Mastering Evolving Customer Expectations - Damian Kernahan - Fractional C-Suite Retreat - Episode #62

Growing a business is hard, but it does not have to be. Once a week, we take a break from the hustle and bustle in business to talk about innovations and what's new in the C-suite. This is the Fractional C-Suite Retreat, and I'm Joseph Frost. Pull up a seat at the fire, grab a drink, smoke a cigar, and just join me as we relax, learn, and get inspired. This retreat is sponsored by Your CMO, helping organizations grow with better marketing strategy. Welcome. I'm excited for today's guest. He is the CEO of ProtoCX. They are a management consulting company based in Sydney, focused on the customer experience and consulting, helping organizations deeply understand their customers so they can grow faster. With over 13 years of experience and over 200 projects under his belt, he's helped companies across Australia and New Zealand precisely understand what their customers want most, then help them deliver that. Welcome, Damian Kernaghan.

Hi, Joe. Good to see you again.

Great to see you. How's the other half of the world?

Listen, the other half of the world is great. We've just gone through summer, but in Sydney here, we're still, it's, as we head approach for Easter, we're still in beach weather. The pool is still about 25 degrees. So that's probably mid-70s for you guys in the Northern Hemisphere in America. So We can still swim as we approach April and we'll probably turn the heat pump off in about a month. But hey, not too bad where we live.

No, that's terrific. And thanks for the conversion for all of us Americans.

I lived in New York for 3 years, so I learned to say 87th and 3rd to actually make sure I actually got home rather than landing at 97th and 3rd, which happened a few times.

Very good. Well, let's jump into it. I love to start with a question about something that you are working on or keenly aware of that you think other C-suite people need to know about. Is there anything on your mind?

Well, yeah, having some really interesting conversations with our clients around the changes that have occurred post-COVID. And so customers or people have fundamentally changed their view on what's important in their lives. And we don't need to go through COVID. Everybody understood that and had their own experience of that. But as a result of that, what we knew about customers and what we thought customers wanted or what we thought customers thought was important or valued has changed over the last 3 years. And so therefore, organizations that we're working with have this sort of, let's call it a paradigm or a view of what they think their customers think is important to them. And in a lot of cases, that's no longer true. What was important is less important and what they didn't even think about has gone up in the increase in their worldview. So we're helping organizations reframe what's most important to their customers so they can provide that value because what was valuable before quite often isn't as valuable now.

Are there some clear things that have changed that are different, that are much more valuable now, post-COVID than before that you can highlight?

Yeah, I think connection has really changed for people. I think everybody, not everybody, a large amount of people, and depending where you were and what type of COVID constraints you had, built a new form of connection and care. And so that would be just two things that come to mind straight away in terms of the level of connection that people are looking for and and the amount of care that they're looking for. I mean, I'll give you an example. We worked for a building fund which owned a bucketload of buildings, a few billion-dollar fund. They owned 100 buildings. And we started the project just before COVID And we were trying to understand the core need states of what people of organizations who were customers of these buildings wanted. Now, care was one of those need states that there was 4 need states, but care was one of them. And at that time, care wasn't really important of the 4 need states. Convenience was important, connection was semi-important, but care wasn't important. Post-COVID, when you had to have the building make sure that only 2 people were going up in the lift and there was sanitizer and all those types of things, care went through the roof. And so this notion of a building caring about its occupants and, and the people in their building probably wouldn't have been high on anybody's thought process in terms of that's what we need to do. But care went through the roof in that. And so that's just one example of that. The flip side of that was convenience. Prior to COVID, everybody was in the office and convenience is important. You need the post office there, you needed supermarkets, you needed pharmacies, you needed all those things. Maybe less so in America, but in Australia everybody went back out to the suburbs. Nobody was in the buildings. So convenience went through the floor and it was no longer important. And now in hybrid working, certainly in Australia and I think so in America, maybe you're working in the office 3 days a week, but you're at home 2 days a week. The notion of the driver of convenience and all the things associated around a big building in the CBD or the central business district is a lot less important because you can get it on a Monday or Friday at home. And so it's understanding those things and the mix of what your customer's looking for. Now that's a B2B example, but got examples for B2C or, you know, business to consumer as well.

