A Customer Data Platform (CDP) cuts through a company’s data silos by gathering and combining customer data from different sources and channels. The combined data is readily usable for marketing teams without reliance on IT. A CDP integrates and orchestrates the marketing technology stack most suitable for a company. This all enables coordinated and consistent customer communication across all used channels. This way, companies can engage customers in meaningful ways, creating strong customer relationships at scale.
Why CDPs Have Emerged
Today’s economy is aptly called the Platform Economy, as it’s dominated by large platforms – Amazon, Facebook and comparison sites among them. These platforms are monopolizing direct customer access. Businesses need to pay them and out-bid their competitors to reach customers, including their own.
At the same time, customers are increasingly demanding the high-level, cross-channel personalization afforded them by the biggest platforms. Communication across every channel has to be relevant, helpful, well-timed and consistent to keep up with customer expectations. That hasn’t been previously possible for companies without enormous budgets and competence in data technology development. Although an extremely wide range and number of marketing solutions exist (7,040 in 2019 and counting, as reported by the MarTech 5000!) for an increasing number of channels and purposes, making effective use of them through orchestration has been near-impossible.
These issues have necessitated the evolution of customer data platforms (CDPs). CDPs enable orchestrated, cross-channel marketing and CRM that feels personal, meaningful and relevant, all at scale. CDPs help create customer-brand relationships by delivering the high-level communication that customers demand. This enables brands to gain independence from platforms and regain their margins.
What Is a CDP?
The CDP Institute, providers of information about CDPs and the original coiners of the term, define a CDP as ‘packaged software that creates a persistent, unified customer database that is accessible to other systems.’
Let’s break the definition down:
Packaged software: CDPs are prebuilt systems, configured to meet each client’s unique needs. A CDP is marketer-managed with a visual user interface that doesn’t require programming knowledge to use, freeing up marketing teams from reliance on IT.
Persistent and unified database: CDPs gather data (like behavioral data, profile data, or transactional data) from every connected data source, and unify it to create complete customer profiles. The profiles are detailed, updated in real-time, and stored for as long as they’re needed.
Accessible to other systems: CDPs provide access to collected customer data for any system that requires it, thereby connecting otherwise separate solutions into one large inter-communicating system. Any data sources (such as data warehouses, CRM or shop systems and tracking solutions) and any channel tools for message delivery (such as ESPs or push notification solutions, social media or direct mail) can connect to CDPs via APIs or webhooks.
A CDP lays as a ‘meta-system’ on a company’s existing infrastructure without replacing it and becomes a core for the entire tech stack. Marketers continue to use their existing solutions in an orchestrated manner: All martech solutions a company uses for customer engagement have access to the same data and are aligned. This enables consistent cross-channel campaign management. All of a customer’s past and current context, including responses to messages from different channels that happened mere seconds ago, can be taken into account in automated messaging.
A CDP’s ability to integrate with any solution enables an integrated best-of-breed approach to building your marketing tech stack: integration of solutions that are the best in their respective category or the most appropriate for your business. These can be channel, data management, analytics and machine learning solutions.
CDP features and capabilities can include:
- 360° customer profiles
- Customer segmentation capabilities
- Analytics functionalities
- Cross-channel campaign management and automation
- Features for templating and personalization
CDPs in Action
As mentioned, data gathering and 360-degree customer profile creation are core functionalities in any CDP. CDPs enable activation of that data for effective, personalized customer engagement. The first step is usually defining an audience by customer segmentation, which is based on any gathered data, for example:
- Transactional data (such as order history)
- Behavioral data (such as website or app usage or responses to messages)
- User data (such as age, gender or contact data)
- Psychographic data (such as emotions, attitudes or beliefs)
- And any combination of those.
The second step is to target the segment with a tailored campaign and content optimized for the segment. As data is available in real-time, campaigns can also utilize current user behavior as real-time triggers for message dispatch through different channels, or even for onsite personalization.
Here’s an example campaign for the segment we’ve created:
- An email campaign, tailored to the segment and with name and salutation personalization, is sent to everyone in the segment.
- If the link in the email is opened, the customer is directed to a site personalized based on their order history and previous behavior on the company’s website.
- If the link isn’t opened, a voucher is created whose value correlates with the customer’s CLV (Customer Lifetime Value).
- A personalized message is sent via the most appropriate channel, taking channel availability, channel costs, and CLV into account.
- The customer’s behavioral data is updated throughout.
This example shows only a few of the many possibilities CDPs have to offer when creating cross-channel campaigns. CDP-using marketers are able to intuitively create much more complex segments and campaigns with multiple forks and paths.
The Different Kinds of CDP
Whilst all CDPs share underlying architecture and ability, they often differ in their precise approaches to data aggregation, analysis, campaign management, automation and others. The following graphic shows the CDP Institute’s schematic categorization of the CDP landscape, taken from the CDP Institute’s ‘CDP Industry in Europe’ report.
