What is the difference between a customer data platform (CDP) and a data management platform (DMP)? Definitions, collection methods and analysis best practices

Customer data platforms (CDPs) and data management platforms (DMPs) are not interchangeable, or an either-or scenario. While to the uninitiated they might sound like the same thing, there are important differences between the two and significant benefits of both. The main differentiators are their use, the types of data they collect, how personalized that data is and how long they retain that data.

What is a customer data platform?

Customer data is information that consumers and potential or existing customers leave behind — “cookie trails” of sorts — as they interact with companies both online and off. This can include in-store interactions, phone calls, website visits, social media interactions or blog post impressions.

A CDP is software that combines data from this multitude of first-, second- and third-party interactions to create a single view of customers and their journeys throughout a company. An essential tool for marketers, they collect data from all touchpoints and interactions with a product or service. This can then be segmented in numerous ways to cater to customers in more personalized ways — whether or not they have had positive experiences with the company.

The main types of collected data include the following:

• Identity data: Basic information about a consumer such as name, email address and payment preferences
• Descriptive data: More specific personal information such as their career, lifestyle, hobbies, and the like
• Qualitative or behavioral data: Customer transaction information, data on their opinions, motivation and attitude impressions

The independent Customer Data Platform Institute defines the valuable tool as a “packaged software that creates a persistent, unified customer database that is accessible to other systems.” CDPs interact with other marketing tools and platforms to ultimately help set the stage for building personalized campaigns, cross-selling customers and creating brand loyalty.

Think, for instance, of the last time you interacted with a company — be it for a consumer product, an essential service or an entertainment or event venue. Chances are you initially made contact, and with each ensuing interaction — be it through website visits, emails, live chat, social media channels or a combination of one or more of those — you felt like the experiences were more and more personal. It seemed like the company was getting to know you. Ads, the website layout, and emails and social media reach-outs seemed catered to you and more and more relevant to your interests.

What is a data management platform?

DMPs also collect data, but is less personalized to individual customers, marketers and companies. Similar to CDPs, this valuable software platform collects and organizes data from numerous first-, second- and third-party platforms.

This can include the following:

• Web and app data
• Data from transactional systems and marketing automation platforms
• Data from marketing and advertising campaigns

But instead of using this data within a particular company, DMPs make it available to other third-party platforms such as demand-side platforms (DSPs), supply-side platforms (SSPs) and other ad and marketing exchanges.

DMPs combine functionalities of data lakes, data warehouses, data lakehouses and data hubs for business intelligence (BI) purposes. They use artificial intelligence (AI) algorithms to process and analyze large sets of data on users in different demographic segments. They are then often used in conjunction with a company’s or marketer’s customer relationship management (CRM) systems.

The collected data is leveraged to help businesses and marketers profile, analyze and identify specific audience segments for targeted advertising, personalization, product recommendations and content customization.

Specifically, collected data is applied for the following:

• User profiling based on information representative in a collective group of users’ behaviors, interests and perceived needs
• Look-alike modeling to identify new clients whose behaviors are similar to current customers
• Audience enrichment based on study of analytics
• Growing a customer base with new segments that can be identified through DMP analytics

DMPs are also monetized by marketing and advertising companies to generate additional revenue.

The advantage of DMPs is that they can organize data, provide business insights related to audiences and markets, and help to best allocate advertising and marketing budgeting.

Key attributes of a CDP

CDPs apply to particular individuals and store personally identifiable information (PII) such as names, email addresses, past purchases and payment information. PII is any piece of data that identifies a specific person and is usually a combination of data touch points to track that person’s actions. This data can be retained for however long the marketer or company chooses, or government regulations allow.

The goal of a CDP is to create unified profiles of individual customers that can be shared with other marketing systems within a company. CDPs provide data transparency at an individual level, and they store their own copy of that data.

CDPs combine analytics, social media, marketing automation, customer relationship management (CRM), content personalization and A/B testing to store, unify and enrich a marketer’s information on a customer. They primarily use first-party data based on real consumer identities, although they will sometimes be enriched with second- or third-party data.

The software is focused on marketing to known audiences, and for retention, engagement and conversion marketing within existing customer bases. CPDs are used by companies to keep user data in one specific place so that they can access it for marketing strategies (ads, emails, social media reach-outs). They are often considered a martech tool, and they are key to understanding specific, individual customers to drive revenues.

Some examples of their use include the following:

• To communicate with existing customers
• To convert undecided customers
• To acquire new customers and lead them to the correct channels
• To activate customers early on
• To understand how customers interact with products or services
• To retain customers
• To gather and prioritize feedback
• To get customers to refer products and services
• To lead new customers to correct channels

 How CDPs work

• Data is collected from a range of sources, including CRM software, websites and mobile applications. That data is then “normalized” and enriched, removing redundant, erroneous or unimportant information — thus making it more relevant for users.
• Analytics reports are created to provide insights into consumer engagement. These can help improve performance of campaigns and increase conversions.
• Audience profiles and segments are established or updated. Marketers can use this information to create additional segments composed of profiles of customers with common attributes.
• A single customer view is created. Also known as a 360 or a unified customer view, this combines all data on customers in a single record. Marketers can use this to identify how users interact with brands and to enhance customer service and marketing messages.
• Audiences are activated. This is ultimately the end goal: To drive purchases by sending personalized content, for targeting and retargeting campaigns and for offering personalized product recommendations.

