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Demystifying Customer Data Types & Best Practices

Melissa Megginson Axtell, Director of Community Marketing

Headshot of Melissa Megginson Axtell

 

Data, data everywhere…

Customer data has never been more important — or more complex. Merchants need smart data to meet growing customer expectations in ecommerce. Yet at the same time, complications around compliance, collection, and correct leverage are mounting.

In this article, we’ll give a comprehensive overview of the state of customer data in ecommerce today, focusing on the four core categories that modern marketers often deal with.

First-Party Data

First-party data is information that a company collects directly. There are many potential sources of first-party data — from owned websites (where behavior and transactions are among the information collected) to mobile apps, email, SMS, and even customer reviews. As omnichannel retail becomes the norm, emerging technologies such as beacons in brick-and-mortar stores also stand to become important sources of first-party data, helping brands obtain a clearer picture of their customers’ IRL behavior.

What Are the Key Uses and Advantages of First-Party Data?

88% of marketers say collecting first-party data is a 2021 priority, and with good reason. First-party data has always been perceived as a very high-value form of information, and there are a number of factors contributing to this reputation.

First and foremost, first-party data is trustworthy — your own company has collected, generated, and curated it. As a result, you can exercise complete control over it. From tailoring the method of collection to give you insights you might otherwise have missed to the way you collate and process the information, , you have complete control of each and every step with first-party data.

Not only does this total ownership mean that you can rely on first-party data in terms of accuracy, but it also means you can trust its legality and compliance. Because you collected the information yourself, you can guarantee that all appropriate measures are in place to ensure the correct consent required.

First-party data is also highly specific. Because you collected it from your own active customers, you know that the insight that you draw from it will be relevant and applicable to your business. Finally, first-party data is free, and — with the right collection methods in place — you have access to a never-ending supply!

While first-party data is undoubtedly highly prized for very valid reasons, it’s important to remember that it still has limitations. On one hand, specificity is a bonus. On the other, the very tight focus that first-party data tends to have means it lacks the reach of other data types. As a result, the scope of your own existing operations can somewhat limit obtainable insight. If you’re looking to take inspiration from data that reflects behavior beyond your owned properties, first-party data won’t have much to offer.

How do ecommerce merchants typically use first-party data? Overwhelmingly (and, unsurprisingly, given its source and tight focus), retailers leverage first-party data to improve their customer experiences. By applying learnings taken from existing customer behavior, marketers can ensure an optimized experience for others via better personalization and smarter segmentation.

Collecting first-party data in a transparent, ethical manner can also help a brand build trust and show great ownership and compliance with regulations such as GDPR. A well-written and engaging privacy policy that outlines your approach to first-party data can be a valuable asset here.

Core Considerations for Your Data Strategy & First-Party Data

So what are the golden rules when leveraging first-party data? Most importantly, it’s important to observe exemplary compliance. Privacy is a hot topic and regulations are increasingly stringent. Not only does compliance keep your business safe from hefty penalties and a tarnished reputation, but it also shows a respectful and trustworthy attitude toward your customers’ privacy.

For similar reasons, security and communication are key. First-party data can contain highly sensitive information, so it’s essential to store it securely. Clear communication, thorough permissions, consent, and, as previously mentioned, an exemplary privacy policy is vital.

Ultimately, transparency is everything. Your customers enter into a bond of trust with you when they agree to share data. If you want to maintain a positive, profitable relationship — whether you choose to work with it in-house or sell it to the highest bidder — it’s imperative that you’re very clear and open about how you will use their data.

Second-Party Data

Second-party data is another company’s first-party data that it sells to give insight into its audience. You can collect saleable second-party data from all of the same sources as first-party data, such as website transactions, email marketing, customer behavior, email addresses, and even names.

What Are the Key Uses And Advantages of Second-Party Data?

Second-party data has many advantages, primarily the additional reach and context it represents to the purchasing party. As previously mentioned, first-party data gathered internally from your own audience can only take you so far in terms of discovery. Gain additional insight by drawing wider-ranging (but still relevant) second-party data into the mix.

There’s also the strong likelihood that the sharing (or, more likely, sale) of second-party data can be advantageous for both businesses involved in the transaction, especially if they are working together toward a common goal within a partnership, not in direct competition.

Taking second-party data and applying it to existing data sources allows you to gain more insight. Extended reach is also a significant advantage because marketing strategies can adapt to the profile of new customers. Finally, let’s not forget the benefit of second-party data as a source of revenue. The sale of second-party data can be a dependable alternative source of income for a business.

So, these are the benefits — but what are the downsides of second-party data? Although one business will typically have collected it from a single, well-defined source, there’s still the slight risk of the unknown with regard to quality, especially because your own business didn’t collect it first-hand.

When selling or buying second-party data, it’s also wise to consider consumer’s general aversion to having their personal data being shared and the impact its use could have on the impression your brand makes.

How can merchants leverage second-party data? Flexible and valuable, second-party data can essentially add a further dimension of context to any existing first-party information that your business is leveraging. Many brands will apply learnings from second-party data to achieve more nuanced segmentation.

It can also help provide deeper insights into competitors’ brands and enables merchants to reach new audiences. Second-party data can inform new campaigns and empower marketers to feel more confident in their predictions of customer behavior.

As previously mentioned, first and foremost, second-party data (or at least, first-party data packaged as second-party data!) can represent a viable product in its own right.

Core Considerations for Your Data Strategy & Second-Party Data

What are some things you should consider when working with second-party data? Firstly, trust your sources. It’s essential to have complete confidence in the businesses providing the data you’re drawing from.

It can also pay to factor a few mutually beneficial collaborations into the mix. In situations where there’s no direct competition, an opportunity for cooperation exists. By sharing first-party data (in the form of second-party data) businesses can sidestep silos that might otherwise hinder their progress, advancing together.

