There is a very famous quote that has been misquoted and reattributed to everyone under the sun, so let’s begin our data discussion by giving credit where credit is due.

In 2006, UK Mathematician Clive Humby said, “Data is the new oil. It’s valuable, but if unrefined it cannot really be used. It has to be changed…to create a valuable entity that drives profitable activity; so, must data be broken down, analyzed for it to have value.”

Over the past 16 years, the importance of data has been shouted from the rooftops by technology companies and tech luminaries like Eric Schmidt of Google. And with the pandemic accelerating customer digital-first behaviors, there has been an exponential increase in all forms of customer data that companies must manage and make sense of.

“There were 5 exabytes of information created between the dawn of civilization through 2003, but that much information is now created every 2 days,” Schmidt said.  

With this much data now being created, not just from throngs of digitally-savvy web users but from millions of IoT devices operating at the edge of network computing, it is incumbent on all data-driven marketers and professionals to fully understand all forms of data and how each one can benefit your business’s bottom line.

Today there are several key types of customer data, each with its own benefits and challenges. While all types help us understand our customers more completely and enable us to build better experiences across the customer lifecycle, they are not all the same and have significant differences from each other.

Following are the different types of customer data and their benefits and drawbacks.

What Is First-Party Data?

First-party data is collected with consent directly from interactions with prospects or customers on your own channels, like your website or mobile apps. Examples of first-party data include web activity, demographic data, purchase history, email, sales interactions, call center calls, customer feedback and behavioral data. 

First-party data is considered the most valuable data because it’s collected directly, and it’s high quality, accurate and relevant to your particular business and industry.

All of our customer-related systems collect some form of customer data. But they all gather, store and manage data differently, leading to potentially inaccurate and inconsistent data.

Ensuring your customer data is consistent across all systems requires a centralized data management platform, like a customer data platform (CDP) or data management platform (DMP), to ingest and integrate, standardize and make that data available to all systems for customization.

Related Article: The 3 Key Components of a First-Party Data Strategy

What Is Second-Party Data?

Second-party data is the data you get from your trusted partners. Since that data comes from a partner, it should be higher quality, more accurate and relevant, like your first-party data. Most likely, your partners are in compliance with new privacy regulations like GDPR, so that data should have been collected with consent, like your first-party data.

Second-party data, unlike first-party data, can be purchased through data marketplaces. You should only purchase second-party data through a trusted marketplace where partners and data are both reliable. Second-party data is a lot like first-party data, but it’s collected by a partner, not yourself. Making sure your partners are trustworthy is key here.

One benefit of second-party data is it enables you to scale up your marketing operations by connecting you to new audiences. And if you don’t have a ton of existing customers, you can combine it with first-party data to build improved predictive models. Second-party data, when combined with first-party, will allow you to develop better audience insights by analyzing a more extensive group.

Examples of second-party data include the data media publishers sell to advertisers or a retail store selling its customer loyalty data to a credit card company.

Once second-party data is collected from your partners, just like first-party data, it needs to be stored, integrated and delivered out to the appropriate technology platforms to affect messaging and the customer experience. Second-party data, just like first-party data, needs to be cleaned and validated before it can be made useful.

Learning Opportunities

What Is Third-Party Data?

Third-party data is anonymous data you get from a data aggregator. Data aggregators do not collect their own data directly and instead purchase it from other companies and compile it into a single dataset. 

Third-party data can come from many different data sources, which don’t always offer a clear definition of the originating audience segment. Most third-party data is purchased through a demand-side platform or a DMP for use in advertising programs.

There are a few key reasons a business might want to purchase third-party data. First, it can help your company talk to a broader audience in advertising programs and, when combined with first-party data, can improve targeting.

Third-party data is bought and sold programmatically in typically very large datasets. The biggest concern with third-party data is you don’t know where it came from, making its reliability and accuracy questionable. Finally, you have no way of knowing whether that data was collected in adherence to privacy regulations.

Related Article: How Marketers Can Innovate Without Third-Party Cookies

What Is Zero-Party Data?

While the first three types of data have been in discussion for some time, more recently, a new type of data called zero-party data has been bandied about. 

This term was first coined by Forrester Research, where they said zero-party data is “data that a customer intentionally and proactively shares with a brand, which can include preference center data, purchase intentions, personal context and how the individual wants the brand to recognize her.”

Huh. That sure sounds a lot like first-party data, doesn’t it? The idea is that zero-party data is a complement to first-party and consists of a more cohesive voluntary dataset to identify customers as fully rounded individuals. This may include things like communication preferences or personal interests. 

The intent of zero-party data is to identify the kind of information that will enable brands to do one-to-one marketing with customers, building customer satisfaction, reducing churn and improving customer lifetime value (CLTV). Zero-party data is a component of first-party data and will follow the rules needed to manage it — and should have similar benefits.

Moving Forward With Data

Data is the fuel modern companies run on. Knowing how to leverage all your valuable customer data for business results is about establishing the right data strategy to inform and improve the overall customer experience.

All data, regardless of type, need to be integrated together in a single centralized customer database so it can be leveraged for use. That process includes validation, cleansing, standardizing formatting and compilation to prep that data for use.

Data is something that needs constant attention. How you collect and integrate data, how you integrate it with other systems and how you measure it should be under constant review and optimization.