Customer data platforms gain traction as viable tool

Customer data platforms have historically lived in the business-to-business world. But CDPs—software that creates a unified customer database using information culled from various sources—have also gained significant traction with marketers operating in the business-to-consumer arena.

The expanded interest in CDPs is being driven by growing consumer privacy regulation and moves made by browsers such as Google Chrome to cease using third-party cookies come 2022. Both affect a brand’s ability to reach large swaths of consumers using third-party data. Many in the industry are betting that those two massive changes can be negated by brands creating a more direct relationship with their consumers using CDPs, which make sense of first-party data so it can then be used for personalization and targeting.

CDPs are now “being thought of as customer relationship management systems for b-to-c companies,” says Anne Hunter, exec VP of strategy and growth at Kantar. “They are being hailed as being super novel and new, but the b-to-b world has been using them for a long time.”

The best way to think about what a CDP does is as a warehouse storing first-party data such as a customer’s loyalty card number, home address, name and email, or data collected directly from the consumer, such as a cashier asking for a phone number during point-of-sale. A company’s CDP will also make sense of where the data originated—did it come from an app, a phone call or social media? Without first-party data, a CDP cannot operate. It’s also not a standalone product, but a cog in a much larger wheel.

Beyond warehousing data, CDPs allow marketers to build profiles using a brand’s first-party data. These profiles show what devices a person uses and which channels they visit. With profiles in hand, marketers can then start building different audience segments for different products they offer.

A case in point is L’Oréal, which like most brands had plenty of data on customers, but all in a variety of different buckets including websites, apps, open web and commerce, among other areas. Collecting such data in one place is a challenge many brands face. For L’Oréal, the problem was exacerbated because it has 35-plus brands that live on various channels. So the company used Salesforce’s tools to centralize its first-party data, and it says the move helped fuel a 49 percent increase in e-commerce revenue year-over-year for the first half of 2019.

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“We’re talking more about CDPs because it is all about this 360-degree view of the customer and being able to activate on that information in a very personalized way, at scale, in real time,” Michael Kingston, chief technology officer at L’Oréal U.S., told Ad Age in November. “That is what has changed and why there’s an investment and movement in the industry.”

CDPs are also being used to keep customers happy.

When jewelry retailer Kendra Scott—which has historically sold the majority of its products in stores such as Nordstrom and Bloomingdales—looked to boost e-commerce sales, it turned to Amperity, a 4-year-old company that operates in the CDP arena, says Megan Kohout, VP of e-commerce and customer analytics at Kendra Scott.

“Our data was coming from different sources like e-commerce, in-store and events,” says Kohout. “We knew customers were interacting with the brand in different ways, but we wanted to understand what the customer is doing holistically and not in just one area.”

Kohout declined to share specifics, but says the company’s adoption of a CDP helped bolster its digital sales after adopting the tech in 2017.

Kabir Shahani, CEO of Amperity—which has clients including Starbucks, Lucky Brand and Moët Hennessy—says airlines use them to personalize customer experience.

“The airline industry has a lot of legacy systems and they have a lot of information about you when you book a ticket—your mileage information, all the different places you visit,” Shahani says. “Now imagine a scenario where your flight from a few weeks ago was delayed, but the next time you fly with this airline a flight attendant apologizes for that delay and offers you a complimentary glass of Champagne.”

Although it does many things, a CDP cannot activate data. It can only send it to other technology systems within a company before it is used for marketing purposes. At the end of the day, a CDP simply organizes and stores a brand’s first-party data so it can be used elsewhere—similar to a cog in a much larger wheel.

“The CDP provides brands with their own ‘walled garden’ by leveraging the power of their first-party data by combining first-party cookies with their CRM data,” says Jeff Greenfield, co-founder and chief attribution officer at C3 Metrics. “Brands are starting to realize that Google, Apple, Amazon and Facebook do not have their best interests in mind—and the CDP provides them the power to more accurately tie ad buys to outcomes.”

