Customer Data Platform (CDP)

Definition - What is Customer Data Platform (CDP)?

A Customer Data Platform (CDP) is a software that aggregates and organizes customer data across a variety of touchpoints and is used by other software, systems, and marketing efforts. CDPs collect and structure real-time data into individual, centralized customer profiles. According to the CDP Institute, a vendor-neutral organization dedicated to helping marketers manage customer data, a CDP is defined as “a packaged software that creates a persistent, unified customer database that is accessible to other systems.”

Customer Data Platforms build customer profiles by integrating data from a variety of first-, second-, and third-party sources. This includes your CRM and DMP, transactional systems, web forms, email and social media activity,website and e-commerce behavioral data, and more. CDPs inform people-based marketing — putting the customer at the center of the flywheel of your organization.

source: Hubspot

What a CDP is Not

While some CDPs may include overlapping functionality, a CDP…

• Is Not a CRM system: CRMs mostly store customer transaction data. They do not have insight into anonymous user behavior (often requiring a form fill or purchase), typically are focused on sales data and only have limited integrations to other systems.
• Is Not a DMP: DMPs are cookie-based, do not create a persistent customer profile and integrations tend to be limited to advertising (not the full customer journey). DMPs are focused on 3rd-party data, with some limited ability to integrate 1st-party data, whereas CDPs have a much heavier focus on 1st-party data.
• Is Not a Personalization tool: While some CDPs have built native execution tools such as website personalization, this is not a core functionality for the category. This takes focus away from solving the underlying data fragmentation problem that companies in the market are experiencing today.

The Purpose of Customer Data Platform (CDP)

A customer data platform serves three purposes.

1. Collect and unify all first-party data: Many of the systems — such as email, analytics, CRM, ecommerce, and social sites — that marketers use operate in silos and don’t pass data back and forth. It is hard to get a complete picture, and even harder to analyze what you are looking at. The purpose of a customer data platform is to eliminate those issues by connecting all the tools that marketers use and acting as a single source of truth for first-party customer data.
2. Customer data management: CDPs manage first-party data and consumer privacy and data rights by controlling the data flows between different marketing systems and managing consent. This is the world of GDPR and data privacy; your business needs to actively manage, and document that management of, consent and data flows.
3. Customer data activation: Once you have received permission to collect first-party user data and have unified and structured it into profiles, you can then take action on it. CDPs can create audience segments that can be used across the rest of your marketing platforms and channels.

6 Steps to Choose the Best Customer Data Platform (CDP)

Finding the right CDP for your company isn’t an easy process. There are a lot to choose from, but it’s not something that should be taken lightly. Your CDP will be handling customer data and when dealing with customer data, extra steps must be taken to ensure that data is safely and ethically handled. Below are 6 important steps that should be taken when choosing a CDP. Following these steps will ensure that you choose a CDP fitted to your goals and resources.

Step 1: Bring stakeholders into the process: Before you even decide which CDPs are going to be evaluated, you need to bring internal stakeholders into the process. The CDP you choose will be working with data from different departments within your company, so it is imperative to have everyone's buy-in.

• The question you need to ask yourself at this point is: Who else collects data that your CDP will handle?
• There’s a good chance your sales team’s customer relationship management (CRM) platform stores data that your CDP will need access to. A stakeholder from sales should be part of the buying process. What about your customer success team?
• There’s a good chance that your customer success team uses tools that handle customer data. A stakeholder from the customer success team will likely be part of this process too.

You don’t need each stakeholder individually evaluating each CDP, but you will need their input on various parts of the buying process. At the very least, talk to each stakeholder and let them know why you are looking to purchase a CDP and what you hope to get out of it.

Step 2: Define use cases: Another big question you need to answer before deciding which CDP is best for your company: What is the reason for you to use a CDP? It is easy to get caught up in the fact that you need a CDP because it will consolidate your data into a single customer database, but what are you actually hoping to get out of that? Consolidating your data isn’t going to make you more data-driven. It is just a step along the way. To choose the right CDP, you need to define your use cases ahead of time. Take some time to think about what you want your CDP to help with. Then, talk to the other stakeholders about their ideal use cases. From there, try to identify three or fewer ideal use cases. Limiting your use cases to just the top three will make it easier to evaluate all of the CDP vendors. Here are a few of the most common use cases:

• Fully understanding our customer journey
• Creating a more personalized customer experience on our website
• Creating more targeted multichannel advertising campaigns
• Combining online and offline data

Once use cases have been defined, spend some time studying your potential CDPs. Look at their website; read reviews of their products; talk to colleagues at other companies who use these tools. Does your ideal use case fit with what any of these companies are doing? If yes, make a list of those companies. At this point, it is probably going to be a pretty big list.

