What is a Customer Data Platform? CDPs Explained
Think about the last time you purchased a computer online. Your research process was probably something like this:
Google searched, “The best computers of the year”
Visited a number of computer review websites
Visited a few retailers that sell computers
Watched a few videos to learn more about the technical details of different computers
When you finally decided on what type of computer to buy, you probably researched the best place to buy it from. You visited a few additional websites to compare costs, shipping times, return policies, and more.
Throughout all of that, chances are you interacted multiple times with the company that you ultimately purchased from — through website visits, live chat, Facebook ads, and email.
You might’ve noticed that each interaction with that company resulted in an experience that felt more personalized to you. The ads you saw on Facebook felt extremely relevant to you, the website may have made subtle changes to seem more personal to what you were looking for, and their email follow-up, despite the fact that it was automated, felt like it was crafted for you.
How was the company doing all of this? It’s likely they were using a Customer Data Platform (CDP) to tailor their marketing to you.
What is a Customer Data Platform (CDP)?
A Customer Data Platform (CDP) is a piece of software that combines data from multiple tools to create a single centralized customer database containing data on all touch points and interactions with your product or service. That database can then be segmented in a nearly endless number of ways to create more personalized marketing campaigns.
Understanding what a CDP does
The best way to explain this is by example. Say a company is trying to get a better understanding of their customers. Their CDP would be used to collect data from touch points like Facebook, the company’s website, email, and any other place a customer might interact with the company. The CDP will collect all of those data points, consolidate them into an easily understandable unified customer profile, and then make that profile usable to other systems that might need it — like the Facebook ads platform.
That process allows the company to use segmentation to better understand their audience and create more personalized marketing campaigns. The company could easily create an advertising audience based on everyone who has visited a specific page on their website and also the company’s live chat feature. Or, they could quickly segment and view data on site visitors who’ve abandoned their carts.
That’s one of the ways Drift is able to create personalized marketing campaigns. They use Segment’s Personas product to help with three tasks:
Identity resolution - Unifies user history across devices and channels into a single customer view for each user.
Trait and audience building - Synthesizes data into traits and audiences for each customer, including which users have displayed intent and how that integrates into overall account activity.
Activation - Pushes their user- and account-level audiences to a number of tools in their stack to orchestrate personalized, real-time outbound messaging.
CDP vs DMP vs CRM: What's the Difference & Which Do You Need?
An important thing to understand about CDPs is that, although they handle customer data, these pieces of software are not the same as a Data Management Platform (DMP). DMPs are used only in advertising, and won’t help you with personalization of your own marketing.
Customer Relationship Management (CRM) providers, on the other hand, help businesses organize and manage customer-facing interactions, but they don’t collect any behavioral data on how customers interact with your product or service (that’s where CDPs come in).
The data that makes up a CDP
CDPs need customer data to function. For most CDPs, this customer data comes in the form of first-party data, meaning that it’s data collected by a company and only used for that company’s marketing.
Unlike first-party data (data collected directly from the customer), third-party data is user data that companies purchase and/or share with other businesses.
Third-party data is most often used to target new potential users for advertising, to personalize websites for net new visitors, and to monetize apps without another revenue stream. Given how often third-party data changes hands, it’s hard to determine if it was collected with consent.
With first-party data, that’s less likely because you’ll know exactly how, when, where, and why you collected your data. Those are important questions to answer when you’re evaluating data accuracy.
CDPs take your first-party data and make it useful to you through a process called customer data integration. This type of data integration involves combining information and identifiers from separate databases into a usable form for sharper analysis.
If you’re going to use a CDP, you need to understand customer data and how CDPs use it. That will allow you to get the most out of your customer data. We’ve pulled together a few resources to help you learn more about customer data best practices:
Everything you need to know about customer data integration
Customer data integration is what allows your CDP to operate. There are a few different types of data integration and methods to do it. CDPs primarily use consolidation to integrate data, which involves taking data from multiple data sources and storing it in a central data warehouse.
Making the most of your customer data
To make the most of your customer data, you need to focus on three things. First, pick your North Star Metric. This is the metric that is the most important to your team. Second, be thoughtful about what you’re collecting. You don’t need to track every metric in the world. Third, make sure you’re storing your data properly.
Spotting bad data at your company
Bad data doesn’t mean that your data was collected improperly. It usually means that your data is out of date, inaccessible, unorganized, or simply not first-party data. To get the most out of your CDP, you need to understand what bad data is so that you can avoid it.
Segment on customer data
Segment has helped thousands of companies collect, analyze, and get more out of their data. We’ve taken that experience and written an eBook with actionable strategies you can use to make data-informed decisions. With the help of your CDP, your customer data can be used to create personalized experiences and increase customer engagement.
The benefits of a CDP
Aside from giving you a complete view of your customer, there are three other huge benefits to CDPs:
1. More organized customer data management
Customer data management is the process of acquiring, organizing, and using customer data. CDPs make this process incredibly simple by organizing your customer data in a way that makes it usable.
Organizing your data does require a bit of setup when you start using a CDP. Once it’s set, it will require very little maintenance.
