What is a Customer Data Platform (CDP)?

The increasingly digital nature of the business landscape today is highly driven by data. However, data silos and disparate systems hamper access to information that is critical for decision-making. One of the strategies to address this challenge is using a customer data platform.

But what exactly is a customer data platform? Is it an alternative to a CRM software or is it just another data management platform? Does your business really need one? Here, we go in-depth about CDPs, so you can decide whether you should use one and what value it can bring to your business.

What is a Customer Data Platform (CDP)?:

What Is a Customer Data Platform?

A customer data platform (CDP) is packaged software that collects and organizes customer data from various sources into one unified database that other systems and software can easily access. It does away with data silos and enables real-time data structuring to create a unified view of customer behavior, activity, and profile.

By making customer data available across an entire organization, CDPs have now become vital for enterprises handling massive data on a significant number of customers and prospects. Aside from sales and marketing, business processes such as customer service and support, product development, audience management, and campaign management also use CDPs.

Benefits of CDPs

While data collection and unification are the primary functions of CDPs, they offer much more value than that. CDPs enable democratization of data by giving all the teams within an organization access to customer data. They also improve operational efficiency by reducing the time it takes IT teams to compile and process customer data.

As they improve the quality of customer data, CDPs also help marketers target the right customers and optimize campaigns. This in turn leads to reduced marketing costs, better customer experiences, and increased retention rates. Ultimately, all the benefits result in increased revenue and accelerated business growth.

Capabilities of CDPs

CDPs have a wide range of capabilities such as customer journey orchestration, identity unification, and audience segmentation. Here are some of the basic capabilities almost all CDPs share.

  • Data collection and integration

A CDP facilitates faster and more efficient collection of customer data across multiple data sources and systems. It ingests data in all formats, both unstructured and structured, and of all types, including transactional, behavioral, historical, and real-time customer data. Ingestion of raw data can be either schema or schemaless. A CDP can collect and process data in batches or ingest data in real time.

The platform connects to both internal and external data sources using APIs, SDKs, webhooks, and built-in connectors to sync information. It uses webspiders, tracking IDs, and tags to extract data into internal systems. It can also have pre-defined integrations to data sources across an organization.

  • Data cleansing

After collecting data, the CDP cleans and dedupes them for accuracy and consistency across systems. The CDP discards any inaccurate data such as fake profiles and resolves discrepancies. It also resolves identities and deduplicates profiles. 

  • Data unification

After integrating data systems and cleansing collected data, the CDP unifies customer data into a single customer profile. The identity resolution process involves analyzing and validating first-party customer data deterministically by matching unique IDs with customer information and probabilistically by estimating connections of identities. The CDP then matches them with second-party and third-party data sources by stitching identifiers using complex algorithms. Once the CDP unifies all its attributes, it uses the data to create a single customer view (SCV) or a customer 360 view.

  • Data analysis

Some CDPs are capable of advanced predictive analytics. They leverage artificial intelligence and machine learning technologies to analyze and segment customer profiles based on attributes and behaviors. They are also able to perform predictive scoring, data visualization, and integration with other business intelligence tools.

  • Data activation and execution

A CDP makes customer data available to external systems such as website and mobile apps, social media platforms, email marketing systems, and advertising channels. CDPs use in-built connectors or APIs for data activation and execution to help marketers personalize customer experiences, send targeted emails, implement retargeting, and many others.

Use Cases of CDPs

CDPs are adaptable and flexible, so they have countless use cases. Businesses can easily tailor the platform to support their unique needs. Here are the most common CDP use cases.

  • Data consolidation

The primary function of a CDP is to consolidate cross-channel data. It is used to sync all online and offline data sources and unify all customer data captured from multiple channels.

With a CDP, businesses can stitch together first-party behavioral data, second-party partner data, and third-party audience persona data into a single customer profile for persistent identity unification. This makes it easy to associate multiple identifiers from various touch points with every prospect or customer.

  • Unified omnichannel customer profiling

One of the most essential elements of a CDP is its capacity to create a 360-degree view of each customer. It can build detailed and accurate customer profiles using consolidated data from all touchpoints, channels, and devices. It ingests data from web forms, social media activity, transactional systems, CRMs, DMPs, and virtually all internal and external data sources.

