What Is First-Party Data And How Do You Use It?
First-party data has been the talk of the marketing industry for years now.
We have to get more creative on how to legally, and ethically, capture customer information.
Not sure what first-party data is? Or not quite sure where to start with a first-party data marketing strategy?
Follow along to understand what first-party data is, how it differs from other data types, and how to apply it to your own business.
What Is First-Party Data?
First-party data is information or data points a company collects from its customers.
This type of data is collected through the business’ owned digital channels, with the consent given by the users to have their data collected.
Compared to second-party and third-party data, first-party data is usually considered the most reliable because it comes directly from the customer.
First-Party Data, Second-Party Data, And Third-Party Data Explained
Let’s dive in further between the three data types, how data is collected, and when and where to use them.
First-Party Data Explained
First-party data is any data point collected by a business directly from users or customers.
There are many ways first-party data can be collected from an audience. Some examples include:
- Website or app analytics. Typically, this information is gathered from user interactions on a website or in an app. Data points can include demographics, location, page views, clicks, purchases, or time on site.
- Email marketing lists. Subscriber data from email campaigns, newsletters, or additional email interactions.
- Customer relationship management (CRM) systems. Data housed within a company’s CRM system, usually after a customer purchases. It usually stores customer profile information, purchase history, customer service interactions, and more.
- Social media accounts. Data collected from social media profiles and interactions with a company through their social media accounts.
- Surveys. Responses from customers, which can include data points like demographics, email, contact information, and more.
- Customer feedback. This type of feedback can be collected through multiple channels, such as website online chat or product reviews, just to name a few.
In order to collect first-party data, a user has to consent to their data being collected.
Typically, companies put a tracking pixel on their website or app. Upon a customer’s first visit to one of those, they are usually served some sort of banner or pop-up asking them to consent to track behavior.
If a user consents and accepts, numerous data points (like the above described) are gathered and stored in a CRM system.
Companies primarily use first-party data for personalized marketing efforts and improving customer experiences.
Additionally, it helps businesses make more informed decisions from the data by analyzing the behavior of their actual customers.
Second-Party Data Explained
Second-party data is sometimes confused with third-party data.
Simply put, think of second-party data as “secondhand” data. It is data that a company didn’t collect itself but shared directly from one company to another.
What makes this different than third-party data is that it’s not sold or purchased from another company.
Usually, the data is shared as part of a partnership or mutually beneficial agreement between two companies.
Below are a few examples of how second-party data can be used in practice.
- A travel agent partners with certain airlines, hotels, or car rental companies to gain access to their booking and reservation data. This then can allow a travel agency to provide personalized packages, discounts, and recommendations to customers.
- A health and wellness app collaborates with a wearables device company (i.e., smartwatch). The app can collect wearable data points from a user, such as heart rate, step counts, and sleep patterns. The wellness app uses that data to provide personalized insights and recommendations to a customer.
- An educational technology company wants to partner with schools or universities to gather data on student academic performance and learning. The technology company then uses this data to inform future educational content to improve student learning.
Second-party data is primarily used to expand datasets on a company’s first-party data set.
This type of data sharing allows companies to gain data from trusted partners to get a better, more comprehensive view of their target audience without having to go through the heavy lifting of collecting the data themselves.
Third-Party Data Explained
Third-party data is data collected by an external source, which is then sold to businesses for various reasons.
The biggest difference between third-party and first/second-party data is that there is no true connection to the customer.
Additionally, because third-party data is purchased in large quantities, the data is aggregated and anonymized to meet privacy regulations.
Third-party data can come from a variety of sources, including information from:
- Public records.
- Government agencies.
- Online activities or website cookies.
- Social media accounts or profiles.
There are both benefits and drawbacks to third-party data.
One of the main benefits of third-party data is that it’s relatively easy to buy large data sets of demographic or behavioral information on your target audience.
Perhaps the biggest downfall of third-party data is the reliability or accuracy of the data purchased.
A few examples of third-party data used in practice include:
- A real estate company gets third-party data from public records, including information on property values, property characteristics, and more. This helps the real estate company with property appraisals, market analysis, and how to better market real estate listings.
- An online retailer wants to cross-sell or upsell additional products to its customers, so it purchases third-party data to analyze customer purchase behavior to help predict relevant cross-selling opportunities on its website.
- Pharmaceutical companies may purchase third-party data on prescription medication usage in order to align their marketing efforts with existing healthcare trends.
Compared to first-party data, it’s considered less reliable as it’s not information coming directly from your customers.
Third-party data is primarily used by companies to complement first-party data. It’s not practical to rely solely on third-party data for marketing efforts.
Using third-party data to analyze trends and behavior in your greater target audience is a better way to leverage large data sets.
