What is a Customer Data Platform? A Complete Guide for CDPs

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What is a Customer Data Platform?

What is a customer data platform? A CDP is a software package that consists of a centralized database with the ability to collect, manage and activate data from multiple sources in order to affect the digital customer experience (CX).

CDPs collect and integrate all forms of customer data with the intent to create a unified customer profile of a single customer view (SCV) persistently over time. This unified view can then be used to align all business efforts around a single source of customer truth.

Customer data platforms collect a variety of data types to help inform the actionable instructions they deliver back out to other technology platforms to personalize the digital customer experience. CDPs can collect customer behavior, demographic and transactional data to track and analyze customer interactions with your organization.

CDPs weren’t just created to centrally manage and combine first-party data from multiple disparate channels, but to give brands the ability to centrally manage data to stay in compliance with emerging data privacy regulations like the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA).

What are the Benefits of a Customer Data Platform?

A customer data platform can improve the efficacy and efficiency of your data-driven marketing campaigns. They accomplish this by deploying data-driven insights to tailor personalized experiences at scale.  Marketers who use personalization drive a 5 to 15 percent increase in revenue and a 10 to 30 percent increase in marketing-spend efficiency, according to a McKinsey survey of senior marketing leaders.

CDPs allow you to combine structured, unstructured and semi-structured data for a single customer view through a process called identity resolution. A CDP can ingest data from any source, including email, social, loyalty, and systems like enterprise resource planning (ERP), customer relationship management (CRM) and data management platforms (DMP). Customer data platforms don’t just collect and unify data, they can analyze and segment customer profiles using rules or machine learning, perform predictive scoring, and provide customer journey orchestration.

Customer data platforms are designed from ground-up to easily integrate with the rest of your technology stack through application programming interfaces (APIs). This allows CDPs to function as a smart hub, making your technology stack more agile, flexible and scalable by allowing you to plug in the best-of-breed software for your particular industry and applications.

In essence CDPs allows data to be democratized so it can be leveraged for use across the entire organization (marketing, sales, customer service, business) to deliver consistent messaging and integrated customer engagement. A CDP allows a business to tailor its customer communications so precisely, businesses can build lasting mutually-beneficial relationships with customers that improve retention rates and lower churn. CDPs are a great way to reduce customer acquisition cost (CAC) in favor of higher retention rates.

A customer data platform makes customer data available to other systems for activation, the execution of campaigns, and communications that improve the digital customer experience. CDPs allows marketers to personalize the online experience, send more targeted emails, provide relevant product and content recommendations, as well as implement retargeting programs. 

How Does a Customer Data Platform Work?

What is a customer data platform? How does a CDP work?

A CDP connects to a wide range of technology platforms, data sources and channels by using built-in connectors, SDKs, webhooks, and APIs. They ingest and integrate data from multiple disparate sources, including profile data and real-time interaction data (behavioral data, transactional data), campaign data, product data, customer support data, mobile, POS, marketing, device, and internet-of-things (IoT) data.

A customer data platform ingests and integrates those data sets to create a single unified customer profile. This integration process is called identity resolution or data unification. Customer identity resolution includes sophisticated algorithms to stitch identifiers from multiple systems, as well as automate graph creation and continuously unifying data into a profile as customers engage in real-time. During the unification process, data is validated, cleaned, and deduped to create a single customer view. Profiles are then enriched with second- and third-party data sources to fill in missing attributes and update other attributes with more recent information.

CDPs can also analyze and segment customer profiles using rules or machine learning, perform predictive scoring, and journey orchestration capabilities. Some more advanced CDPs provide machine learning (ML) and artificial intelligence (AI) for predictive analytics and audience segmentation. With journey orchestration, marketers can analyze customer interactions throughout the entire customer journey to deliver the right messages at the right time on the right channels.

Most Common Customer Data Platform Use Cases

The two most common use cases for customer data platforms are personalized customer experiences and targeted advertising. A CDP allows you to develop a complete unified customer view and understand your relationship to them. This allows you to accomplish targeted personalization at scale by using AI, machine learning and marketing automation. With a CDP, the right messages reach the right customer at the right moment, whether they are in your store or on a website. Some of the most common CDP use cases include:

  • Profile Unification: Customer data records can be combined into a single 360-degree view of the customer, allowing you to do more effective personalization and reducing ad spend waste. 
  • Segmentation: A CDP allows marketers to easily drag and drop attributes, user behaviors (web, mobile, POS, social) and other segments. 
  • Personalization: Marketers can personalize the digital customer experience across all channels. 
  • Data Unification: You can associate multiple identifiers with each customer, stitching together a persistent identity that is retained forever.
  • Predictive Scoring: Marketers gain the ability to predict customers behavior like show is likely to churn, purchase, click, or convert in the near future.
  • Retargeting: A customer data platform can improve retargeting accuracy by connecting customer data to advertising data, creating optimized audience segments and automating the whole process.
  • Customer Journey Optimization: Apply scores to customers and perform real-time optimizations across all channels. 
  • Customer Journey Orchestration: The process of delivering personalized experiences along the customer journey that lead to an optimal next step. This process relies on robust customer data, deep analytics, and artificial intelligence (AI) to predict the next best step as part of a smart journey design.
  • Predictive Modeling and Analytics: Determine the likelihood to buy, propensity to churn, and customer lifetime value (LTV).
  • Programmatic Advertising: CDPs enable you to target customers better with programmatic advertising. 
  • Lookalike Marketing: Advertise across social media and the open web to audiences matching your top customers. 
  • Measurement and Insights: Deep customer and business reporting. 
  • Customer Loyalty: Measure and predict customer loyalty, churn, and repurchase. 
  • Marketing Automation: A customer data platform can be used to improve the efficiency and efficacy of your marketing campaign operations.

CDP vs. DMP vs. CRM

There can be some confusion over the differences and benefits of a customer data platform (CDP) versus a data management platform (DMP) versus a customer relationship management (CRM) platform. While they all manage customer data in some capacity, they are all built for different purposes and have some significant variations. 

A customer data platform (CDP) is a centralized customer database that builds unified profiles from data it collects across any number of disparate data silos. A CDP then delivers combined data out to other solutions in the technology stack to affect the customer experience. CDPs are typically focused on first-party data. 

A data management platform (DMP) is software that is used by marketers to improve advertising, retargeting, and media buying for programmatic advertising. The data DMPs deal with is typically anonymous and comes from cookies, devices, and IP addresses, and is only stored for a limited time. A DMP will feed its data into a CDP to improve the customer profiles a CDP develops. 

A customer relationship management (CRM) platform is used to track and manage interactions with customers and prospects. They primarily support sales teams for content management and sales management. Marketing data can be fed into CRM systems through connectors, but it is more typically entered manually as sales people enter data. 

A CDP is more broad in application and sits on top of DMPs and CRM solutions in your technology stack. The customer data platform can ingest second- and third-party data from DMPs and CRMs to make the unified profiles they create more complete. But a DMP can also benefit from a CDP as it can ingest data to improve ad targeting. 

Next Steps with a CDP

A customer data platform may be the right choice for your organization if you need to improve the overall customer experience with data driven-insights, as well as make your marketing operations more agile and efficient. A CDP can unify customer data from all your channels and disparate silos to create a single customer view of a customer that can serve as the single profile of truth to be shared across the company. This unified view will allow your marketers to more easily analyze customers and identify critical segments to deliver more relevant, contextual, personalized, and consistent messaging. 

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