Yeah, I can see the convenience being very sticky because we're now continuing to live in a hybrid environment. But something like care, I could see it just swinging all the way back to the other end. Or does it? So did it stick? Did that heightened understanding of care at that time stay or has it gone back to where it was pre-COVID?

Yeah, so in the case of the building, I think you're right, it's probably coming back down 'cause you no longer need all that type of stuff. But the notion of caring and looking after your customers has gone through the roof more so in B2C now. And so what we're seeing in that is people have a heightened sense of expectation for what they're looking for from organizations. And that duty of care, whereas maybe we didn't expect it before, is now being increased.

Yeah, I think people coming out of COVID just— it changed everybody's worldview of what's really important. And certainly caring for one another took a whole other level of heightened importance in our lives, especially with healthcare. But I don't think that— agree, that didn't revert back post— that people care more than they have in the past. I could see how that works. And I was actually thinking you were going to suggest that there's still a higher level of care expectation from that building because of it as well. It didn't go all the way back to zero.

No, it didn't. It certainly— and that was like 2 or 3 years ago since we've done that work, so we haven't done the analysis now, but I imagine that where maybe it was 10% of 4 pillars, and pre-COVID it was around 10%, it went to 40% during— and it's qualitatively driven— but 40% in COVID. And maybe it's back to 20-25, but yeah, that's a shift. And therefore, um, those customers of those buildings would be expecting different things and have different expectations and value requirements than they did a few years ago. And then you needed to cater for them because I don't know what you're seeing, but in Australia with this hybrid working, there's been a whole shift upwards in terms of people who degrade buildings, moving to C-grade buildings, C to B, B to A, and upwards. And so there's a bit of competition for people and there's a lot of people moving if they're not getting what they need.

Yeah, very interesting. So what are these 4 pillars you talk about? You've got care and convenience.

Well, they change by project that we actually undertake. So yeah, so we call them People who are listening to your podcast may be familiar with what people call personas, which are these sort of semi-fictional representations of your real customers. Listen, we're not big fans of personas because quite often when we look at them, they seem a little bit made up and a little bit fake and everyone's a bit perfect. You know, nothing bad happens to these people, everything seems to be good. And then you're trying to apply it along the customer journey and we've found it really difficult. Our organizations or clients have found it really, really difficult to apply that. Like, okay, as a 30-year-old with a beard who has a coffee in the morning and drives a Jaguar, okay, how quickly does he want to log in? I don't know, that persona doesn't tell me. Whereas if you've got, we've just been designing, working with a new airport. So Sydney's building a new international airport, we're working with them. So understanding what are the drivers of what people want in an airport. And so most airport experiences are pretty shocking, probably better in Asia. And I've been through America, it can be pretty shocking sometimes in Australia as well. But under— so what we do is we develop need states. What are the customer needs? And they vary by different category and project, but some of the things may be support, confidence, there would be care, there might be connection, there might be trust. They're just, they're just some that come to mind, but they're different for every project. And if you can really understand what are the 4 core drivers of what your customers want along the customer journey, you don't have to worry about— I'll give you an example. Ease might be a customer needs state. What we've found is a 70-year-old person or a 27-year-old person still wants to be able to log in easily and quickly. Just because you're older doesn't mean that you're happy to take 5 minutes to log into your bank account any different when you're 27. So why would you have a different persona? Everybody wants it easy and easy and quick. And so understanding that and being able to know where to apply where it's really important along your end-to-end customer journey where ease is important or where support is important or education is important or where trust is important. You can apply that generally to your whole customer journey with different emphasis for maybe different customer segments you've got, but it just makes it a whole lot easier for organizations to affect change. And that's what we see as one of the biggest challenges for customer experience. People think it's too complicated. They get into there, they've got 5 personas, and then you've got to have 5 different customer journeys and then you've got to have 5 different sets of communication and then you've got 5 sets of different value propositions. Well, to do that, you also need the resources and the money to do that. And for smaller organizations, maybe, I don't know where most of your clientele listening or listeners are, but that's too complex. How do you just give me 4 things that I know that my customers really want and help me understand where along the journey I need to apply those? Higher and lower and let me get that done. And that's tangible and it's pragmatic and it works.

