One of the most difficult tasks a marketing manager has to deal with is outlining a marketing strategy. In essence, this is the crux of their job, as it requires all the knowledge and experience at their disposal. But, the only way to make use of that knowledge and experience is by first having reliable data. Now, it is important to mention that there are different types of data and that you need to be aware of them for proper use. So, for this article, we will take a close look at third-party and first-party data and how it relates to marketing.
First-party data is the data you collect directly from your audience. You do this by utilizing firsthand interactions (ergo first-party data) with customers across touchpoints. These touchpoints can be:
- Mobile apps (be it for stores or otherwise)
- Customer relationship management (CRM) tools
- Sales transactions
As you can imagine, this data is highly valuable because it's both accurate and specific to the specific audience.
First-party data can essentially be any type of data that you gather directly from customers. But, in practice, this data is quite varied both in content and intended use. This is why we often segment the data into different types:
This is the data that tells you specific details about your customers. These can be demographic details like age, gender, or location. Or it can be contact details like email, phone number, or social media profile.
Details about purchases made by customers, subscription renewals, products or services they've shown interest in. In certain instances, transactional data can tell you more about a customer than personal data. Especially when it comes to developing a marketing strategy.
Behavioral data tells you how customers interact with the company's website, app, social media, or marketing materials. This includes clickstream data, session duration, pages visited, viewing time, clickthrough rate, etc. Behavioral data is invaluable when it comes to customer onboarding. After all, there is no way to make your website and app intuitive without knowing what your customers behave like.
CRM stands for Customer Relationship Management. It refers to the process of handling interactions with customers and potential customers. By directly communicating with customers, you get valuable data that you cannot get anywhere else.
Benefits of first-party data
The data types we've listed so far are considered highly valuable for numerous reasons. The most important ones are:
- Accuracy - Because you collect data directly from customers you can rest assured that it is accurate.
- Relevance - The surest way to learn what your customer base is is through first-party data. Doing so allows for more targeted and personalized marketing efforts.
- Privacy compliance - First-party data is far less likely to raise privacy concerns compared to third-party data, simply due to the way in which you gather it. Customers either directly interact with the company, and thus provide behavioral data or transactional data. Or, they outright input data (declared data) like with CRM and personal info. In either case, customers are well aware of what data they are providing, and how that data is likely to be used.
Due to these benefits, companies choose to utilize first-party data to improve customer experiences, personalize marketing strategies, and create informed business decisions. However, collecting, managing, and utilizing this data effectively requires a robust infrastructure, data governance, and adherence to data privacy regulations. Therefore, in certain instances, it can be more beneficial to opt for third-party data.
Downsides of first-party data
While first-party data offers numerous advantages, there are also some downsides you should be aware of:
Limited scale and coverage - First-party data is inherently limited to what you can gather within your own ecosystem. Therefore, it might not provide a comprehensive view of the market or potential customers beyond the existing audience.
Bias and limited diversity - Since your data is based on your own ecosystem, it is safe to assume that you will be prone to certain biases or limited perspectives. Especially if the customer base is not diverse enough or doesn't represent the broader market adequately.
Data gathering difficulty - While the idea of gathering your own data seems nice, it can be difficult to properly put it into practice. Most newcomers to data management struggle with maintaining a certain professional standard. As a result, the quality of first-party data can vary drastically. You may find yourself having incomplete or inaccurate data, outdated information, or inconsistencies in data collection methods.
Cost and necessary resources - You should also keep in mind that proper data management is rarely cheap. Collecting, storing, and managing first-party data requires investments in technology, infrastructure, and resources for data storage, security, and analytics. This can be costly, especially for smaller businesses.
Competitive disadvantage in data comparisons - As a result of the aforementioned, companies will often find it challenging to compare their first-party data with industry benchmarks or competitor insights. This is simply because they lack access to broader datasets that third-party data or industry reports might provide.
Third-party data is the data you collect from external sources or entities. You can acquire this data from various sources such as data providers, publishers, retailers, and other external entities. It's typically gathered through cookies, browsing behavior, surveys, public records, social media platforms, and other means.
Keep in mind that, unlike first-party data that you own and collect directly from its own audience or customers, third-party data is owned and maintained by external parties. This removes a fair bit of control and oversight that you would otherwise have. But, the benefit is that third-party data can encompass a broad spectrum of information, including demographic details, browsing behavior, interests, purchasing habits, and more. By referring to a third party you avoid the arduous process of data collection, aggregation, sorting, and analytics. Furthermore, you get information regarding not just your customers, but also a vast number of people that you've never interacted with. As you may have guessed, doing so can have various benefits.
Benefits of third-party data
The two key benefits of utilizing third-party data are:
- Supplementing existing data - Arguably the best use of third-party data is to complement first-party data by providing additional information about potential customers. Keep in mind that this includes segments that you might not have access to through its own channels.
- Enhancing marketing strategies - It is seldom easy to determine what kind of marketing strategy to opt for solely based on first-party data. This is why marketers often use third-party data to outline their targeting strategies. Doing so enables them to jumpstart their marketing in order to reach a wider audience based on specific characteristics or behaviors. Once they reach a wider audience, it is far easier to collect first-party data and further refine marketing one's marketing strategies.
Downsides of third-party data
Now, of course, there are certain challenges and considerations that you ought to be aware of.
Questionable data quality - First, the quality of third-party data can vary significantly. This can easily lead to potential inaccuracies or outdated information. And since you seldom have oversight of how the data was gathered, you cannot really fact-check it.