Step 3: Determine the tools needed: You need to get a handle on the tools your company uses that will be connected to your CDP. To get an idea of the tools and functionality that will be needed, start by focusing on your use cases. Which tools do you need to accomplish the specific use cases that you laid out in Step 2? Make a list of those tools. Next, make a list of all the tools that interact with your customer in one way or another. You may want to include website tools, CRM systems, real-time live chat, payment processors, email platforms, and help desk systems, just to name a few. At this point, check and confirm with the stakeholders that you haven’t missed any important tools that will need to be connected. Most often the starting points are:

• Analytics tools such as Google Analytics
• Advertising tools such as the Facebook
• Customer success and live chat tools such as Intercom
• Business intelligence tools such as Looker
• Data warehouses such as Redshift

Once you have determined the tools you need, make sure the CDPs being evaluated already have those integrations. Those which do not have the majority of the tools you use, knock them out of contention. This step might narrow your list by a large number.

Step 4: Gather requirements: There is more to a CDP than a way to consolidate data and solve your use cases. You also need to think of the other requirements for your CDP. Requirements are different than your use cases because a requirement is more like a feature, rather than an outcome. For example, if one of your requirements is that the CDP you choose should help you get a solid understanding of each piece of data being collected, you will need a CDP that can help you build a data-tracking plan. If you’re not sure what other requirements you need to consider, here’s a list of common requirements:

• CDP should help with GDPR and CCPA compliance. If that’s something you’re interested in, then you’ll need a CDP that will that will enable you to suppress data collection or delete customer data when requested, which is a requirement for both the GDPR and CCPA.
• CDP should help get a full view of our customer journey. If this is a requirement for your company, make sure that the CDP you’re evaluating has some form of identity resolution, which helps identify users across different channels.
• CDP needs to have top-notch security. This is becoming a more frequent requirement. Make sure the CDP being evaluated has a credible, independent security certification like ISO 27001 or SOC 2. Those certifications ensure that the CDP is continuously monitoring and upgrading their security practices.

Another good place to gather requirements from are the pricing pages of each CDP. Read through the features that are listed on those pages, and make a note of anything that’s going to be important to your company. For example, you might see that one CDP has an uptime guarantee, while another may not. If an uptime guarantee is important, you might want to make it a requirement.

Step 5: Compare vendors: At this point, you should have a list of just a few CDPs that fit your use cases, have the necessary integrations, and meet all of your requirements. Now, it’s time to compare each CDP. Don’t take pricing into consideration yet. Start by considering your industry. Find CDPs that have customers most similar to your company. If you work at an enterprise-level company, find a CDP that has a track record of working with companies at that level. If you work at a startup, make sure the CDPs you’re evaluating have experience in that space. Chances are there will be an overlap with CDPs that have a track record in all industries. If you have determined that all of the CDPs being considered have the right experience, it is time to go a step deeper. Make sure each CDP has:

• A track record of accomplishing the use cases that you defined in Step 2.
• A solution for data compliance. CDPs handle data, so they should enable your compliance with the GDPR or the CCPA.
• The right integrations for your current and future use cases. Is each CDP continually adding new integrations to their integration catalog?
• Excellent customer service to help you set up, use, and maintain your CDP.

Don’t forget to look at review websites for user reviews of each CDP too.

Step 6: Consider ROI: The ROI of the CDPs being evaluated is the final piece you need to consider. ROI does not mean that you should choose the cheapest option. It is more about which option will give you the best value. How do you determine that value upfront, before you choose your CDP?

