What is a customer data platform (CDP)?

Customer data is a crucial aspect of business and marketing operations because it's the information consumers leave behind as they interact with companies online and offline. Because customer data comes from different sources and in varying volumes, it can be challenging to harness. Therefore, having a customer data platform is very handy. 

A CDP is a piece of software that combines data from the various customer-facing tools companies use to create a centralized customer database showing all the consumer's interactions with your product or service. Companies use data from a CDP to understand their target audience better and produce more personalized marketing campaigns. 

CDPs evolved as companies expanded their digital presence and updated their CRM (customer relationship management) model. CDPs help segment and process anonymous behavioral data and consumer personal data. 

While CDPs, data management platforms (DMPs), and customer relationship management systems (CRMs) all handle customer data, each software is used for different purposes. 

DMPs are only used for advertising and are not beneficial for personalized marketing because they broadly collect data for a general audience overview instead of individual user insights. 

CRMs only help companies organize and manage intentional customer interactions. They don’t collect any behavioral data or look at how customers interact with a product or service. 

CDPs collect and manage individual customer interaction data from multiple touchpoints. 

The main difference between marketing automation and a CDP is their analytics and segmentation capabilities. 

Businesses use marketing automation to automate repetitive daily tasks, like email send-outs, social media posts, sending text messages, and push notifications. A CDP takes customer insights to provide the information needed to personalize a customer's experience across multiple channels. Using the two systems together can create more personalized automated responses based on specific segmentations. 

There are many customer data platform software available. You may not have realized it, but you've likely experienced a company using a CPD for a recent product purchase. 

For example, when deciding to purchase a product, you likely began your search online with a broad search term for the product you want. Then, you visited several review websites and retailers selling your desired product. You may have even watched videos to learn more about using the products and comparing different brands. 

After completing the research phase of the buying process, you probably researched online to find the best place to buy the product and visited multiple websites to compare prices, shipping times, and so on. During your buying journey, you likely interacted with the company you decided to purchase from several times (through website visits, Facebook ads or other online ads, email, etc.). 

You may have also noticed that each interaction with the company felt more personalized and relevant to your situation. The company likely used a CDP to tailor their marketing to you by making subtle changes to its automated ads and email follow-up to make the message feel more personal to your product needs. 

Companies use CDPs to understand their customers better. They allow them to collect data from sources where a customer may interact with the company, such as:

• Company's website

• Facebook

• Google search

• Email

• In-store

The company's CDP will combine the information from all those data points to create a unified customer profile and use segmentation to develop a better audience understanding and create more personalized marketing based on key customer behavior actions, such as visiting a specific website page or abandoning carts. The company can use the profiles created by the CDP in other systems, such as Facebook ads. 

CDPs offer companies a complete view of their customers and provide various other benefits, including:

• Simplifying the organizing of customer data management: After initial setup, CDPs require little maintenance and make it easy to organize customer data to obtain useful information and insights for making business decisions.

• Better understanding of customer behavior: A CDP combines data collection, cleaning, sorting, storage, and analysis to understand customer behavior throughout the customer journey, helping improve customer loyalty and retention. 

• Improving compliance with data protection and privacy: CDPs allow you to limit the data collected to ensure you only collect customer data vital for your marketing efforts. 

There are several reasons why companies choose to use a CDP. 

Personalization

A CDP tracks customers' interactions with your company, allowing you to follow up with personalized offers via their desired channels, such as social media, email, etc. 

Suppression

With a CDP, companies can choose which customers not to target based on those who have already made a purchase or ads not relevant to their interests. Therefore, the marketing team can optimize their budget and direct ads to new audiences. 

Insights

CDPs break down data silos by allowing multiple departments to see customer insights. They combine all customer data and analytics, allowing all the company's teams to understand each customer better and deliver more personalized engagement. 

First-party data

A CDP uses first-party data for more accurate customer information. Collecting and unifying data gathered directly from your audience allows for greater confidence when making marketing decisions. 

Customer data management

A CDP is a system for effectively managing and organizing customer data. 

Customer data activation

A CDP provides customer insights and analytics for a 360-degree view of customers to further enhance their experience when interacting with your company. Marketers use this valuable data to develop or alter marketing strategies to reach their target audience across all channels. 

• Disorganized data: Multiple data sources make consolidating and organizing data difficult. Therefore, a CDP integrates information from different data sources to easily view customer insights in one location.

• Customer identification: A CDP creates unified profiles for each customer by compiling customer data from various sources. 

• Simple segmentation: A CDP can automatically identify customers' shared traits, making segmenting your audiences simple for creating personalized engagement. 

Marketers in many industries are the typical users of a CDP because it provides various data and detailed segmentation, giving more insights into customers and their interactions with a product or service. They can effectively track a company's marketing campaigns and use CDP data to find new customers by building lookalike audiences. 

Choosing the best CDP for your business requires finding the software that works for your specific needs and has experience and familiarity with your industry. Questions to answer when selecting a CDP include:

• Why are you looking for a CDP? Understanding the use case for a CDP is essential to decide the software capabilities needed.

• What tools do you use for customer interactions? 

• Does the CDP have integrations with your most used tools? 

• Does the CDP meet your requirements, such as top-notch security or data-tracking plan capabilities? 

• What customer service options are available to help with CDP setup and maintenance? 

Recent AI developments mean customer data platforms can provide a new level of customer interaction with real-time customer profile updates.

AI and cloud technology allow for continuous customer data updates with instant data updates from all customer touchpoints. This will lead to greater analytic accuracy of CDPs and allow your company to act instantly and make real-time changes to marketing campaigns and service offerings.

While Google Analytics and CDPs share similarities, Google Analytics is not a CDP. 

Google Analytics anonymizes web data to provide an overview of customer interactions, while a CDP allows for individual data from multiple sources. Both should be used to help decide what actions to take to improve customer experience and expand your customer base. 

While CDPs and CRMs have some functionality overlap, the two software provide different uses within a company. Therefore, CDPs will not replace CRMs but will continue being complementary systems by helping a company connect and engage with customers and manage ongoing relationships.

Sales support teams usually use CRMs to manage customer behavior, transactions, and process management. CDPs provide an overview of customer relationships beyond the sales cycle to fully assist and improve customer experiences. 

Customer data is essential for a functioning CDP. Most CDPs use first-party data, which is data gathered by the company directly from the customer and only used for that company's marketing efforts. Some CDPs may also use third-party data, which is customer data companies purchase or share with other companies.