Just a few years ago, if you asked marketers what CDP stood for, they probably would have been at a loss to answer.
Since then, customer data platform technology has risen from obscurity to become the subject of a lot of interest and hype, as marketers seek to unify and activate their stockpiles of disparate, messy customer data. A recent Forbes Insights study found 78 percent of organizations either have or are developing customer data platforms.
As with most nascent technology categories, though, there’s still some market haziness that needs to be cleared up. If you talk to marketers about their CDP goals, where CDPs sit in their marketing stacks and how CDPs differ from other marketing technologies, the answers will vary considerably.
A Gartner report (subscription required) puts it bluntly: “Confusion about the category abounds.” Despite market enthusiasm (with US adoption rising 13 percent over the last two years, according to Gartner), 51 percent of current CDP users say their CDP is their customer relationship management (CRM) system — “suggesting common misperceptions about what is (and is not) a CDP.”
Related Article: Customer Data Platforms: The Truth Behind the Hype
What Is a CDP, Anyway?
The CDP Institute defines a CDP as “packaged software that creates a persistent, unified customer database that is accessible to other systems.”
That raises the question: Can’t my CRM do that — serve as the central location for all of my customer data?
A few decades ago, it could. But CRMs weren’t built to process the volume, structure and complexity of the data that we have today — behavioral data, in particular, spanning both known and anonymous visitors. Think about all the data points you generate as a consumer when you visit an ecommerce website. Maybe you landed there through an online ad, then clicked a few products, engaged with reviews, hovered over certain items and even added something to your cart.
On that visit alone, your behavior and other attributes (e.g., your location, the referring source, the type of device you used, etc.) generated a massive amount of data about your interests and intent that marketers can capitalize on. And it’s not just your web behavioral data that shines light on your intent — every email from the company that you open and click, any advertisement you engage with, and each social interaction you have with the company contributes to a more complete picture of you as a person.
In addition to all of that multichannel interaction data, enterprises have many more sources and stores of customer data than ever before, including in-store transaction feeds, loyalty systems, call centers, chat tools, survey and customer experience (CX) systems, and more. The number of vendors in each area has multiplied as well. CRMs weren’t made to easily integrate with all these systems, build a flexible understanding of identity, stitch identity together, and create unified views of individual visitors (known or anonymous) — and then process and interpret everything to gain a proper understanding of each person.
CDPs are purpose-built for understanding each customer deeply in this new world.
Once marketers start generating insights from their CDPs, what do they want to do with the information? The answer to that question can determine what type of CDP they need.
Related Article: What Is a Customer Data Platform (CDP)?
3 Levels of Customer Data Platforms
Marketing technologist Scott Brinker’s well-known marketing technology landscape graphic shows a whopping 64 vendors in the CDP category (a category which wasn’t even represented four years ago) — many with different focus areas and approaches. Many of those vendors claim their offerings provide a single source of truth about customers.
There are patent differences between them, though. In fact, there are three levels, or types, of CDPs available to marketers. Here’s a look at each one:
- Level 1: CDPs that build unified customer databases. A CDP must be able to unify first-party customer data from multiple sources and store it in a central location, with unified profiles for each individual. A Level 1 CDP is like a data store. It meets that base-level CDP definition — processing and storing data to give organizations a more complete understanding of their customers in aggregate. Often used for data and identity “stitching,” Level 1 CDPs focus on analytics rather than action, and they lack the ability to put customer knowledge to immediate use.
- Level 2: CDPs that pass segment-level data to other systems. Having amassed and interpreted rich customer data in their CDPs, many marketers aren’t content to just use that data for generating insights: they want to take action. Level 2 CDPs go beyond aggregating and analyzing. They also pass information to other systems (e.g., marketing automation platforms or call center applications), where it can be put to use to deliver relevant experiences. It’s important to note that these types of CDPs transmit data only at the segment (not individual) level — they pass on insights related to groups of people with similar characteristics (first-time visitors, shoppers who live in the South, customers likely to churn, shoppers likely to purchase without a coupon, etc.).
