First-Party, Second-Party and Third-Party Data – Understanding the Differences (original) (raw)

In B2B marketing, it’s all about the data. First-party, second-party, third-party and even zero-party data is essential to nurturing leads, driving pipeline and contributing to revenue success.

Each data type has unique advantages and disadvantages, but without a solid understanding, it’s not always clear which one to use and when. To help you understand, we’re delving into the definitions of each data type, breaking down their benefits, offering example use cases, and explaining different data collection methods.

Let’s begin.

What is First-Party Data?

The data in that form would be considered first-party data. Any such data should be collected and used in line with the applicable privacy policy when the data was provided.

First-party data helps you understand who your customers are, what they care about and how they behave when interacting with your brand. It’s called “first-party” because your company is the first entity to collect the data.

Because first-party data comes straight from your customers to your business, it’s one of the purest forms of data you can collect. The insights garnered are accurate, reliable and relevant to your business.

Collection Methods for First-Party Data

First-party data can be collected through any channel that your business uses to interact with its customers. Here are some of the most common collection methods and the information that they can provide:

• Website analytics – user behavior data like pages viewed, time spent on site and button clicks.
• Customer relationship management (CRM) data – contact information, demographic or firmographic details and purchase history.
• Customer surveys – customer sentiment insights like satisfaction levels, pain points and willingness to recommend to others.
• Social media – engagement metrics including likes and shares, which indicate customer interests and preferences.

Benefits and Drawbacks of First-Party Data

First-party data is often the preferred choice for marketers and business owners, due to the following advantages:

• Accuracy – first-party data comes directly from customer interactions, which makes it the most accurate data you can gather.Reliability – when you collect the data yourself, you can be certain of its reliability.

• Detail – the breadth of data from every channel provides a comprehensive and detailed picture of your customer base.

• Scalability – first-party data can be used to drive personalization efforts, which can then be used to generate data for a fuller understanding of your audiences.

• Cost-effectiveness – collecting data from your own channels often costs nothing.

However, first-party data isn’t necessarily valuable for every scenario. One of the biggest potential drawbacks is that it only provides insights into your own customers and not the wider market. It can also be challenging to generate and costly to manage effectively.

What is Second-Party Data?

Second-party data is best described as second-hand first-party data. In simple terms, it’s data collected by one entity and used by another.

A key element of second-party data is that it’s usually shared between two businesses that have a mutually beneficial relationship. The data exchanged is normally relevant to both parties and can be used to enhance their datasets or offer additional value to customers.

For example, a computer hardware brand might share its data with a company selling anti-virus software.

Collection Methods for Second-Party Data

With second-party data, the party collecting from their customers will follow the same steps as with first-party data. From there, the second-party can collect it through one of two ways:

• Trusted partnership – most second-party data is obtained through an ongoing or short-term partnership with a trusted company. This can include referrals and co-branded research.
• One-off direct purchase – you might be able to buy data directly from another organization as a one-off purchase.

Second-party data should always be obtained and used in compliance with applicable laws and privacy policies.

Benefits and Drawbacks of Second-Party Data

As we move toward a cookieless future, second-party data is increasing in popularity as a way to supplement first-party data. Here are the key advantages it offers:

• Enhanced data sets – second-party data can help to fill in gaps in your existing data set and provide additional insights.
• New audiences to target – another organization’s data can help you identify and reach new audiences.
• Control and transparency – working with a trusted partner means you can ask for specific information to ensure the data is relevant to your needs.

But there are also some risks and limitations when working with second-party data. The disadvantages include:

• Difficulty integrating – different organizations use different ways to store and manage data, which can make integration difficult.
• Limited availability and insights – you might not be able to access the data you require and even if you can, the insights available might not meet your needs.
• Increased risk – even with a trusted partner, you cannot guarantee that the data is accurate, reliable, and has always been collected in compliance with applicable privacy policies and rules..

What is Third-Party Data?

Third-party data is data collected by businesses that are not linked to your organization. It often consists of data from various sources compiled into one package.

It’s called third-party data because at least three parties are always involved (the data collector, data aggregator, and data buyer). However, third-party data might have passed through multiple entities before it gets to you, so more than three parties are often involved.

