When Third Comes First

"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media. 

Today’s column is written by Karima Zmerli, chief data sciences officer at Wavemaker.

Data’s importance can’t be overstated – it informs virtually every corner in the brand marketing ecosystem, from insights to creativity, media usage and customer acquisition. Over the past year, I have heard more and more about the value of first-party data. At conferences and in publications, it’s cited as the most valuable of all data sources, thanks to its reliability in that it comes first-hand from the consumer or end user. And that is all true.

But first-party data is not some sort of industrywide cure-all for a marketer’s data needs.

Not all brands have first-party data, and in some advertising categories, first-party doesn’t help growth objectives at all because it reveals information about an existing customer, rather than potential customers where incremental opportunities reside. In this instance, first-party data is used in media as a CRM tactic. Given that it can be very expensive to gather, maintain and make available, the return on investment may not be there.

That’s often the case in the pharmaceutical category or some non-DTC brands. I see these industries spending millions of dollars building data lakes trying to capture first-party data when they don’t have any – and even if they do have some, it’s not scalable. The non-DTC category is especially ill-suited; these are often commodity products with a lot of impulse buying and not a lot of loyalty. Having first-party data – and I am using this term widely – won’t get a brand closer to the customer, and there’s really little means in most cases to measure the ROI of that data once it’s acquired.

Even if first-party data is available and affordable to gather, the whole point of media spend is to acquire new customers – to go after growth, not to limit churn. First-party data doesn’t deliver that information. Acquisition comes from data on people that marketers have never talked to. I’m not saying agencies and marketers should never gather any first-party data, but the level of effort and investment need to be balanced based on the objective of delivering ROI and incremental sales.

The question marketers and their agencies should be asking is, “What should we be focusing on to drive ROI?” The answer really should be insights, not data collection. First-party data collection is a means to an end rather than the end goal, and before starting a data and tech journey, a few important questions should be asked. Why do we need this tech and data? What decisions will it help us make? And do we have a viable business case?

I strongly believe that the value of insights allows a brand to unlock potential from an ROI standpoint – and inform the channel, message and content.

First-party data tells brands the what, not the why. Moreover, if they target existing customers, the conversion rate will decrease over time. We should go a little bit upstream and understand the why, not the what of consumer actions. Their attitudes, lifestyle and affinities to a brand are all possible predictors of purchase behavior to unlock growth. Prospects are where the focus should be for growth, particularly when we are able to understand what will motivate them to buy the brand.

All that said, I fully understand that third-party data has some reputation issues and negative stereotypes to overcome. But these are surmountable with a smart and reasoned approach to finding the best data. Brands should seek a reliable and legitimate provider for the type of data they need, then apply a scientific, analytical approach to selecting the strong data signals they will use as a predictor to reach the right prospects. Chances are, they’ll find new customers. Think back to the early days of credit card marketing, which built its business on a direct-mail model. That was based on a propensity model using third-party data from Experian, Acxiom and other providers. And it still works brilliantly.

The risk is starting to bundle the data in media just because of cost, and forgetting the value of data in getting us the right media in a better ROI. I would recommend using 30 to 40 different providers to build segments. Do not get married to any single provider. Work with whoever is a higher predictor that sells the right data at the right cost to get max ROI.

First-party data certainly is an essential ingredient to marketers looking to generate loyalty. The auto and retail companies are perhaps the best examples of marketing categories that need to know as much as possible about their customers to keep them buying in the brand. But when they’re searching for new customers, reliable third-party data is where they will want to turn.

Follow Wavemaker (@WavemakerGlobal) and AdExchanger (@adexchanger) on Twitter.

1 Comment

  1. Devon DeBlasio

    Couldn’t agree more. Intelligence is about insights not just data. For the brands we work with, there is a balance between first, second, and third party data being used to drive strategic growth through acquisition. If you have some customer data it is best to start with what you know is working and then model off of those fundamental ‘best customer’ profiles. For CPG, QSR, Travel and other industries where robust first party data is hard to come by, it is important to work with a trusted set of partners who use tactics like segmentation and propensity scoring, where the underlying data is rooted in both offline and online consumer behaviors. A well rounded targeting and audience planning strategy that can be adjusted and optimized quickly against the business rules and goals of the brand will create a competitive advantage. Diversity, transparency, and scrutiny all help produce a sounds data driven growth foundation regardless of how much first party data you have at your fingertips.

    Reply

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