Yeah, I really like how you've simplified it. But I'm gonna challenge you because I gotta put my marketing hat on and we build personas. I would agree that most people that build and use personas are in the category that you described. It's unfortunate, but they're usually built in a boardroom without even talking to actual customers.

Yes.

So when you do it that way, I 100% agree, you've got this fictitious made-up person with a bunch of attributes that really may or may not matter. They can be pretty close and useful, but the way we do it, we follow the buyer personas process. It's made famous by Buyer Personas Institute, and we actually interview customers, and we get from a small set of customers, which is the beautiful thing, 5 to 10 customers, we can pull out true insights and the insights that we're looking for. And I think it really aligns and I think they piggyback off each other. That's why I'm so excited about this. We look for triggers. So what starts that customer's journey? What are the things that are important to that customer? What are the things they're afraid they're going to find? And this is all on the marketing journey, not the post-sale, but this is all marketing journey. Afraid they're going to find, ultimately what's the decision criteria they make? And then what are, what was their journey from an influencer and making a decision looking for information standpoint. So that maps up a buyer persona for us. And yeah, there's a demographic and geographic component to it. But what really matters is what was that pain point that made them start searching? What were those things that were important to them? What were they afraid they weren't going to find when they started looking? What was their decision criteria? And then I see how you could take what you've uncovered, which is these pillars of customer experience. And there's probably some nice triggers and alignments between the two, but we just focus on up until you get a customer and then you're focusing on how do you keep them and maintain the things that are important to them. And there's probably some feedback from one to the other, I would guess.

Yeah, I think you make a good point. I can see the value in buyer personas and the way you describe it. And we've worked with some of those before and I think they're far more realistic and usable because of the triggers. You're looking for hooks and triggers and things to take people down the funnel. And so understanding that the way you're describing it, I think is super valuable. I think most organizations don't do that, that we've had exposure to. They use the personas for the ongoing experience and that's where we think it falls down. So yeah, I agree with you. I see the value of them. I've seen them and I do believe they do work well.

Yeah, I'm curious. So when we do buyer personas, we will narrow down between a 27-year-old and a 7-year-old because those might be different buyers for us from an acquisition standpoint. But I like how you've taken this universal, like, what are the elements that matter to everybody? And let's focus on those because to me that makes it much simpler to execute. Is that what you try to do is find these universal themes?

Absolutely. And so sometimes people come to us, so we work with generally larger organizations and they may have 3 or 4 segments, for example, and they'll say, oh, we want to map 4 customer journeys. And we go, we could do that, take your money, but you don't need to do that. Let's just build one journey. And what we'll do is, what we find is that 60 to 70% is the same, just like the 70 and the 27-year-old just want to log in easily. Now, what the information that a 70-year-old might want to consume, because they have more time maybe, is a lot more in depth versus a 27-year-old who just like, hey, just give me the top 3 points. I'll move on from there as an example. And so yes, so you can actually design a journey which holds together for the majority. Oh, let's just call it the 70% of, and then what we do is we call it out. So we'll break it out. We go, for example, we work for a large hiring firm and they had super large clients, medium clients and tradies or tradespeople. Call them tradies in Australia, so tradespeople. So what we did is we called those out. So for the super large guys, billion-dollar companies who are hiring equipment from you, they want this in this section, whereas the trade guys, they want that. And so it's a lot easier where you can just see the bulk of similarity and then you just call out the differences. And then that helps in your marketing and your communication and your sales team to actually be able to focus on those types of things rather than I've got 4 customer journeys and they're all different and it's all complex. It's one journey with callouts and it just makes it a bit more, makes it a lot more compelling and helps you differentiate it more quickly and get traction.