Here are a few resources to help you learn more about organizing and managing your customer data:
Scalable data governance: Useful data requires a data governance strategy. Without this strategy, it can be easy to collect useless data or collect data in the wrong ways. Either one of those will result in unorganized data that will be hard to use, even if you know what you’re looking for.
What is a data plan?: A data tracking plan is one component of your data governance strategy. Typically, these plans are documents or spreadsheets that are used across an organization, serving as both project management tools, as well as reference documents.
Once you have a good handle on customer data, the next step is figuring out what to do with that data. That’s where customer analytics fits in.
2. More insightful customer analytics
Customer analytics involves understanding customer behavior throughout the customer journey to help make business decisions related to marketing, product development, sales, and more.
There are four main components to customer analytics:
1. Data collection
2. Data sorting
3. Data storage
4. Data analysis
Each of those components on its own isn’t very useful, but when you use a CDP to combine all of those components, you’ll have a powerful platform for customer analytics. And, with the proper customer analytics system in place, you can significantly improve customer loyalty and retention (and, therefore, customer lifetime value).
Learn more about customer analytics:
Customer analytics: How to use customer data analysis for higher ROI: Customer analytics involves understanding customer behavior to make business decisions related to marketing, product development, sales, and more. Without a CDP, your data is likely going to be unorganized and siloed, which makes it nearly useless for customer analytics.
An introduction to multi-touch attribution: Attribution models help you determine which parts of your marketing campaigns are most responsible for bringing in new customers. When using attribution for customer analytics, we almost always recommend using multi-touch attribution.
Take your product usability to the next level: Customer analytics will also help make your product more useful to your customers. That will reduce your churn risk and increase customer satisfaction — two things that most companies are constantly pursuing.
Now that you know how to analyze your data for customer insights, it’s time to lock down something else — the data itself. Data protection is one of the most important benefits of a CDP.
3. Improved data protection and privacy
With the advent of the General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and other data privacy laws, respecting your customers’ data privacy is more important than ever.
Learn more about how CDPs can help improve your data protection, privacy, and compliance with certain data privacy laws:
How to protect customer data: a marketers’ guide: CDPs can help you protect your customer data by limiting the amount of data you’re collecting in the first place. The data governance strategy and data plan that you use alongside your CDP will help ensure that you’re only collecting data that’s vital to your marketing efforts.
Customer data and the GDPR: GDPR legislation affects your company differently depending on how your company collects customer data. Once you understand your classification under GDPR, your CDP can then help you take the next steps to prepare and manage customer data.
Preparing for the CCPA and the future of data privacy regulation: The CCPA is similar to the GDPR in that it doesn’t only apply to companies doing business in the geographic area of the legislation. If you collect data about your customers or website visitors who live in California, there is a chance that you need to comply with the CCPA. Compliance comes down to three criteria: revenue, the amount of personally identifiable information you collect, and if you sell that information.
At this point, you should understand the benefits of a CDP and why you need one. The next step is figuring out which CDP is right for your company.
How to choose a CDP
One of the biggest decisions you’re going to make is choosing the right CDP for your organization. When you’re choosing your CDP, you can’t pick randomly. You need to find a CDP that works with your specific requirements, has similar use cases, and is experienced working with companies in your industry.
We’ve pulled together a few resources to help you choose the right CDP for your organization:
How to choose the best customer data platform in 6 steps: There's a lot to consider when picking the best CDP for your company, which makes the buying process relatively complex. If you follow the six steps outlined in this link, you'll have a much better handle on finding the right CDP that fits your company's unique needs.
How to navigate the sea of customer data tools: There are around 7,000 tools that handle customer data in one form or another. Choosing a CDP requires that you know which customer data tools you’re using and which ones you might be using in the future.
CDP buyer’s guide: Our buyer’s guide for CDPs will help you understand when it’s time to buy a CDP, which features you need, and how to evaluate the various CDP vendors out there.
How other companies use CDPs
Up to this point, we’ve mostly talked about CDPs in theory. It can be especially helpful to learn how other companies use their CDPs and the results they get from those tools. That’s why we’ve compiled a list of a few companies that use a CDP to personalize their marketing:
How Breather gets better ROI on ads: Breather was able to significantly improve their ROI on ads by closely monitoring the time it took users to convert depending on which ad platform they came in through.
How Glossier optimizes the customer experience across channels: Glossier built a more personalized marketing strategy based on the actions their customers took on their website.
How DigitalOcean drives ad and email conversions: DigitalOcean built advertising audiences defined by their CDP that gave the company a 33% improvement in cost-per-conversion.
CDPs are the key to understanding your customers
CDPs are complex pieces of software. When you use one correctly, it’s going to give you deep insights into your customers. You can then take that knowledge and improve your marketing, your sales, and even your product.
If you’re ready to take the next step toward understanding your customers, a CDP might be the perfect tool for you.
Frequently asked questions
Twilio is ranked #1 Customer Data Platform by IDC 2022
Read this report to learn more and dive into why IDC has ranked Twilio the #1 CDP in worldwide market share for four years in a row (2022-2019).Download now