With a unified customer profile, businesses can identify how customers and prospects interact with every channel they use. With a holistic view of customer behavior and preferences, they gain insights that help improve services and product delivery.  

  • Customer segmentation and ad targeting

Aside from aggregating customer data, CDPs enable detailed segmentation that is crucial for creating targeted multichannel campaigns. In some CDPs, users can simply select attributes and user behaviors to segment their audience according to their ideal customer profile. This improves both upsell and cross-sell by allowing marketers to promote products and services that are relevant to each customer.

  • Real-time personalization

Personalized experiences are among the factors that contribute to customer retention and loyalty. CDPs are capable of customer scoring based on previous interactions and real-time engagement. Marketers can then use this information to perform real-time optimizations and personalization across different channels. 

  • Monitoring and tracking

Consumers today engage with brands through different channels using different devices. This creates countless touchpoints that can be difficult to monitor and track. For instance, a customer might browse an e-commerce site from a home computer then leave without making a purchase. The same customer then uses a mobile phone the next day to place an order. At the office, the customer checks their inbox, then clicks on a link to sign up for subscription. Disparate data systems can result in three different profiles for the same customer. On the other hand, CDPs are able to track customer data from every touchpoint at every channel.

  • Campaign optimization

Many marketers use the 360-view and predictive analytics features of CDPs to optimize marketing campaigns. The CDPs help them get a full understanding of customer behavior and craft strategies to enhance engagement. With insights from CDPs, they are able to deliver the right message to the right audience on the right channels at the right time.

  • Building DTC relationships

Businesses can also use CDPs to develop direct-to-consumer relationships. By collecting and analyzing first-party data, they allow businesses to have a better understanding of their audience. This then enables them to attract prospects, convert them into customers, and retain regular customers.

  • Digital product development

Most use cases of CDPs focus on marketing programs. However, businesses can also use CDPs to gain insights on creating new digital products. CDPs can design new digital experiences using detailed customer data on behaviors, product preferences, content interests, and channel engagements.

  • Monetization

While not a typical use case for most businesses, a CDP can create an avenue for monetization. Aside from monetizing new audiences, businesses can also monetize their first-party data through second-party data sharing relationships with other enterprises. They can package and sell audience segments to ad agents or business partners.

  • Data compliance

One of the challenges of data collection and management is maintaining data compliance. A CDP addresses this issue by managing and federating consent. It can ensure that data collection at every channel or data source adheres to GDPR, CCPA, and other regulations. It makes sure that businesses adhere to the consent preferences of customers and federates that consent across the entire stack.

How to Choose a Customer Data Platform

With hundreds of service providers, choosing the right CDP for your business organization is a daunting task. To help you find the right one for your business, here are the basic things you should consider.

  • Start with the whys, whats and hows.

The obvious reason companies purchase a customer data platform is to consolidate data into a single customer database. But that’s not the ultimate goal for implementing one. If this is the sole reason you have, then any CDP would do then.

So before making that big decision to invest in a CDP, define the use cases that are specific to your business needs. Why do you want to consolidate your data? Why will you implement a CDP? What do you hope to achieve with a unified customer data? How will you use the data and the insights?

These questions will help you determine if you really need a CDP and the specific features it should have. Check potential CDPs if their capabilities align with your goals. Look for CDPs that companies are using for the same use cases and read their reviews.

  • Involve internal stakeholders.

A CDP will work with data from different teams in your organization. It will need access to the customer relationship management software your sales team uses. It will also have to integrate the tools your customer success team used to handle customer data. Your product development team will also find insights from a CDP useful.

It is crucial to get relevant people’s input in choosing the right customer data platform. Gather representatives from various teams and departments to discuss the purchase of a CDP. Explain your goals and your expectations. Go over how a CDP will affect your business processes, then ask for their input.

  • Identify the tools you have and the tools you need.

Most CDPs have built-in tools, but you may already have your own suite of tools you want to integrate into the platform.

Make an inventory of the tools you are currently using. This includes tools for live chat, analytics, website optimization, automation, and business intelligence. It should also include your payment processors, data warehouses, CRM software, help desk systems, and practically all other tools and software that provide data and/or require access to it.

After making your list, go over your use cases again. Do you have all the tools necessary to accomplish the goals of these use cases? What other tools do you need? Check with the internal teams who are in the best position to identify which tools are integral for your business.