Access CDPs (otherwise known as Data CDPs) are able to combine data and make it available to other systems. These are the necessary base functionalities for a software to be defined as a CDP according to the CDP institute.
Analytics CDPs have all the functionalities of access CDPs and on top of these functions also provide analytical applications. According to the CDP Institute, the applications usually include customer segmentation, and sometimes extend to predictive modeling and revenue attribution.
Engagement CDPs (otherwise known as Campaign CDPs) have the functionalities of both access and analytics CDPs with additional built-in cross-channel campaign management capabilities, usually including customer journey automation, real-time interactions, and message customization.
Vertical-focused CDPs, which are developed with a particular vertical (such as e-commerce, insurance or financial services) in mind, also exist.
The CDP market has been growing at a very quick rate (they reached the top of the Gartner Hype Cycle in 2017 within four years of the term’s coinage), which has led to mis-labelling and confusion amongst vendors. According to a 2019 Winterberry Group report, over eighty percent of CDPs are mis-labelled.
To abate the issue, the CDP Institute provides their RealCDP Verification, a badge provided to CDP vendors whose products meet their strict definition.
- Ingest data from any source
- Capture the full detail of ingested data
- Store ingested data indefinitely
- Create unified profiles of identified individuals
- Share data with any system that needs it
Does My Company Need a Customer Data Platform?
Are you profitable from a customer’s first purchase of your product or service? If you aren’t, your main focus should be on customer retention. Customers are retained through switching costs, and whether a CDP is the right choice for your company depends on which switching costs you are and aren’t able to create. Switching costs are the main drivers of customer loyalty. However, switching costs should not be thought of only in economic terms, but also in relational terms: as identification, relationship, and attachment to a brand. In their 2003 article “Consumer Switching Costs: A Typology, Antecedents, and Consequences” Burnham, Frels and Mahajan identify three pillars: procedural, financial and relational switching costs.
You might be effectively retaining your customers through procedural switching costs which are incurred when switching providers, examples including explicit financial costs such risk, evaluation or setup, as well as less explicit financial costs such as research work or learning phases. Switching from an iPhone to an Android phone, for example, means high procedural switching cost.
You may be effectively retaining your customers through incurment of financial switching costs, which are monetary losses or losses of supplier and product benefits. If you want to change your mobile phone provider before the end of your term, for example, you encounter high financial switching costs – the same principle is true for loans.
If these aren’t possible for your company, you’ll have to create relational switching costs with your customers, which is where CDPs come in. Relational switching cost refers to the emotional relationship a customer develops with a brand or company. It’s nurtured through consistent creation of meaningful, helpful moments that customers remember and associate with a company, a concept called moment marketing. CDPs enable it through consistent cross-channel campaign management. Communication is tailored to individual customer needs and expectations: companies can create positive moments by sending relevant and consistent messages at the right time via the right channels.
If you aren’t typically profitable from the first purchase and rely on relational switching costs to drive your customer retention, you should be looking into CDPs.
How Do I Select the Right CDP?
Before analyzing the market and considering which vendor to go for, your business needs to adapt its strategy and organizational structure in preparation for the new tech. A common mistake is to search for the correct technology without having established an ideal organizational structure and strategy: a CDP is only effective when your team can leverage its potential.
Regarding strategy, this means clarifying which audiences you want to reach, which channels you’ll be using and which data points you need to consider for personalized cross-channel campaigns. Organizationally, your team structure will mirror your strategy: you’ll have to break down team silos and create overarching roles to ensure coordination, such as an audience manager. You may need to consider dedicated positions for marketing technology management too.
When searching for a product, bear in mind CDP selection is not a case of choosing the best vendor available, rather it’s a case of choosing the most suitable vendor for your company. Create a shortlist of vendors by analyzing their functionalities and how they answer to your needs. Sort their functionalities by those critical to your business, those that offer a competitive advantage, and those that are nice to have. A Request for Proposal template can helpfully streamline the process of finding which CDP providers have what you need.
The CDP Institute’s vendor comparison chart is a good starting point for your search. The Gartner market research institute and Forrester Research provide good overviews of the technology landscape’s status quo, and also identify new trends and developments. Suitable consulting firms or agencies can also be consulted.
Your shortlisted vendors need to be put through their paces by comparing their provided product demos with each other. Ensure the demos are similar to each other and relevant to your company: take your strategy, requirements and unique tech stack into account. Make sure to voice any queries you have about pricing and services too.
The platform economy makes effective customer retention essential for many companies. Through helping create good customer experiences, CDPs help increase your existing customers’ loyalty, increase their CLV and thus increase profitability. By building and maintaining direct customer relationships, companies can recoup or secure a portion of the margins they would otherwise lose to the platforms. CDPs, in essence, help marketing teams communicate with customers effectively, and retain them through the relational switching costs they help generate.