One of the things that we do during our kind of strategy sessions with the client is we talk about client lifetime value. And in that conversation, there's one graph that we, there's one equation that we always show and it's Essentially shows the power of retention on a client lifetime value. And then if you can, you know, I don't have the numbers right in front of me, but going from even like an 80% retention rate to an 85% rate can, can almost 2x the value of the customer. There's incremental retention improvements can make a big difference on the value of those clients. And so we use that as a way to showcase the type of clients we want to go after the ones that are gonna be around longer, but also it points out an area where they probably haven't thought about focusing, which is on customer experience. And I gotta figure you are able to show what the work that you do when it, when app, when applied and implemented properly, it's having a direct change to the bottom line. You guys have those metrics and measurements that you use?

Yeah, I think customer lifetime value is one of the most, one of the least understood but one of the most valuable metrics that an organization can use. And we don't see enough organizations. It just seems to be too complex. I don't think it's complex and it's clear that you don't think it's complex, but it's so obvious when you look at it and you, as you say, you take these retention rates and you change them and you 2x your revenue or 2x your profitability. We see too many organizations focused on that acquisition, and I think that's probably because they think it's more tangible. You can throw money at it and, you know, you can see this new customers coming to your organization, whereas this virtual gold mine of customers sitting there who are not being fully served, or you haven't understood what's valuable to them, and they go because they, you know, they're just not willing to hang around anymore. I agree. If we could actually improve and promote the importance of customer lifetime value for organizations, it would transform everybody who adopts it.

Yeah. And if when we go into an engagement, it's usually leads, leads, leads as a marketer. How do you drive more leads, leads, leads? And when you stop and just pause for a second we can actually increase the value of organization, your bottom line, more maybe by focusing on all these clients that are leaving. You know, why are they leaving? What can we do from a marketing lens? And that's— there's only so much a marketer can do to help with that. Someone much more focused on implementation of strategies like you have would be great to bring into those opportunities. Do you, uh, do you find yourself where, or I should ask, what other leaders inside of an organization do you find yourself working with most? Is it operational, sales, marketing? Where, where do you spend your time collaborating most?

A lot of the times they are customer experience. They've got customer in their title. So customer heads of customer experience, chief customer officers. We also get brought in by operations people as well because they can see we worked with an energy company, a utility. And from an operational perspective, call centers, we've redesigned call centers before, that can be incredibly valuable to them. Another area we're being brought in is by IT or chief technology officers. So organizations who are making significant technology investments instead of getting something off the shelf, which they'll get through Salesforce or, you know, other CRMs or other technology platforms. They'll just get something off the shelf. They come to us first and say, before we actually invest a whole lot of money into this, we actually want to understand what our customers want and need and therefore take those users, what we call user stories, or user requirements and take those customer-driven user requirements into the build or into the definition document. So before they actually sign on for the technology, they've built a more tailored, personalized execution for their company rather than getting what's off the shelf. And we're seeing that we're doing a lot more of those projects right now because it's a technology can be $5, $10, $50 million depending on the size of your company upwards. But once you do it and then you need to retrofit it, anybody who's been involved with a technology, post-technology implementation change knows that the changes are 10x what they are upfront. So yeah, we're doing a lot of that work as well.

Yeah, that leads me to the questions probably on your mind and a lot of your customer minds is how is AI impacting the customer experience?