Then, check the CDPs you are considering if they have these tools, or if it’s possible to enable integrations with them. It might be difficult and costly to find a CDP with a complete stack of tools you need. Just make sure the ones you shortlist have the majority of the tools you use.  If not, cross them off from your list.

  • Specify your requirements.

Depending on the nature of your business, you might have other specific requirements for your CDP. For instance, if you cannot allow any downtime in data processing, your CDP must come with an uptime guarantee. If GDPR and CCPA compliance is essential to your business, you should choose a CDP that allows on-request suppression of data collection or customer data deletion.

For top-notch security in customer data handling, look for ISO 27001, SOC2, or other independent security certifications that ensure continuous monitoring and constant updates of security practices. 

  • Compare vendors and price points.

Once you have narrowed down your choices to those that match your use cases and requirements, start comparing vendors. Many CDP vendors offer flexible packages that allow you to tailor a CDP, so its capabilities and functionalities align with your business goals. There are also several that have quite similar offerings.

Aside from going over CDP features, check reviews from customers who have used the platform. Look for feedback on customer support and service. Also, try to find CDPs that other companies in the same industry as yours have proven effective.

Then, take pricing into consideration. Keep in mind that CDP is an investment that impacts business growth. Rather than choosing the cheapest option on your shortlist, choose the one that gives you the best business value. An ill-fitting CDP may not provide the time-saving feature and efficiencies you need, so it won’t be worth the cost at all even if it is the cheapest one available. On the other hand, a CDP that delivers all or majority of the efficiencies you need will bring huge cost savings.

How to Measure the ROI of CDPs

Basically, you can estimate potential ROI by comparing the cost of implementing a CDP with the significant cost savings and benefits it brings to your business.

Aside from the investment you make upon purchasing the CDP, you must also factor in other related costs. This includes license costs, resource costs for CDP maintenance, professional services, training costs, and other expenditures needed to implement and maintain the platform.

The business value is not as clear-cut though. But you can start by determining if the costs saved as time and effort in customer data collection and processing are reduced. Then, quantify the key benefits of implementing the CDP. What is your estimated increase in sales if targeting is improved? How much revenue loss from churn do you avoid by improving customer retention?

Quantifying the benefits of the CDP and comparing the approximate value with all the relevant costs will help determine your probable ROI.

CDP: More Than a Marketing Tool

A customer data platform is more than just a mere marketing tool. It impacts all teams across the organization and benefits the entire business. It allows your business to adapt to rapidly changing consumer behavior and to deliver consistent customer experience across all your channels. If you have high volumes of customers interacting at multiple touchpoints from various devices, a customer data platform will bring immense benefits that ultimately lead to more business growth. 

Frequently Asked Questions

Do I really need a CDP?

Regardless of industry or niche, practically all business organizations today need a CDP. However, you should only implement one if it will bring value to your business. If your customer data is simple and your sources are scant, you could probably suffice without a CDP. You also won’t likely need a CDP if you have a limited marketing technology stack and do not need customer personalization.

What is the difference between a CDP and a CRM?

Both a CDP and a CRM collect customer data, so they are often mistaken to be the same thing. While they do share similarities, they each have distinct functionalities that are necessary for streamlining the customer journey from end to end.

A CDP is most useful for analytics to improve omnichannel experiences while a CRM is mainly for engagement with user-generated data. Since the CRM is a solution for managing user interactions, sales teams primarily use it. On the other hand, all marketing teams including sales, support, and customer experience use a CDP.

What is the difference between a CDP and a DMP?

The key difference between the two platforms is that businesses use a CDP in all aspects of marketing while a DMP focuses on advertising and retargeting. A CDP collects first-party customer data with tangible attributes while a DMP captures second- and third-party data with anonymous digital identifiers. Some businesses utilize both platforms and sync data for a holistic solution to marketing initiatives.

About the Author
Geri Mileva, an experienced IP network engineer and distinguished writer at Influencer Marketing Hub, specializes in the realms of the Creator Economy, AI, blockchain, and the Metaverse. Her articles, featured in The Huffington Post, Ravishly, and various other respected newspapers and magazines, offer in-depth analysis and insights into these cutting-edge technology domains. Geri's technological background enriches her writing, providing a unique perspective that bridges complex technical concepts with accessible, engaging content for diverse audiences.