Author

Amit Erande

Partner, Data Strategy, Consumer Strategy and Governance at Artefact USA

This is Part 1 of a two-part series on how to effectively leverage first-party data in marketing. In this part, we clarify definitions, provide context on historical marketing strategies, and explain why the first-party movement is gaining momentum.

The world of marketing today is undergoing a transformative change.. The era of spending millions on a blind, mass-market ad campaign and hoping for some, indeed any, conversion is over. Marketers once relied on the ubiquitous cookie to track and personalize ads for consumers, but that mechanism too is scheduled to be dismantled by the end of 2024. In the continuously evolving world of marketing, data has become the lifeblood of effective strategies and campaigns. With the rise of digital platforms and the increasing complexity of consumer behavior, brands are faced with a critical decision: should they continue with massive spend on blind top-of-funnel campaigns or shift their focus to leveraging first-party data? By delving into real-world examples and industry insights, we will explore the reasons why brands should embrace this paradigm shift and harness the power of first-party data.

Let’s begin by defining the different terms in the industry around data: first-party, second-party, and third-party data.

  • First-party data includes any data a brand owns, from any channel that the brand has collected itself. CRM systems, loyalty programs, website browsing, responses to your ads: these are all sources of first-party data. First-party data is the foundation of a brand’s direct relationship with its customers.

  • Second-party data is any data that the brand doesn’t own but may have access to through direct relationships with partners, such as a CPG company working with a retailer to understand purchasing patterns for its products.

  • Third-party data refers to information collected and aggregated by entities other than the brand from a variety of sources. It can include demographic information, browsing behavior, purchase history, social media activity and more. For example, Experian is a prominent data broker that provides demographic data, behavioral data, and other insights.

No, really, what is happening to third-party data ?

Brands’ reliance on third-party data for marketing has come under increasing scrutiny due to evolving privacy regulations and concerns about accuracy and reliability. Third-party data is sourced from a wide variety of providers, and its quality and freshness can vary significantly. Inaccurate or outdated information can lead to misguided targeting efforts and ineffective marketing campaigns. Tightening global privacy regulations are also causing brands to rethink their use of third-party data. Measures such as the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) have placed stringent requirements on the collection, use, and sharing of consumer data. In addition, the rising cost of accessing high-quality third-party data has become a deterrent for many businesses. As the demand for data-driven marketing grows, the cost of acquiring reliable data from reputable providers has increased substantially.

Consistent with user privacy expectations, the use of third-party cookies has also faced increasing restrictions in both current operating systems (OS) and browsers, with more changes expected to come:

  • Apple has taken significant steps to limit the use of third-party cookies on its iOS devices. In iOS 14 and later versions, Apple introduced the App Tracking Transparency (ATT) framework, which requires apps to obtain explicit user consent before tracking their activities across apps and websites.

  • Firefox has been proactive in limiting third-party cookies. Beginning with Firefox 69, the browser introduced Enhanced Tracking Protection, which blocks third-party cookies by default.

  • Google, the developer of Chrome, has also announced significant changes to its approach to third-party cookies. By the end of 2024, Chrome plans to completely phase out third-party cookies and replace them with privacy-focused alternatives, such as its Privacy Sandbox initiative.

The rise – and rise – of first-party data

These challenges have led to a paradigm shift toward first-party data, which offers numerous advantages, including greater data accuracy, better privacy compliance, and improved targeting capabilities. By collecting and leveraging data directly from their own customers, brands can foster more meaningful and trustworthy relationships while gaining deeper insights into consumer behavior and preferences.

The key benefits of first-party data lie in the deeper understanding it provides about customers. By collecting data directly from their own interactions with customers, brands gain access to rich and reliable information about consumer behavior, preferences, and purchase patterns. This enables marketers to create more accurate customer profiles and develop highly targeted marketing strategies based on real-time insights.

  • First-party data opens up avenues for personalization and targeting. With a robust dataset, brands can deliver tailored experiences to individual customers, ensuring that the right message reaches the right person at the right time. Personalized marketing campaigns have been proven to drive higher engagement, conversion rates, and customer loyalty, as they resonate more effectively with customers’ specific needs and interests.

  • First-party data allows brands to improve the overall customer experience. By analyzing customer data, brands can identify pain points, anticipate needs, and deliver relevant and timely communications, offers, and recommendations. This personalized approach enhances customer satisfaction, strengthens brand loyalty, and fosters long-term relationships with customers.

  • First-party data also provides brands with a competitive edge. By leveraging their own proprietary data, brands can differentiate themselves from competitors and create unique value propositions. This data-driven advantage enables brands to refine their products, optimize marketing campaigns, and make more informed business decisions.

Real-world examples of the power of first-party data

One compelling example is Netflix, the popular streaming service. Netflix uses its vast repository of first-party data to fuel its content recommendation engine. By analyzing viewing patterns, ratings and user interactions, Netflix offers personalized and relevant content suggestions to its subscribers. This personalized approach enhances user satisfaction, increases engagement, and drives retention rates, contributing to Netflix’s remarkable success in the streaming industry.

Similarly, Spotify, the world-famous music streaming platform, harnesses first-party data to curate individualized music recommendations. By tracking listening habits, user preferences and playlist creation, Spotify creates tailor-made playlists and music suggestions that make the platform highly engaging and addictive. This personalized approach contributes to higher user satisfaction, longer usage, and lower churn rates.

Starbucks, the global coffeehouse chain, leverages first-party data through its mobile app and loyalty program. By collecting data on customer preferences, purchase history, and location, Starbucks delivers customized rewards, deals, and promotions to its customers. This tactic not only drives customer loyalty but also enables Starbucks to optimize its marketing strategies and tailor its product offerings based on consumer insights.

These real-world examples demonstrate the immense potential of first-party data to transform marketing initiatives and drive business success. By leveraging their own first-party data, brands can deliver highly personalized experiences, build customer loyalty, and gain competitive advantage. The success of these brands underscores the value of first-party data and serves as inspiration for other companies to prioritize their own data assets and invest in strategies that maximize the potential of first-party data.

In Part II of our series, we’ll take a closer look at strategies for effectively leveraging first-party data, both at the top of the funnel and throughout the customer journey.

Should you wish to contact the author, you may reach him at Amit.erande@artefact.com