There are different types of data. The kind you should focus on will change, depending on the needs of your company. There are three broad categories of data: first-party data, second-party data, and third-party data. Each has its own advantages and disadvantages. We’ll go over them below and close with some advice on where businesses with physical locations should put their attention.
What is first-party data?
First-party data is information collected by you, directly from your customers. Common sources are online interactions like website visits and app use, customer surveys, visit behavior like in-store check ins or guest WiFi logins, and point of sale (POS) data from transactions. Because it comes right from your actual customers, it’s generally considered the most useful and accurate.
This kind of data can generally be acquired at little to no incremental cost. For example, a restaurant with a POS system and guest WiFi is already paying for those services, so any data collected through them is a bonus.
Another advantage of first-party data is that it’s less likely to run afoul of privacy issues. Since you have total control of how first-party data is collected, you can be sure it conforms to the rules set by data legislation like the European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act.
What can you do with first-party data?
First-party data is high-quality data because it comes to you from the people you’re already doing business with. That makes it perfect for creating stronger business strategies, optimizing your marketing efforts, improving customer relationships, and evaluating your products and offers.
Online data about your customers can help identify traits they have in common, allowing you to build ad audiences that perform better. Knowing more about them makes it easier to personalize content and ads. By looking at the performance of your ads along with specific visit behavior, you won’t be guessing about segmentation or whether ads are driving foot traffic.
For a brick-and-mortar business, first-party data generated in store can be used to predict behavior patterns. For example, if you know what times of day are busiest, you can staff accordingly at the rush. POS data can also inform you about inventory needs.
What’s the best way to collect first-party data?
Essentially, any place a customer takes any action, like clicking on a site or walking into a cafe, can generate data. You just have to have a way to track it and store it.
For your website, you will want to enable a pixel. This is the tool that you can use to track where customers are coming from, where they’re going on your site, and where they go afterwards. This site behavior can be cross-referenced with demographic data to give you a fuller idea of what kind of people are taking what kind of action (e.g., it’s possible to know if women or men spend more time on a site). Customers also provide usable data when they sign up for your email list.
Getting this kind of info about physical store visits requires a mechanism that can report when someone walks in. This can be done with various technologies, usually using smartphones, or other mobile devices, to tie a customer’s identity to the visit. One example would be WiFi marketing. When a customer signs in to use guest WiFi, the router can later identify the device when it comes back in.
What is second-party data?
Second-party data is basically first-party data collected by someone else. You pay for access to it, like third-party data (more on that below). The data’s owner collects it directly from their customers
Sources are more or less the same as first-party data. However, the company might have the benefit of collecting data in ways you don’t. For example, they might have a customer loyalty app, strong social media channels, or even specialized customer surveys.
What can you do with second-party data?
Everything you can do with first-party data you can do with second-party data. One of the most common uses is to simply expand the scale of your first-party data. So, if you have good first-party data, but not much of it because the business is new, this is a very good way to enrich your data set.
Reaching a similar, larger audience is a shortcut to meeting new customers. Buying data from a complementary business is a good tactic. Say you’re a new juice bar, a customer list from a local gym chain might be a great source of healthy eaters.
Second-party data can also help you find new customers in an audience that isn’t necessarily your own. For example, if your business caters to athletic products for men, but you are launching a similar line for women, you might not have data on enough women to campaign efficiently. You would then want to pull second-party data from a source that you think will provide useful data (e.g., a women’s fitness website).
Where can you get second-party data?
You have to look for companies that are selling the kind of data you are looking for and buy it directly from them. That sounds sort of obvious, but where you shop will largely be affected by your industry. Second-party data use is on the rise, so a simple Google search should return some leads on businesses that offer this service in your market. Second-party data exchanges are an option as well.
Another possibility is to partner directly with a complementary brand. Brand team-ups and collabs have become popular in recent years, allowing creative companies to meet new fans and provide their own customers with interesting offers and experiences. These sort of deals can also be worked out with non-traditional businesses, like social influencers.
