Pros and Cons of First-Party Data
In today’s data-centric world, companies and marketers need to understand the ins and outs of data in order to thrive in the digital age. Brands should especially focus their business and marketing efforts on first-party data. When they take full advantage of data and data-driven marketing, they can design well-informed strategies for meeting their consumers’ needs in a meaningful way. What are the benefits and challenges of first-party data?
What is first-party data?
First-party data consists of information that businesses directly capture from their audience, which consists of their followers, visitors, and customers. This can include their contact details, purchase history, and other information they provide over the course of their relationship with a brand. People knowingly and willingly give companies their data in order to engage with their products and services. For example, they often provide their email address when creating a customer account or their phone number when making a purchase.
Companies store and analyze their audience’s first-party data using customer relationship management (CRM) systems and customer data platforms (CDP). They use this information to segment customers based on common similarities and characteristics. Then, they personalize their marketing efforts to nurture users into becoming loyal customers and brand advocates. This includes targeted messaging, personalized recommendations, and special offers.
Comparing the different types of data
Data helps companies learn about themselves, their customers, their competitors, and their industry. They leverage data to inform their strategies in every facet of their business, including product development, marketing and sales, and supply chain management and logistics. However, each type of data has its own distinctions:
First-party data comes from a brand’s audience (i.e. customers, visitors, and followers). Audiences provide this information because it’s necessary for interacting with a brand. Companies directly capture this information through their relationships with their users.
Second-party data comes from a brand’s trusted partners (i.e. other organizations). Partners provide this information because it’s mutually beneficial for both parties. Companies purchase this information either directly from their partners or through a data marketplace.
Third-party data comes from external sources (i.e. organizations that aren’t related to a brand or its audience). External sources provide this information to give everyone competitor and industry insights. Companies acquire this information through data marketplaces, data vendors and brokers, and DaaS (data-as-a-service) businesses.
Both second-party and third-party data are essentially another company’s or companies’ first-party data, without the direct brand-consumer connection created by a business’s own first-party data. Brands should also be aware of zero-party data, which is similar to first-party data in many respects with its own unique traits:
Zero-party data also comes from a brand’s audience (i.e. customers, visitors, and followers). Audiences provide this information because they want businesses to better understand and fulfill their needs. Unlike first-party data, audiences give zero-party data on a voluntary basis, which requires more resources and effort to collect. Some examples include survey responses, product reviews, and social comments.
Benefits of first-party data
Offers complete control and exclusive ownership
First-party data gives companies complete ownership and control over their consumers’ information. They can capture, manage, and use first-party data without needing to account for outside influences and biases. With second-party and third-party data, other businesses determine what information to collect and how to present it, which can negatively impact its effectiveness. For example, other companies may focus on capturing certain segments of customers or specific areas of information that are irrelevant to a brand’s interests. First-party data comes straight from the source without additional perspectives that may change the way that marketers incorporate it into their strategies. Brands also don’t have to worry about other companies having access to the same information, giving them a competitive advantage.
Secures data protection and user privacy
One of the biggest challenges of second-party and third-party data is their ambiguous origins, putting brands at risk of breaching data privacy laws. Acquiring data from other companies can be unpredictable since marketers won’t know how it was collected and whether it comes with users’ knowledge and explicit consent. Third-party data is especially risky, as its sources may be entirely unknown.
First-party data, on the other hand, is fully compliant with data protection policies like the General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA). When businesses capture and leverage first-party data, they’re meeting the key principles of transparency, confidentiality, accountability, and so on. This greatly reduces their chances of facing legal or ethical issues, or being charged with significant fines. With first-party data, companies feel secure about where their information is coming from, how it was collected, and whether it can be used. Users also feel comfortable about what information they provide, who it’s been given to, and how it’s being used.
Reduces costs, resources, and barriers
Second-party and third-party data can be both expensive and time-consuming, as companies often have to pay high prices for large amounts of data, then invest time and resources into integrating it into their existing systems. They also need to invest additional resources for organizing and analyzing their purchased data to suit their needs.
