. “But I do believe in good customers service.”

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