What is third-party data?
Third-party data is collected by a party that doesn’t have a direct relationship with the customer whose data is being collected. Third-party data is generally collected at scale using a variety of websites and platforms and is then blended together by a third-party data provider. By aggregating this data, data companies are able to create detailed audience profiles that contain information on users’ behaviors.
Third-party data is purchased for its scope. It is often collected broadly and dumped into huge data sets. This is one of the big appeals, but it’s also the main disadvantage. Once data is collected, it can be aggregated and organized into categories based on industry, behavior, demographics, personal interests, and anything else that might be of interest to a business.
When buying this data, you really have to do your homework so you know you are buying what you need from a reliable source. Another potential negative is that this kind of data isn’t exclusive. So your competitors will likely be able to access the same third-party data.
What can you do with third-party data?
Third-party data is useful for expanding your audience reach and getting insights that you might not be able to find with your own customers. It works most effectively if you also have first-party data to enhance it. Your first-party data will always be more accurate, but you might not have as much as you need, especially if you’re a new business. You can use third-party data sets that match your existing data.
You can also use third-party data to make targeting more precise. Imagine your customers are mostly women in their 40s. After looking at your data, you might find that women in that age range who also subscribe to healthy eating websites are more likely to enjoy your offerings. You could use third-party data to access more people in a specific subset of your original audience, leading to improved ad efficiency.
Where can you get third-party data?
You have to buy this type of data from specific providers. There are a ton of different options. Some examples include Acxiom, Bluekai, Experian and ComScore. It pays to shop around, but we recommend going with a well respected and reviewed company that has a good track record for your industry.
Third-party data can be sourced in a lot of shady ways, which can open you up to privacy issues if you aren’t careful. Most of these companies aren’t sourcing data on their own, so inquire about their practices. The more buttoned up they are, the more buttoned up you will be. Fortunately, the better companies are fairly large and should all have reviews to peruse.
What kind of data is best for a brick-and-mortar business?
Many businesses are going to get the best results with a blend of first, second and third-party data. But if you had to choose one, we recommend first-party. It’s going to be the most accurate representation of your customers because it comes directly from them. And chances are you’re already collecting a lot of it.
Here are some of the reasons first-party data is considered more valuable for physical businesses:
- It’s preferable for privacy
As customers become more data aware, and governments increase protections, third-party data providers are going to face significant challenges to the way they collect and distribute data. Businesses that want to maintain customer trust will be best served by transparent data collection. Since you have total control of how first-party data is collected, you can be assured nothing shady is going on.
First-party data users will be able to ensure their data remains legally compliant in the future. The European Union’s General Data Protection Regulation (GDPR) and the California Consumer Privacy Act are two of the better-known examples of data-related regulations. If you follow those rules, you will be ahead of the curve.
- The audience is more responsive
When you collect data from your customers, they will be more likely to respond to your marketing efforts. A person who signed up to be on an email list will be familiar with the business and more likely to see value in offers that land in their inbox or social feed. There are certainly times you might want to boost your efforts with second-party (or even ethically sourced third-party data), but marketing to your existing customers almost always leads to a stronger return on ad spend (ROAS).
- You control all of your first-party data
That means you will always know how it was collected and you don’t have to pay an external company for access to it. Companies that offer second and third-party data can cut into your bottom line. Also, as the government starts enforcing rules, many third-party data providers will be forced to completely change how they work. If you’re deeply reliant on this kind of data, you’ll be forced to change, too.
Focus on what works best for you
Anytime you can collect customer information directly from the source, you’re going to achieve better results and be less dependent on other parties for your marketing strategy. You can get a clearer picture of who your valuable customers are and where they’re at in their lifecycle—new, repeat, frequent or lapsed. The best part? They’ve opted-in and they’re ready to hear from you.