By comparison, first-party data is mostly collected through a company’s day-to-day operations without additional investment. For example, brands capture user information when they register for an account, browse their website, and make a purchase. This also reduces the amount of effort required of their audience. Rather than asking them to provide their contact information or user preferences, customers will do so without needing additional incentives. Brands don’t need to invest in continued resources to get consumers to give their first-party data, outside of their existing business and marketing strategies. First-party data minimizes the number of barriers between company and consumer, strengthening their relationship and fostering customer loyalty.
Increases accuracy, reliability, and relevancy
First-party data is highly accurate, reliable, and relevant, as it comes directly from the way a brand’s audience engages with their products and services. They can correlate consumer interests, preferences, and behaviors to their performance and outcomes. For example, they might see the way a popular advertising campaign led to notable increases in brand awareness and sales. A successful email blast with personalized subject lines may be responsible for surges in website traffic. This helps brands determine what worked, what didn’t, and why, which then guides their business decisions for future marketing efforts.
On the other hand, second-party and third-party data is often of varying quality, accuracy, relevancy, and trustworthiness. Marketers may end up purchasing large quantities of information about customer segments they’re not interested in or industry insights that aren’t related to their business goals. Second-party and third-party data may also be outdated, making it harder for companies to form connections with current and future audiences. Brands should use first-party data to guarantee that their strategies are informed by accurate, relevant, and timely information.
Fosters personalization and customer loyalty
Today’s shoppers want companies to see and understand them as individuals, rather than part of a collective whole. The more information businesses have about their users’ interests, preferences, behaviors, and expectations, the stronger the personal connection between company and consumer. First-party data helps marketers tailor their strategies to each person’s buyer journey, resulting in customer retention and long-term brand loyalty. For example, businesses can use shoppers’ past purchases to send them personalized recommendations. They can identify which products people are looking at and offer discount codes to incentivize sales. Companies can also take user feedback into account to further deepen their relationship with their customers. If consumers are leaving negative reviews about a faulty product or positive comments about a new release, marketers can use this information to continue improving their brand experience.
As mentioned previously, second-party and third-party data is another company’s first-party data. However, since it comes from external sources that are potentially inaccurate or unknown, brands can’t guarantee that the information they’ve acquired will actually tell them what consumers want. Marketers may end up drawing the wrong conclusions when segmenting and targeting potential audiences, and lose their trust. Companies can develop personalization strategies for nurturing customer loyalty with the interrelatedness and understanding of first-party data.
Challenges of first-party data
Limited scope
One of the biggest challenges of first-party data is its finite scope. Brands can only gain so much breadth and depth about their existing prospects and customers. While first-party data consists of contact information, purchase history, and a range of brand-user interactions, it can potentially lack a deeper understanding of consumer motivations and behaviors.
To navigate first-party data’s limited scope, marketers should put additional effort into capturing user information through preference centers, surveys, and polls. They should also seek ways to encourage product reviews and comments, increasing their engagement and gaining insights into consumers’ perspectives. For example, they can collect zero-party data and first-party data through websites and mobile apps, social media, contests and sweepstakes, and shopper experiences. From there, they can learn more about what customers prioritize in a product, what they look for in brand experiences, and so on.
Limited scale
First-party data also has finite scale, due to the lack of information about factors outside of their existing audience. User feedback, purchase history, and analytics typically offer limited insights into a brand’s competitors, industry, and potential markets. This can make it difficult for them to scale their strategies for continued reach and growth.
To avoid these constraints, marketers should practice social listening to capture quantitative and qualitative data outside of their own consumer base. Businesses use social listening to monitor online spaces and see what people are saying about their brand, their competitors, their industry, and other relevant news and world events. For example, social listening can help them discover brand advocates, potential marketing concepts, and new product ideas.
Capture and leverage your users’ first-party data
Brands should focus their efforts on first-party data collection, as first-party data provides the control, compliance, accuracy, and flexibility that every business needs. Second-party data and third-party data has its limitations and risks, making it difficult for companies to expand and grow. With first-party data, brands can create effective strategies and form deeper relationships with their customers.
With 3 tier logic’s PLATFORM³, businesses can foster brand engagement and customer loyalty by capturing first-party data through loyalty programs, sweepstakes promotions, and more. The Data Capture & Analytics module gives brands the necessary tools and insights they need to inform their strategies. To learn more, book a demo with our team today.