We're seeing a lot of AI, we've seen a lot of AI apps, reviewing them all the time in terms of seeking to provide insights into customers. And what we've noticed is using ChatGPT or other systems like that, it's very good at a surface level understanding of what's important to a customer. So we've used this where we've used these tools and it will ask it, you know, I'm joining an organization, I'm onboarding with them. It could be a bank, it could be an app, it doesn't really matter. Map me what's important or what my journey should look and feel like. And it gives you ostensibly, and I use the word ostensibly in a precise manner, ostensibly it sounds reasonable and it's sort of on the surface, it's sort of, yeah, that's right. But it's also really surface driven. It's always very surface level. It's like, yes, I want to know the information. I want to be able to sign up easily. I want you to send me all the information I need. I I want, I want, I want. It's like, it's all this stuff that, you know, it's like if I was gonna buy a car, well, yes, I want it to be a good price. I wanna get good value. I want it to be tailored to what I want. I wanna feel good in the car. I want good service. Everybody knows this because it's on the web. What we're seeing, and I'm applying this to customer experience because I think I've used AI and other things where it does a phenomenal job. What it's missing is it's missing the nuance and the deeper understanding which isn't on the web, which is sitting on all our servers, which is of all those customer verbatims that we've got, those thousands and thousands of customer verbatims we've got that actually tell you the real problem and why and what's sitting behind it. And it's the nuance. All organizations have the big rocks covered, or most of the big rocks covered. What customer experience or a good customer experience program does is it fills in all those little rocks which you have blind spots to and stitches all those big rocks and those little rocks together into a beautifully paved, you know, surface. Whereas it's a little bit bumpy before, it becomes beautifully paved because you've actually filled in all the gaps. And so what we do is we fill in the blind spots. So as it pertains CX and AI, we're not seeing it yet, and we think that is one of the weaknesses compared to sort of other AI applications.

Yeah, I think you put it very well. It's very surface level in most applications. That's the case for AI. It's just surface level. But because you get it in 5 seconds in a little box, you think it's some magic and it feels so exciting. Oh my gosh, it makes sense too. But Then you start to peel back the onion and see if there's anything useful here. There are some nice applications. We find the same thing in marketing. Oh, I can write a poem and I can write a sonnet and I can write a love letter and just 3 little sentences. I got all this great content. Oh yeah, it sounds nice, but really, like, do you need that? Is it making your life any easier?

I saw this the other day. Sorry. And is it insightful? I think that's what we give our clients. They know the obvious stuff. They're not paying us money to come back and tell them what they already know. That's what the, you know, give me a consultant and a watch, you know, they'll tell you the time. We're paid to come back and tell them the stuff they don't know, the blind spots, the stuff that they, what, where did that come from? That's what you need and what AI won't give you.

Right. And I have other marketers that I know that are currently going around and training people on how to use AI to build their marketing strategies. And I just shake my head because I've gone into ChatGPT and I, I could say I want to start a CX company, how should I market myself? And boom, I'll get this great plan and it makes a ton of sense. Like, okay, what, what calendar, calendar tools should I be using? What tactics should I go after? And what's that? What are the personas of my audience? And it'll give me all great stuff, but it'll never be actionable. It'll never be executable. It needs, you need the insights that are really about how you get stuff done and the people who have been there and done it to get past that surface level crap that's out there.

Yeah. And I was talking a potential client through sort of approach yesterday and we are saying, you know, most people start, most finance procurement, they start with their strategy. Like it's an internal strategy which most organizations build. That's different for customer strategy. You can't start your strategy internally. You've actually gotta start it with a customer and that's the difference. So you can build a financial strategy, you can build a procurement strategy, you can build a legal strategy inside out. A customer experience strategy or a customer strategy needs to be started from outside in. That is, you need to go do the research and get the insights first. And once you've got that, then you can build your vision and then you can build your strategy and then you can build design and measurements and cultural change after that. But it's a key difference which people think, I'm just gonna build my customer strategy first. With what? Yeah.

And when the customer changes, as we started the show, there's a shift since COVID that's pretty profound, but it also kind of represents that there's shifts going on all the time that aren't as profound. But if you're not paying attention, you might miss those. And then your customer, if your customer changes and their experience doesn't change to match, unless you're, you know, aware of it, you may start losing those customers again and not know why. I would imagine that happens.