What Are The Limitations Of First-Party Data?
While first-party data is considered the most reliable and accurate for businesses, it does come with some pitfalls and limitations.
Below are a few drawbacks to first-party data collection.
- Limited scale. Since first-party data is limited to the information a customer provides, or the interactions a company has with its users, data sets can be limited by size. Especially for newer businesses or niche companies, it may be difficult to gain statistical significance or be able to reach a wider audience at scale.
- Sampling diversity concerns. Similar to the above, with limited scale, a company could run into a low sampling diversity when analyzing data. It could lead to skewed customer demographic insights and may not accurately reflect a wider target market.
- Data privacy concerns. All companies, regardless of how they’re collecting first-party data, need to stay up-to-date on user data privacy regulations at all times. This takes time and employee resources to ensure compliance is reached.
- Data decay. This is referred to when customer profile information becomes outdated. Examples of this can include if a customer moves, changes their phone number or email address, and can lead to inaccurate customer profiles.
- Resource intensive. Gathering and collecting first-party data takes time. It’s not a “one-and-done” task. First-party data requires a level of maintaining after its collected, whether that comes from investing in technology, data analysis, and/or maintaining accurate customer information over time.
Don’t let these limitations scare you away from using first-party data to its full potential.
Next, we’ll dive into different ways to make your data work harder, and smarter, for your business.
How To Use First-Party Data
You’ve spent all this time collecting and organizing first-party data for your business.
So, what’s the best way to use it?
Believe it or not, there’s a lot more you can use first-party data for than marketing campaigns.
Below are five examples of ways to use first-party data more holistically for your business.
1. Expand And Optimize Marketing Campaign Targeting
If you’re looking to expand your marketing efforts to a wider audience but are unsure where to start, start with your first-party data.
If large enough, first-party customer lists can be turned into lookalike audiences in advertising platforms to help reach a broader audience with similar characteristics as your current customers.
For existing campaign optimization, try segmenting customer groups by certain characteristics.
Smaller, custom segments allow for more accurate and personalized messaging to those users, which can help increase conversion rates, customer loyalty, and more.
2. Encourage Customer Loyalty
Most customers like to feel rewarded by repeated loyalty to a brand. This could come in the form of a specific loyalty program, special discounts or sales, or birthday recognition gifts.
Using first-party data that captures purchase history and personal information like date of birth and turning it into special incentives can help retain valuable customers longer.
3. Prioritize Product Improvements
This is an often overlooked way to utilize first-party data because it comes back down to the company and product itself.
Taking the time to review customer feedback and survey responses helps identify customer pain points, opinions, and what they love.
Capturing these data points on a regular basis can help companies pivot to take action quicker on customer pain points and prioritize product development efforts to improve customer satisfaction.
4. Optimize Content Strategy
First-party data is also helpful for content optimization strategies.
Gathering information such as customer engagement metrics can inform what topics or categories users resonate with most.
Shifting ad, social, or website content to what resonates with customers can help better attract users quicker, which can then help lead to more customers.
As with all content development, keep in mind to ensure brand voice and tone are consistent and authentic across all channels.
5. Predictive Analytics For Data-driven Decisions
If you have a large set of first-party data, it can be used to build predictive models to forecast customer behavior, future sales and revenue, churn rates, and more.
Using this information strategically guides better decisions made directly from your data.
Predictive modeling also lends a hand at outlining a typical customer’s journey, which helps identify steps and interactions a user takes before purchasing.
Do We Need To Consider Zero-Party Data For The Future?
Third-party cookie deprecation has been on the docket for a while now.
As of October 2023, Google announced it will disable third-party cookies for 1% of Chrome users starting in Q1 2024.
While that may not sound like a lot, the start of disabling cookies means marketers need to be proactive in 2024 about a zero-party data strategy in the future.
Zero-party data is considered data given to a company directly from the users themselves.
The data is willingly shared with a company through outlets such as:
- Direct interactions with a business.
Examples of zero-party data are similar to first-party data and can include:
- Personalization data.
- Purchase intent.
- User account data.
- Feedback and reviews.
- Survey responses.
Integrating a zero-party data strategy benefits businesses because it can take personalized marketing and customer experiences to the next level.
To start gathering zero-party data, it may be worthwhile to incentivize users to provide their valuable information – also known as a value exchange.
A user provides a company with their personal information in return for something of value to the customer, such as a product discount.
Ultimately, zero-party data helps build customer trust, increases user engagement, and drives higher conversion rates and repeat customers.
When integrating any type of data strategy, always be sure to keep user privacy and consent at the forefront of your mind.
Not only is it ethical, but it’s becoming a legal requirement in almost all regions.
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