- Level 3: CDPs that activate data to deliver one-to-one experiences. Encompassing all the capabilities of Level 1 and 2 CDPs, a Level 3 CDP enables unified profiles through stitched identity, provides deep analytics and insights, and then enables activation at both the segment and individual level. Level 3 CDPs provide one system to both build the unified profile and take action on it across channels. This, by definition, requires the use of machine learning to determine whom to engage, with what content, in what channel and when. This activation might involve determining not to email a customer who would not open an email, but instead to reach out on Facebook. Or it might involve telling an email service provider (ESP) to send a $50 coupon to one person, a $25 coupon to another person, and no coupon to a third person who would make a purchase without one. The applications of CDP data are endless.
Related Article: What Can You Do With a CDP?
Define Your CDP Goals
Don’t get dazzled by the CDP buzzwords and hype. When selecting a platform, focus on the challenges you need to solve and your usage goals. Those factors will dictate the type of CDP you need.
Here are some goals and examples as they relate to the three types of CDPs:
- Level 1 goals: Achieving better overall customer insights. Level 1 CDP users leverage their CDPs to gain a better understanding of their customer base, often to inform offline marketing campaigns and internal research and analysis efforts. For example, a consumer packaged goods company might want to analyze customer data in aggregate to highlight trends, or segment the data for insights about different groups.
- Level 2 goals: Impacting group-level experiences. A Level 2 CDP is a good fit for companies like news sites and other online publications that often look to affect experiences based on segment-level data. For example, media and publishing companies can use the data in their CDPs to create robust segments of customers and pass information on to their email service providers so they can send better-targeted emails to the groups. Or they can pass relevant data to their demand-side platforms (DSP) to serve up better-targeted online ads. It is important to note, though, that real-time action isn’t possible with a Level 2 CDP, because there are typically delays resulting from the exchange of information from system to system.
- Level 3 goals: Delivering real-time one-to-one experiences. Level 3 CDP users often include retail, technology and financial services companies, among others, that are looking to do similar analysis while also activating on their cross-channel data in the moment, at the individual level. For example, data could tell you that the handbag category is a particular shopper’s favorite, that she only buys at a certain price point (or only with promotions) and that she favors items from certain brands. Or, in the case of a technology company, the data might indicate that a prospect is from a particular industry, is at the beginning of her research, and is most interested in a specific content category. With a Level 3 CDP, marketers can take immediate and automatic action to enable their salespeople, email systems, and their sites to deliver offers, calls to action and experiences that map to each person’s preferences, and appear in the moment and at the right moment.
Related Article: Is That New CDP Really a Customer Data Platform?
CDP Market Evolution
Of course, the CDP category still has some growing up to do, as market understanding and definitions solidify and use cases and benefits continue to be borne out.
As is typical with leading-edge customer-experience technologies, retailers will likely be the early movers (a trend we’ve also seen in their adoption and advanced usage of conversion rate optimization and personalization, including machine-learning-driven recommendations). Given retailers’ multichannel models, and their need to pull in and act on data across channels, CDPs will help them meet their goal of building 360-degree views of each customer.
In addition, ease of integration with other systems will continue to be a big focal area for CDPs, to help users maximize the value of their technology investments and deliver more timely and relevant experiences and insights.
We’ll also see a greater reliance on Level 3 CDPs in the future, in response to business needs. Coupling data collection, analysis and storage with individual-level data activation will enable greater business agility and more relevant and cohesive customer journeys. These CDPs will also “close the loop” for customers — from tracking and storing important attributes and behaviors all the way to experience delivery and engagement.
As you search for the right CDP for your business, consider your goals. What do you want to do with your customer data? How do you plan to use the insights? Your goals will help determine which level of CDP is right for you. And, importantly, don’t think solely in the short term. Find a solution that will fit your business needs now and in the future.