Understanding 1st, 2nd, and 3rd party data

In today’s digital landscape, marketers are expected to run highly sophisticated campaigns with increasingly advanced capabilities. By taking each interaction and contextualizing it with a more engaging experience, you can put each dollar of your marketing spend to good use.

To run these sophisticated campaigns, the use of different types of high-quality data is essential– specifically, 1st, 2nd, and 3rd party data. Each type provides a unique value and serves a specific business goal. When combined, the three data types create a holistic view of the customer and build a database that can provide actionable insights for your entire organization.

1st Party Data

What is it?

1st party data comes directly from your customers and usually includes personally identifiable information (PII) such as name, email, and mailing address.  This data is most often collected from your website or other registration points, stored in a Customer Relationship Management system (CRM), and includes information from past and current customers. 1st party data is gathered directly from your company’s own sources making it extremely reliable, relevant, and actionable. It is data that you own, provides the most accurate insight into your audience, and is by far the most cost-effective.

How and when to use it

1st party data is most useful for creating and refining your ideal customer profile which can then be used to target similar audiences. Brands can personalize their marketing plans based on customers’ interests and needs and make more accurate predictions of future trends. The most effective and efficient way for sites to manage their data is through a customer data platform (CDP). A CDP unifies and organizes all of the data that marketers collect about customer behavior on their website and informs modeling and targeting strategies.

1st party data is limited by reach and generalizability.  It consists of your known audience, so prospects and future customers are not represented in your dataset. However, for cross-sell and upselling campaigns there is no greater tool than the insights you gather from your customers. You can use this data to tailor your brand experiences to delight individual customers and increase customer lifetime value. Every personalized element - from something as simple as first name greetings to timely reminders to renew a subscription - transforms the customer/brand relationship from simply transactional, to a long-lasting emotional one. 

Read more: [Blog] Improving Customer Loyalty

2nd Party Data

What is it?

2nd party data is typically obtained from a direct business relationship or purchased through a private marketplace. This data allows you to find, reach, and connect with audiences similar to your own, also known as look-alike audiences. This data is useful to expand the reach that 1st party data lacks and also increases the effectiveness of campaigns by casting a wider net.

Challenges with 2nd party data start at the source. Because you do not own this data, you won’t have full transparency into the collection process, or the accuracy and reliability of it. Also, your reach is still limited when targeting multiple audiences because the data is coming from a single source.

How and when to use it

Often organizations with a large customer base will develop a “data partnership” with other businesses who are interested in an exchange of 1st party data. This arrangement is low risk and mutually beneficial.

Data partnerships are seen most often in the travel industry, specifically between hotels and airlines. A hotel’s 1st party data is valuable to airlines because this data represents potential airline customers. They have relatively predictable behaviors within the window of their hotel stay, during which time they would be most interested in purchasing a flight. Likewise, a hotel can use an airline’s data to pinpoint travelers’ exact date and time of arrival and determine their proximity to hotel properties.

A data partnership of this nature can be a real game-changer. Access to different streams of consumer data allows you to target specific shoppers who are showing purchase intent in real time. This targeted advertising approach eliminates wasteful ad spend and provides transparency to your media buys. With 2nd party data, you know exactly who you’re targeting and can make more informed projections of ROAS and overall campaign success.

Read more: [Blog] What are the signs of a great media-buying partnership?

3rd Party Data

What is it?

3rd party data is anonymized and aggregated from a variety of sources. This data is packaged into audience segments and supplied by Demand Side Platforms (DSP). These data points mainly consist of user behavior including interests, patterns, hobbies, and preferences.

The challenge with 3rd party data is the quality.  Because original sources cannot be verified, 3rd party data is the least reliable and least consistent of the three data types. The customer behaviors that are used to develop the audience segments may be irrelevant or outdated. Since you do not have a direct relationship with the data’s source, you cannot track or validate the data.  As a result, more testing and optimizations are required for the dataset to glean meaningful insights.

To avoid poor quality data make sure to buy from a reputable vendor, such as AppNexus, Media Math, or Display&Video 360 . A trustworthy DSP will provide fresh, actionable data that you can incorporate immediately into your marketing campaigns.

How and when to use it

3rd party data not only enriches an already existing audience segment, but it can create entirely new audience segments for marketers. These segments are valuable because they are based on identifiers beyond demographics such as loyalty, intent, shopping behaviors and brand association.  These segments can be as granular as you desire. For example, if you wanted to create profile segments of “online buying consumers” or “shoppers with propensity to apply discounts” you could obtain these audience segments from DSPs and develop promotional strategies around it.

As advertising becomes even more hyper-targeted, personalized, and timely, marketers are dedicating more resources to keep pace with competition and are taking their paid media initiatives to outsourced trading teams.       

Final Thoughts

The best plan for marketers is to combine all three types of data. Integrating and utilizing 1st, 2nd and 3rd party data, enables you to reach a wide-scale of audiences with highly personalized and relevant messaging and offers. When targeting legacy customers for a win-back strategy, 1st party data will be the most useful because of the quality and reliability of the data. If you want to expand reach and drive acquisition, 2nd and 3rd party data will be more effective. Understanding which type of data and data provider best serves campaign needs can make all the difference in building a winning strategy.

 

Sources:

1st, 2nd And 3rd Party Data - What It All Means?

1st Party Data, 2nd Party Data, and 3rd Party Data

Third Party Data: What it is, its Benefits, and Best Use Case

An In-Depth Look at Second-Party Data for Digital Marketers

No Comments