Finally, remember to factor in your own customers’ trust. Transparency is key when working with data, and this is never more true than when selling data from your own audience. Communication will always be key here; customer experience should always be your core motivation.

Third-Party Data

Third-party data is information collected by a separate entity with no direct link to the sources. Often, third-party data will come from a wider variety of distinct sources and can “fill in the gaps” when it comes to painting a clearer picture for marketers. Creating third-party data sets is a big business, so many companies exist purely to curate and sell third-party data to other organizations.

What Are the Key Uses and Advantages of Third-Party Data?

Third-party data is often held in lower regard than other data types, but it has some distinct advantages that merchants shouldn’t overlook. Third-party data’s key benefit is its ability to “plug gaps” in your own data sets.

You can also segment existing customer lists by utilizing third-party data, giving a broader view of your existing customers.

Most of the disadvantages commonly associated with third-party data relate to quality. Third-party data often comes from multiple sources and is stitched together with existing data. This doesn’t always give a clear or complete picture of who your customers really are.

Other issues can include technical difficulties with regard to integrating with your existing data sets and compatibility. A lack of control over collection methods can also feel unsettling — especially because compliance and data privacy laws continue to tighten up. Businesses working with third-party data need to attain a high level of confidence in the scruples of the sources they purchase from.

What can merchants do with third-party data? Most commonly, third-party data represents a prospecting opportunity. Many businesses will delve into third-party data to find new leads, extending their reach into new, well-targeted markets.

Third-party data, and the additional light it sheds, can sharpen up targeting and new campaigns, as well as helping to increase ROI by ensuring better-informed ad impressions.

Core Considerations for Your Data Strategy & Third-Party Data

What are some of the non-negotiable practices when working with third-party data? Again, it’s important to select your sources with care. Keep on top of compliance at all times and don’t shy away from asking demanding questions of the businesses you’re buying from.

Finally, don’t become too reliant on this type of data — privacy rules are tightening all the time and current privacy trends suggest less and less scope for the acceptance of third-party strategies in the future.

Zero-Party Data

Finally, we’ve come to zero-party data: a phrase that’s becoming increasingly common within digital marketing. Zero-party data refers to information your customers willingly and actively provide with the implication it will enhance their customer experience.

It’s possible to gather zero-party data in a range of helpful, creative, and even playful ways. From quizzes through to attributes within reviews, interactive emails, and social media posts, zero-party data represents a very exciting opportunity for modern digital marketers to get closer to the audiences they’re courting.

What Are the Key Uses and Advantages of Zero Party Data?

One of the key strengths of zero-party data is that consumers give it consensually to improve their customer experience. Customers understand they are helping a brand learn more about them, and in return, they know they will receive more tailored future engagement.

Zero-party data is also highly insightful and about as accurate as customer data can be thanks to the direct method of collection. Generally, zero-party data offers much more accuracy, nuance, and context. First, second or third-party data might tell you that a customer has an interest in cats. Zero-party data will tell you, not only do they have a cat, but it’s a 3-year-old British Blue Shorthair that suffers from diabetes.

Zero-party data deals in facts — you don’t need to extrapolate or make educated guesses based on overlapping data sets. It can also help protect your marketing strategies against changes to cookies and compliance laws in the future. Read more on this here.

Overall, if you’re looking for a better understanding of how your customers want to interact with your brand, zero-party data will get you closer to a concrete answer. Finally, just as with first-party data, zero-party data won’t cost you a penny — all you need are creativity and vision to start capturing data and your audiences’ imaginations.

As far as weaknesses go, zero-party data doesn’t necessarily present any! You just need to get ahead of the game with reliable (and engaging) collection methods, and to remain responsible and ethical with the data provided.

Zero-party data is perfect for fueling highly personalized experiences and content, which are things modern consumers increasingly expect and demand.

Higher levels of personalization can enhance your store’s merchandising through recommended products and improve internal product search results. Ultimately, zero-party data has a key role to play in building better customer relationships.

Core Considerations for Your Data Strategy & Zero-Party Data

Hopefully by this point, you’re fully sold on the concept (and exciting potential) of zero-party data — but what should you consider before you begin collecting it?

Firstly, it’s important to carefully consider your collection method. Is it consistently optimized? It can also represent an opportunity to engage, delight, and even educate your customers — the potential reaches beyond mere data collection. For example, including a personalized style quiz in an email is a chance to show off your brand personality and create a fun micro-experience for shoppers.

Thinking ahead to how you’ll leverage data, make sure you’re asking the right questions. For instance, if you’re structuring your review requests to include personal attributes, what information would be especially helpful to segment your lists later? (Hair type or color for a beauty brand? Level of fitness for gym apparel?)

It’s also important to ensure that you’re collecting zero-party data in a sustainable way, mixing up your methods to keep things engaging and feeling like an opportunity for the customer, not a chore.

Finally, think about how zero-party data collection fits into your wider customer journey. How is it building trust and relationships with your customers? Look at the various different touchpoints your customers experience and consider how these could be enhanced by giving them the opportunity to interact on a more personal level.

Data: Get Ready for the Future Focus

Data is (and will always be) crucial to running a successful ecommerce business. However, the landscape is shifting with regard to data, privacy, cookies, and more. Public sentiment is evolving and customers are much more aware of the way in which their data is monetized.

As a result, it’s incredibly important for businesses to anticipate these shifts and plan accordingly, not rely on any single stream of data, and prioritize collecting and applying valuable first and zero-party data.

If you’re looking to double down on first and zero-party data, customer reviews can offer a reliable and highly insightful source. Okendo’s unique Attributes feature enables a valuable extra layer of detail when it comes to making requests here, bringing huge potential for personalization and ongoing segmentation.