Key attributes of a DMP

DMPs, in contrast, work almost exclusively with anonymous information such as cookies and IP addresses. They aggregate third-party data, typically from cookies, website impressions and social media interactions. They are considered more of an adtech platform. The data they collect is kept for much shorter times than CDPs, typically a few months.

DMPs offer cross-platform or omnichannel-targeted advertising and are used by marketers to acquire, upsell and retain customers to increase their bottom lines.

How DMPs work

• The process begins with data collection. This is from various sources, including CRM systems, app and web analytic tools, adtech platforms, DSPs and other information brokers. The data is then “normalized” and enriched. This process organizes the data into a common format and improves data value and quality, making it useful and relevant for users.
• Profiles are built and merged. New profiles are created or existing ones enhanced.
• Data is stored and pushed to other components and systems.
• Segmentation is performed. Profiles are grouped by such factors as their attributes, behaviors and the frequency of their actions online (web visits, mobile interactions, social media commenting and sharing).
• Audiences are created by combining various segments.
• Analytics and reporting are performed. This generates detailed reports about marketing and advertising campaign performance, engagement and user behavior.
• Integrations and activation are performed. This sends or exports audiences to other systems, such as demand-side platforms (DSPs) and supply-side platforms (SSPs).
• A user interface is created. This allows users to create audiences, define segments, and activate or export audiences.

DMPs are used mainly to enhance advertising campaigns and acquire so-called “lookalike” audiences that have been shown to have the same interests and needs. They are focused on advertising to typically unknown or anonymous audiences and primarily leverage third-party data and sometimes second-party data. First-party data can act as an additional source of information when needed.

Best practices for a customer data platform in 2022

Before deciding whether to use a CDP or DMP (or both), it’s critical to do your homework to make an informed, pragmatic decision.

First, bring all stakeholders into the process. Their input is invaluable, and it will help get buy-in once you choose a platform. Collaboratively, define use cases, such as do you want to fully understand the customer? Create more personalized experiences? Combine online and offline data? Enhance your website interactions? Create more targeted campaigns to larger audiences?

Determine what tools will be needed to accomplish your chosen use cases. List those, and also list all tools that you use to interact with customers (web, email, blog, listserv, social media, etc.).  

Next, establish requirements. Beyond use cases, what are the essential must-haves and required regulatory frameworks you must adhere to? For example, do you want top-notch security, or do you want to ensure compliance with General Data Protection Regulation (GDPR) or California Consumer Privacy Act (CCPA)?

Finally, compare vendors. A good place to start is the CDP Institute, which has a RealCDP certification program. This defines features required for a product to perform the functions that most users expect from a CDP, to reduce confusion.

Requirements include that the CDP can accomplish the following:

• Ingest real-time data from any source
• Capture full detail of ingested data
• Store ingested data indefinitely (subject to privacy constraints)
• Create unified profiles of identified individuals
• Share data with any system that needs it

Nearly all CDP vendors meeting this criteria offer the following:

• Data management (collecting, normalizing and unifying data in a consistent database)
• Features that are designed for use by marketing and other departments
• The capability to connect to and from all external systems and vendors neutrally
• Structured and unstructured data management
• Online and offline data management

It’s also critical to consider return on investment (ROI). A good place to start is calling CDP vendors or visiting their websites to gain an understanding of what they offer and their price ranges.

Top best practices for a data management platform in 2022

 Much like a CDP, it’s important to research and choose the best possible platform for your needs and wants. There are also overall important factors to consider when choosing a platform.

First, establish the goals for DMP use. Are you a marketer? A DMP can help you learn about your most valuable customers and target specific audiences. Are you an agency? A DMP can help you collect, organize and analyze customer data on behalf of clients and determine who is interacting with campaigns. You can build and expand audiences, then share insights with clients. Are you a publisher? A DMP can help uncover information about visitor activities, interests and motives so that you can create and develop more personalized experiences. You can also leverage various data points to build audiences to execute more targeted, as opposed to broader, campaigns.

Once you’ve determined use, it’s important to consider ROI when it comes to cost as well as maintenance.

From there, there are several other factors to take into mind, including:

• Data collection. What kind of data can a prospective DMP handle and how is it organized and processed? How many platforms does it integrate with? Is it limited to certain sources? Does it allow easy access to first-, second- and third-party data?
• Audience insights and profiling. Once you establish your goals, it is critical to determine what insights a DMP offers.
• Campaign optimization. What does it offer, and can those be manually optimized and adjusted?
• Access to third-party data, as well as a second-party data marketplace. These are essential to any DMP.
• Integrative and compatible. Are you able to export and activate data across all channels you want to use?

When you’re a marketer and you want to best reach your customers, it’s paramount that you understand the difference between CDPs and DMPs so that you can make the best choices for your business and maximize ROI. Everyone benefits in the end. 

Originally appeared on: TheSpuzz