A rush to CDPs

The number of companies entering the CDP arena has almost doubled, from 57 at the start of 2018 to 101 by the end of 2019, according to the CDP Institute, a vendor-neutral industry group. Venture capitalist funding for CDPs, meanwhile, has more than doubled for the same time period, reaching nearly $2.2 billion, up from about $1 billion.

Attracted by that growth, marketing cloud titans are entering the space. Oracle, for instance, released its CDP three months ago; Adobe launched its CDP roughly two months ago, as did Microsoft. Salesforce is expected to debut its CDP in June and SAP, meanwhile, is slated to release its CDP later this year. During SAP’s fourth-quarter earnings call in January, Jennifer Morgan, co-CEO, said that the CDP market “is highly fragmented and it’s a young market with no leaders. This is an opportunity to become a new system of engagement complementing any CRM system of record.”

The major cloud players entering the market, coupled with the rise of new companies entering the CDP space, has propelled the acronym “CDP” onto the minds of nearly every major brand.

There’s also the increasingly restrictive data-privacy laws and the imminent demise of third-party cookies.

“The tracking landscape is changing and regulation is changing,” says Martin Kihn, who previously worked as an analyst at Gartner before joining Salesforce as its senior VP of product strategy for Marketing Cloud. “Consented first-party data has become the precious fuel for the marketing ecosystem and it becomes more important each year.”

Kihn adds that CDPs might especially be useful in purging data in light of new privacy laws that empower consumers to request just that.

Matthew Mobley, chief technology officer at digital agency Merkle, compares the CDP to the direct mail days of years past. “The marketing pendulum we started then was dropping direct mail to an address,” Mobley says. “We then swung toward reach with cookies. We’re coming back to that direct relationship because of privacy concerns and what’s happening with cookies.”

Not everyone is convinced

Joe Stanhope, VP and principal analyst at Forrester, is skeptical about the need for companies to adopt CDPs.

On paper, he says, CDPs make sense.

“Marketers want to do more with data, and there is more data available, and it is happening faster and being applied in new ways for targeting, personalization and cross-channel engagement, and all of that is very difficult right now,” says Stanhope. “Big companies, small companies and super sophisticated marketers all want to do more with their data and that is the underlying kernel of truth to the whole CDP phenomenon. There is a legitimate business need underlying all of this.”

But, says Stanhope, CDPs have several distinct challenges.

The first is that the definition of a CDP is muddled, since the market has yet to adopt a clear and concise definition about what they do. “It’s a problem because it makes it hard for vendors to articulate what they do and for marketers to know what they are buying,” according to Stanhope.

The more pressing issue, says Stanhope, is that the CDP category has yet to fully mature. Sophisticated marketers need targeting, optimization and analytics, and CDPs haven’t matured enough to satisfy those requirements. “About 90 percent of applications for CDPs are for email marketing,” he says.

As for costs, they vary, but most CDP companies command $5,000 to $10,000 per month, and that figure can grow exponentially. And to make the CDP truly effective, it must be at the center of a company’s marketing technology stack.

Stanhope says CDPs must improve in areas such as orchestration. “The CDP doesn’t send emails, it doesn’t do personalization on its own, it’s just the data provider. This is why marketers need to be careful in understanding the potential benefit of getting access to CDP data versus the opportunity costs of building, spending money and resourcing this additional layer into what’s likely an already complicated, and expensive, marketing technology stack,” he says.

It’s also likely that sophisticated enterprise organizations already have the technology to achieve the same results as those with a CDP, but haven’t tapped into them yet, says Stanhope.

“By and large, brands don’t understand CDPs because it’s another three-letter acronym in search of a business case,” says Matt Prohaska,  CEO and principal of Prohaska Consulting. “Some brands have fallen into a CRM 2.0 posture, basically using CRM business intelligence to drive some digital ad spend.”

Prohaska says “CDP strategy will be the most important strategic decision companies make in the next 10 years … But brands and media companies must avoid building another marketing technology swamp.”

Source: https://bit.ly/38PNrQ9