Yeah, I think there's a lot of— there's a lot more nuance than people realize. So we are working with, you know, really professional people, lots of smart people. They haven't got it wrong, they just haven't always got it quite right. And so they might be heading through, they might be heading at, you know, 7 degrees off and we go, okay, 7 degrees off. Well, as you know, right now start 7 degrees off from New York or 2 degrees off from New York and you're heading for San Francisco. You're gonna end up in Washington State. So by the time you get there, and so it's this notion of you haven't quite got it right, let's help you get it precisely right, exactly right. So you head and you actually end up in San Francisco because you're gonna keep on putting resources and time and effort into this. And so it doesn't sound that profound at the beginning, but when you multiply it over time and resources, they just keep on going off and off and off. And so that's one of the things we help our organizations with is that nuance. And this is insight which they haven't quite got, which they can just miss. And you would know in your marketing, if you just miss with one or two of those trigger words that are really important, you might have 90% of the words right, but you don't really just get the hook, which is like, yes, I need that. Then it's a waste. You don't hook them.

Yeah, the nice thing about marketing that you don't have the luxury of is we get an A/B test and we do it all the time. And if we miss, it's alright. You can't really A/B test your customer experience because you start losing customers, right? You can tweak some stuff, I imagine.

Yeah, that's right. In the third of like they want a blue button or a red button, it's not gonna be majorly different. But yes, when you're talking about strategic shifts that you're trying to make, Yeah, the investment of understanding is such a fraction of the upside for these organizations. It ends up being a 20, 40, 50x return. So, you know, we're still seeing it. There's a lot of organizations who tell us that they know their customers and they're right, they know their customers, but they know them from a demographic perspective. It's George, he's 50, he buys a lot, he likes playing golf with us and blah, blah, blah. What they are missing and nearly every organization we've come across, they don't understand what's most important to them. They don't understand what upsets them. They don't understand their emotional drivers, how those emotional drivers play to their purchase-making decisions. And they really don't have a solid understanding of their decision-making framework for what would make them buy or use or engage with that organization more. And that's, that's the process we go through to help our clients actually get that information because they know, George, but they don't know what's going inside on the head of George. And that's the difference. And that's what you need to understand.

Yeah. Well, that's terrific. I imagine we may have some of those clients and customers out there that are thinking now, all right, how do I get into the head of George? So what is the best way for somebody to reach out to you and work with you? And will you work with companies outside of Australia and New Zealand?

Yeah, yeah, we absolutely do that. We do work overseas as well. So, and listen, put me on LinkedIn, Damian Kernaghan. Everywhere I post 2 or 3 videos on customer experience a week, which there's about 70 or 80 out there already. So do that or just go to protopartners.com.au or just type in Proto Partners and we'll come up first. So yeah, great.

We'll have those show notes, that detail in the show notes. So I want to thank you for, it's 12 hours-ish away. So it's Not quite that much, but it's a little early for you. It's a little— it's evening, afternoon for me, but thanks for being on the show today. I really appreciate it. I learned a lot. I'm excited to follow up with you and see where we could maybe map out some of these connections between what we do on the buyer persona side and what you do on, on your insights and those pillars. I think there's some good opportunity there, but thank you for being on the show. I really appreciate it.

Thanks, Joe. I really enjoyed having a chat with you and your listeners.

Yeah, and, uh, for our listeners, please, uh, take the opportunity to subscribe if you get it. My producer likes me to remind everyone of that option, and I look forward to talking to you again on our next episode. Thanks for listening. And that's a wrap. There's another successful episode of the Fractional C-Suite Retreat. See our show notes and more episodes at fractionalcsuitretreat.com. This podcast is sponsored by Your CMO. Helping organizations grow, save time and money with better marketing strategy and fractional execution. Visit them at yourcmo.com. Yourcmo.com. Spelled wrong on purpose.