What is a Customer Data Platform?
- Jonathan Seow
- Sep 26, 2024
- 4 min read
Updated: Sep 29, 2024
According to Google Trends, there has been a growing interest in Customer Data Platforms (CDP) over the past five years.
In the past 3 years, I have designed and developed a CDP for Shopee, a high-volume e-commerce company in Singapore. In this article, I will explain a CDP and provide a high-level overview of how it works.
User Segmentation
Companies today are more digitized than ever, with everyone competing for customer attention in the digital space.
Unsurprisingly, customers are more inclined to choose companies that understand their needs. A personalized customer experience can distinguish between a good and a mediocre product.
Think of how TikTok and Instagram seem always to know what you want. These applications learn the best ways to keep you engaged, making it hard to put your phone down.
These applications use a technique called user segmentation. It creates different segments of users based on specific attributes like behavior, preferences, and demographics.
Your experience is tailored based on your segments, making the content more relevant and engaging.
Today, more companies are using user segmentation to perform targeted marketing. However, customers interact with businesses across multiple channels and devices, producing highly fragmented data.
As a result, creating accurate and meaningful segments can become time-consuming and inefficient.
Customer Data Platform
A Customer Data Platform (CDP) ingests fragmented data from multiple sources, standardizes it, and stores it in a centralized location.
A CDP provides user-friendly interfaces to query data without technical knowledge. You don't need complex SQL queries or advanced Excel functions to extract insights.
At its core, a CDP has 5 components.
Data Ingestion
Data ingestion involves pipelines to ingest data from multiple sources to the CDP. Typically, there are two types of data updates: batch and real-time.
Batch updates periodically reload data. They take snapshots of the data source and update the CDP. This method is ideal for data that doesn’t change frequently, such as gender or age.
Conversely, real-time updates respond immediately to external events. This method is best suited for data that requires immediate changes, such as page clicks.
Data Transformation
Data must be cleaned and processed into a standardized format for it to be presentable. To achieve this, we introduce the concept of tags.
A tag is an attribute assigned to an entity. For example, “Gender” and “Age” can be considered tags for a user.
John is a Male and his Age is 20.
Tags can have different data types. For example, “Age” is numeric, while “Gender” consists of a sequence of characters.
You can create and manage multiple tags according to your business requirements and data sources. The ingested data are mapped and transformed to the corresponding tags.
Data Activation
Data activation is the process of unlocking data, extracting insights, and translating them into actionable steps for your users.
Without a CDP, marketers had to segment users using fragmented data, leading to inefficiencies and less effective targeting. With a CDP, they can build segments using tags in a centralized location.
A segment is a set of criteria constructed with tags and logical operators, like AND and OR. For example, you can create a segment of users with more than 5-page clicks who are either male or over 20.
A segment can be used in two ways.
First, you can personalize your website or application to display different content or experiences based on whether a user belongs to a specific segment.
Second, you can send targeted marketing messages, such as emails or app push notifications, to users in a segment.
Users interact according to their segments and generate more data points into the CDP's data ingestion pipeline. Over time, this allows the CDP to accurately capture user behaviors and patterns, creating unified user profiles that provide valuable insights for the business.
Data Governance
A CDP is only as good as the quality of its data. We should ensure that the data in a CDP is updated promptly with minimal data loss.
A Service-Level Agreement (SLA) is an agreement between a service provider and a customer. In the case of a CDP, it is important to agree on the maximum time required to keep data consistent.
In the case of real-time data updates, how close is it to real-time? Are we talking minutes or even seconds?
On the other hand, how frequently do batch data updates occur? For daily updates, when can we expect to see these updates reflected?
Updates aside, we should also agree on a recovery time in case of database crashes or data loss. How quickly can we recover if a million data points are lost?
When an SLA is breached, the CDP maintainer should inform stakeholders and assess the impact. A post-mortem report should then detail the incident, identify areas for improvement, and outline necessary follow-up actions.
Data Privacy
Lastly, data privacy is crucial in a CDP, as it may ingest and process sensitive customer data.
A CDP must implement robust user authentication and authorization measures to safeguard data from unauthorized access. Strategies like multi-factor authentication (MFA) and fine-grained access controls can block malicious access and ensure accountability.
Next, a CDP can encrypt or hash sensitive data. In the event of a data breach, the encrypted or hashed information remains indecipherable, rendering it useless to attackers.
In this article, I've discussed data privacy in CDPs more extensively.
Conclusion
In essence, a CDP is the cornerstone of a data-driven ecosystem.
Firstly, it provides a unified, user-friendly interface for extracting actionable insights. Secondly, it enables targeted customer engagement by delivering personalized content and experiences.
Finally, a CDP ensures alignment across all teams by providing a consistent dataset, fostering accountability, and enhancing cross-team communications.
🫵🏻 If you’re interested in leveraging a CDP to enhance your data ecosystem, feel free to reach out to discuss tailored solutions for your use cases.
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