How the customer card carries great risks

In the article 'How the Customer Card Enables Profit Growth,' we discussed how customer cards can contribute to profit growth and differentiating in the market. Clearly, data is a potential goldmine. However, if you do not handle customer data carefully enough, the Data Protection Authority can impose fines of up to € 20 million or 4% of the worldwide annual turnover. All the more reason to manage this well within your company. What should you pay attention to, both as a franchisor and franchisee?

Of course, good data management starts with common sense and well-known advice. For instance, ensure that usernames and passwords are not left lying around and that former employees immediately lose access. However, two aspects are important: determining data ownership and drafting a data processing agreement.

The legal and economic ownership of customer data

In the past, it was simple. A franchisee had his regular customers, he knew many of them, and in the calculation of goodwill, they were generally attributed to him without much discussion.

However, the marketing function of a franchise formula is increasingly centralized to achieve economies of scale. There are many systems offered by the franchisor that all locations use, such as customer cards, complaint handling, and personalized marketing. If there are no further agreements, this automatically makes the franchisor liable when things go wrong, and data leaks or systems get hacked. This leads to undesirable situations for both the franchisor and franchisee. The franchisee potentially loses a part of his goodwill, and the franchisor pays the damage when a franchisee is careless with data. The good news, however, is that both situations are solvable.

Determine both legal and economic ownership

Determine both the legal and economic ownership of customer data in the franchise contract. By assigning the legal ownership to the franchisor, the franchisor can continue to manage the systems that are so necessary for maintaining the customer relationship and marketing.

However, the economic ownership can be assigned to the franchisee based on, for example, the first registration or the most recent transaction of the customer, allowing the franchisee to build demonstrable goodwill and not be wrongly motivated to set up his own systems.

Include a data processing agreement in the manual

If the franchisor has legal ownership, it suddenly means that the franchisee is principally no longer allowed to use the data, and the franchisor is fully liable when things go wrong. However, a data processing agreement can arrange this properly. It can establish that a franchisee needs access to the data for efficiently running his location.

The data processing agreement also provides room to formulate specific guidelines on how the franchisee can access and use this data and the responsibility the franchisee has. This can shift a portion of liability to the franchisee if he handles personal data carelessly.

Customer data: a goldmine provided good agreements are made

That customer data is a potential goldmine is clear. However, without good agreements, this becomes an increasingly dangerous goldmine with tightening legislation.

Are you uncertain about the arrangement you currently have? Contact us for a free consultation on the best approach for your business, or take advantage of our contract check!