Three Ways Marketers Can Rescue the Business Case for First-Party Data

Q&A with Benjamin Bloom, VP Analyst, Gartner Marketing Practice

Customer data is hotter than ever, and conventional wisdom suggests that having as much customer data as possible generates incremental revenue and is essential to the marketing function’s growth.

Yet, as marketers grapple with skeptical consumers, new state-level regulations, aggressive FTC fines and enforcement actions, and nebulous deadlines from Big Tech, CMOs cannot assume a one-size-fits-all mindset for customer data collection – nor ignore the serious cost pressures it brings.

During the Gartner Marketing Symposium/Xpo 2023 conference, which is taking place in Denver this week, we spoke with Benjamin Bloom, VP Analyst in the Gartner Marketing Practice, to discuss how organizations can rethink customer data collection in light of the significant economic toll of traditional strategies.

Benjamin Bloom, VP Analyst in the Gartner Marketing Practice took the stage at the 2023 Gartner Marketing Symposium/Xpo.

Q: It’s jarring for many CMOs to hear that the business case for first-party data investments could be disappearing. What change is taking place in the market?

A: Gartner predicts that by 2025, 75% of marketing programs leveraging customer data will produce less incremental revenue than the costs to acquire, manage, and activate it.

In a Gartner survey of 324 marketers from May 2022 to June 2022, nearly all respondents stated that they planned to implement end-to-end journey orchestration within two years, which is a massive undertaking considering the average of nine channels marketers manage. From checking for consent, to personalizing offers, to analyzing customer engagement history, the coordination and integration burdens would scale faster than the business benefits, upending the easy business case that CMOs have traditionally relied on to justify accelerating personalization investments.

Q: As marketing teams consider ways to solve the customer data problem economically, what’s their path forward?

A: We see three ways for CMOs and their teams to address this challenge, and we expect that most teams will select from a mix of these three ways:

1. Leverage data partnerships and the burgeoning ecosystem of data collaboration technologies, such as data clean rooms or identity resolution. By partnering with other businesses who have collected first party data already, such as retail media networks, brands can target audiences in advertising channels with the richness of first party signals. As promising as these technologies are, beware of dependencies on data infrastructure, and privacy expertise which already plague existing data initiatives.

2. Radically descope customer data collection to contain costs: Instead of barreling forward with data collection as a universal good, and trying to fill every single one of their data and journey gaps, marketers should reduce the number of data collection points to rein in their data costs. They should focus data collection and retention on the experiences that customers find most valuable, or pursue concepts such as a digital twin of a customer to generate synthetic customer data and predict future behavior.

3. Prioritize innovations that provide more customer value – and generate more revenue – from data. Avoid the fallacy that a direct to consumer (DTC) e-commerce approach is the highest form of innovation because the high costs of customer acquisition will mitigate the profitability of these efforts.

Some innovative organizations are using course-changing experiences, which ask customers to choose between compelling alternatives in order to create productive friction that can actually improve brand connection. Another burgeoning trend is the superapp, the front end of a platform into which internal developers and third-party providers can publish microapps. They reduce the cost of customer acquisition for their own app and leverage the built-in user base and engagement from the superapp.

Q: What are some of the specific costs driving up the price of first-party data collection for marketers? Is it simply the deprecation of inexpensive identifiers like the third-party cookie?

A: Indeed, in a Gartner survey of nearly 400 marketing leaders, conducted in November and December 2022, 76% of respondents agreed that third-party cookie deprecation is “forcing us to increase our focus on first party data collection efforts.” Their expectation for success is lofty, with 82% of respondents agreeing that their organization prioritizes first-party data to create immediate value for customers.

This is but one factor driving hype around the rush to collect first-party data. Our research identified seven cost drivers behind first-party data collection efforts: 1) martech inefficiencies, 2) increasing regulatory scrutiny, 3) data replication, 4) data security, 5) scarce and expensive talent, 6) consumer hesitation to share data with brands and 7) new vendor pricing approaches.

For CMOs, the two they should be most concerned about are the consumer and vendor pricing angles.

• Consumer hesitation to share their data: Most consumers are not open to having their data tracked in exchange for personalization. Couple this with their general inability to recall a memorable and valuable digital interaction with a brand, and the bar is set even higher to create a truly valuable customer experience that overcomes consumer discomforts.

• Growing vendor prices: Marketers are already under pressure to cut martech costs. In contrast to the last several years, technology vendors themselves have come under pressure to generate margin growth. Providers are increasingly charging new fees for data consumption and storage that are causing unanticipated overages across the martech stack, which we already know is underutilized to begin with.

Marketing leaders assume that a strategy based on first-party data is a guaranteed success, but creating immediate value is a tall order considering customers can’t always tell the difference between one brands’ digital experience and the next.