Privacy and compliance - Secondly, there is the question of privacy and compliance. Nowadays, there is a notable focus on data privacy regulations (such as GDPR or CCPA). If you choose to utilize third-party data you open yourself to compliance and data privacy issues if not managed carefully.
Depending on external sources - Lastly, relying solely on third-party data without a strong foundation of first-party data can leave you overly dependent on external sources. In this case, it can be hard to determine specific information that is niche to your audience. And, it can be difficult to come up with updated info that might hold important changes. As you can imagine, such outdated and overly broad data may not align perfectly with your specific needs or goals.
Which one should you use?
By now it should be obvious that deciding between first-party data vs. third-party data is not as straightforward as it may seem. It stands to reason that a successful company will find use for both types. When and why you might use them is largely dependent on your business needs and available resources. So, let's first outline when should you use first-party data for marketing
Using first-party data
Seeing that first-party data gives you an unfiltered, well-adjusted view of your audience, there are certain marketing segments where it is irreplaceable. Here are some scenarios where leveraging first-party data proves to be beneficial:
Personalized marketing campaigns
We've often written about how personalization is the future of marketing, and how modern content must cater to specific audience segments. Well, one of the best ways to utilize first-party data is to create highly personalized and targeted marketing campaigns. By relying on first-party data you can tailor messages, offers, and various content based on the specific audience segments. You do this by keeping track of their preferences, behaviors, and purchase history, along with their personal data.
Customer retention and loyalty programs
Customer retention is another big subject that we've covered in previous articles. In those articles, we've outlined how it is usually far easier to keep customers than to find new ones. But, just because something is easy doesn't mean it should be done haphazardly. Successful companies always look to improve loyalty programs or retention strategies based on insights derived from first-party data. After all, if you have quality data, it is surprisingly easy to identify high-value customers, understand their preferences, and offer personalized incentives or rewards to foster loyalty. Doing so makes the customer feel valued and special, which is one of the surest ways to bring them back.
Enhanced customer experiences
You'll have a hard time convincing customers to do business with you if you do not understand their customer's experience. This especially goes for online shopping where the ease of use of your store can make or break it. So, it is in your best interest to improve the overall customer experience by leveraging first-party data. If you tackle it properly, you can actually learn what your customers go through when doing business with you. Such data can help you outline changes necessary for better customer onboarding and even help guide them through your sales funnel with ease. Furthermore, you can use first-party data to provide personalized recommendations, streamline the buying process, and offer proactive customer support based on individual customer behaviors and interactions.
Personalization is largely based on segmentation. After all, in order to personalize your content, you will first need to know who you are personalizing it for. Well, in this instance, first-party data is invaluable. With it, you can divide your customer base into specific segments based on demographics, behaviors, purchase history, or engagement levels. By doing so you will have a far easier time tailoring marketing strategies to each segment for more effective targeting.
Product development and innovation
Lastly, if you are looking for a way to further develop your company, it might be beneficial to seek ideas from your customers. Well, you can gain valuable insights from first-party data to identify trends, preferences, or gaps in your products or services. You can then use this information to make changes in your company that align more closely with your customers' needs and desires.
In essence, first-party data is most beneficial when used to create more personalized and meaningful interactions with your existing customer base. By leveraging the insights derived from your own audience, you can tailor marketing efforts to meet specific customer needs, drive engagement, and foster long-term relationships, ultimately resulting in improved marketing ROI and customer satisfaction.
Using third-party data
On the other hand, third-party data can be valuable when you're looking to expand your audience reach, enhance targeting capabilities, or gain broader market insights. Let's outline certain scenarios where using third-party data in marketing can be particularly advantageous:
If you are looking to acquire new customers, third-party data should be your go-to option. With it, it is far easier to reach potential customers who might not have interacted with your brand before. With third-party data, you can find ways to target an audience that you believe would be the right fit for your company.
Comprehensive Audience Profiling
Just because you have a good idea of what your current audience is like (through first-party data) doesn't mean that you have a good grasp of all the potential customers. Use third-party data to enrich your understanding of your target audience, not just your active customers. It can provide additional demographic, psychographic, or behavioral insights that your first-party data might lack, helping to create more detailed audience personas.
Market Research and Validation
If you are trying to break new ground in marketing, or change your approach, researching third-party data is a must. By doing so you will gain important insights into industry trends, consumer behaviors, and competitive landscapes beyond your own customer interactions. It can be useful for validating hypotheses or making informed strategic decisions. And it can be useful in rethinking the conclusions you come up with through first-party data.
Testing and optimization
Lastly, it is important to outline that marketing campaigns can be expensive. Therefore, before you start investing in one, it is smart that you first do some testing and research. Fortunately, you can use third-party data to test new marketing strategies, channels, or messages before investing too heavily. It allows for experimentation and optimization without relying solely on internal data. As you can imagine, this experience is far cheaper than if you would have to solely work with first-party data.
Once you recognize the limitations of first-party data, it is easy to see why using third-party data is too important. Any decision that doesn't relate specifically to the customers you are already dealing with should be based on external data. Furthermore, if you are making decisions solely based on your ongoing customer base, you are making two costly faults. First, you are assuming that your current customers properly represent the target audience as a whole. Such assumptions can easily lead to poor marketing decisions that seem perfectly fine within your own niche. Second, collecting first-party data is costly. And if you wish to experiment with new ideas, you will hardly have the time and resources to collect the necessary data from customers.
As you can see, the question of first-party data vs. third-party data is not so much about picking one and sticking with it, but adequate choosing when to really on each. You can use both first-party and third-party data to develop your company. But, it is important to keep in mind the upsides and the downsides of both. That way you'll be able to pick the best one for the scenario at hand.