Start by using an ROI worksheet. This will help you determine the cost of your engineers’ time. Without a CDP, your engineers have to spend hours building and maintaining integrations for each tool. Those hours add up quickly, which can result in significant costs just to build and maintain one integration. If you have ten integrations that need to be handled by your engineering team, you can see that the hours will quickly become unmanageable. That cost is one of the biggest reasons to use a CDP. Good CDPs should reduce the amount of time your engineers spend building integrations between tools, which can result in a huge cost savings. That is why you need to calculate the costs and consider ROI ahead of time. If you choose a CDP that does not give your engineering team the maximum amount of time-savings, it may not be worth the cost at all.

CDP Vs. DMP Vs. CRM

There is often confusion between a customer data platform (CDP) and other marketing and sales technology, specifically other customer databases like CRMs (customer relationship management systems) and DMPs (data management platforms). So let us clear up any confusion.

• A Customer Data Platforms (CDP) is a unified customer database that builds rich customer profiles using data collected from systems across the company. It provides these profiles back to these systems to improve customer experiences.
• A Data Management Platform (DMP) is a solution used by marketers to improve advertising, retargeting, and media buying. Data collected is primarily anonymous data from cookies, devices, and IP addresses, and it’s only stored for a limited time (typically 90 days). DMP data is often fed into a CDP to improve customer profiles. There are other differences between CDPs and DMPs, summarized in the table that follows.
• A Customer Relationship Management (CRM) is a solution for tracking and managing interactions with prospects and customers. It is primarily a sales tool used for contact management and sales management. Marketing activity can be fed into the CRM through predefined connectors. Most data is user generated through sales people entering contact engagement and sales activity manually.

These solutions sound similar but have very different capabilities and are used for different purposes. The following table explains the CDP vs. DMP question, as well as the CDP vs. CRM issue.

source: Treasure Data

When you look closely, what you see is that these technologies are complementary:

• A CDP can enrich its customer profiles by ingesting second- and third-party data from a DMP.
• A DMP can ingest CDP customer data to improve ad targeting.
• CDP software can ingest customer data from a CRM.

Benefits of Using a Customer Data Platform (CDP)

Automating customer data accuracy and integration through a CDP can provide numerous benefits to marketers and to other functions across the enterprise, though we’re focused on the marketing implications in this report. These include the following:

• Expanded enterprise collaboration. A CDP fosters cooperation among siloed groups because it gathers data from throughout the enterprise and supports customer interactions across many touchpoints. The unification of data allows enterprises to see how strategies for audience, customer experience and execution all fit together – and enables audience portability to ensure a more consistent, informed customer experience.
• Improved data accessibility. A CDP is a centralized hub that collects and houses customer data from every corner of the enterprise. Pieces of data are normalized and stitched together to build unique, unified profiles of each individual customer. The result is a persistent customer database whose main purpose is to gather and share data more easily and efficiently across the organization
• Streamlined systems integration. A CDP unifies data systems across the enterprise, from marketing and customer service, to call centers and payment systems. By creating a single “system of record” for first-party customer data, data redundancies and errors can be minimized, and data can flow more quickly into — and out of — marketing automation platforms, email service providers (ESPs), CRMs and other martech systems.
• Increased marketing efficiency. A CDP unifies individual data with unique IDs that create more robust customer records. Many manual tasks are also automated by the CDP, allowing marketers to focus on the creative and analytical tasks they are trained for. The result is more accurate modeling, targeting and personalization in marketing campaigns, and more relevant customer experiences with the brand across channels.
• Faster marketing velocity. In many cases, CDPs are “owned” by marketing, minimizing the need for IT or developer intervention to collect, analyze and act upon data. With control in marketers’ hands, the time to segment and build audiences, execute campaigns and analyze results significantly decreases. That said, engineers may still be needed to perform deep data analysis and facilitate integrations. This is especially true as CDPs extend beyond marketing and into sales and service functions.
• Stronger regulatory compliance. A CDP creates greater internal control over customer data, streamlining data governance to comply with the many regulations now impacting brands worldwide. Marketers in the healthcare industry must comply with both HIPAA and HITECH regulations. Businesses that handle European data or serve customers in the EU must also comply with GDPR and those dealing with Californians must deal with CCPA

(California Consumer Privacy Act). The majority of CDP vendors are both ISO and SOC certified for best practices in handling personally identifiable information (PII).