Third-party data offers a wider view of the market and can benefit data strategies, but it can also be prone to accuracy issues and privacy concerns.

Collection Methods for Third-Party Data

Third-party data is collected using the same methods as first and second-party data. It might come from surveys, multiple websites and other sources, such as public records and resources, like data.gov.

Often, the data brokers and aggregators collecting the data will sell or license it to other businesses. This is how most people get their hands on third-party data. Alternatively, it can be sourced from data marketplaces that facilitate the exchange between aggregator and buyer.

Benefits and Drawbacks of Third-Party Data

There are both benefits and drawbacks to using third-party data. Some of the reasons why it can be advantageous include:

• Scale – third-party data provides access to a larger pool of data than any other type.
• Broad audience insights – the scope of third-party data offers insights into a broader audience than your own data can provide.
• Market understanding – the wide range of data is useful for companies expanding into new markets, and can inform predictive analytics regarding wider market trends.

But there are also the following disadvantages to consider:

• Privacy concerns – third-party data raises issues around consent from the individuals to which it relates and staying compliant with data privacy regulations.
• Limited relevancy – with no direct link to your business, third-party data might not be relevant to your needs.
• Potential data inaccuracies – the ways in which data is collected and aggregated mean it can be vulnerable to duplications and other inaccuracies.
• Lack of exclusivity – third-party data is often sold to multiple companies, which could include competitors.

What is Zero-Party Data?

Zero-party data is a new term describing data customers have intentionally and proactively shared with you. It’s similar to first-party data in that it comes directly from audiences. The key difference is that they are explicitly aware of its collection and have actively decided to share it.

Imagine that a customer heads to your website and logs into their account. They then click a box saying they prefer to be contacted by email. This is an example of zero-party data.

You might have been able to figure this information out by looking at email open rates, but you wouldn’t have known for certain. This is why zero-party data is so important – the information it provides is explicit rather than implied.

Collection Methods for Zero-Party Data

You’re probably already collecting zero-party data without realizing it. Some of the most common collection methods are:

• Customer preference centers – dedicated sections of a website or app where customers can specify their interests and communication preferences.
• Surveys – you can gather valuable information by distributing customer surveys at relevant moments.
• Direct feedback – asking customers directly whether they found an interaction useful, or what topics they would like to know more about.
• Ratings and reviews – collecting reviews or encouraging customers to rate products or experiences.

Benefits and Drawbacks of Zero-Party Data

Zero-party data is increasing in popularity due to the following benefits:

• Explicit customer consent – zero-party data is the most protected from potential further privacy regulations as it’s collected with the customer’s explicit consent.

• Highly personalized insights – rather than rely on assumptions or predictions, individual customers share their exact preferences and needs.

• Builds customer trust – transparency breeds trust, which is maybe why 58% of consumers would feel more at ease using a brand’s website that collects zero-party data.

While these benefits are compelling, there are also some drawbacks to using zero-party data:

• Lack of control – zero-party data collection depends on customers being willing to explicitly tell you their preferred interactions with your brand rather than implicit permissions found in first-party data (e.g., “Yes, I want to subscribe” versus filling out a form for access to an e-book).
• Representation challenges – some customer groups might be more willing to share than others.
• Resource intensive – Zero-party data can be difficult to collect, making it difficult to scale automated interactions from the brand to consumers.

Comparison of Data Types

Now that we’ve covered the different data types, comparing them will help us understand when each should be used.

Data Accuracy and Reliability

All businesses strive for accurate and reliable data. However, some types of data achieve this more easily than others.

First-party data and zero-party data are usually highly accurate and reliable because they come from your own customers. This means you know exactly what the data is measuring, how it was collected and which factors could influence results. You also have complete control over first- and zero-party data, making cleaning, managing and ensuring consistency easier.

Second-party data is generally accurate as it is another company’s first-party data. However, depending on the data-sharing agreement with the provider, there may be limitations on its use (for example, the length of time the data may be used).

Third-party data is the least accurate and reliable. Because it’s aggregated from multiple sources, varying data collection methods can cause inconsistencies. There’s also no direct relationship with the customer, which means results might be inaccurate.

Use Cases and Effectiveness

The unique pros and cons of each data type impact their effectiveness in different use cases:

• First-party data: effective for data-driven marketing, providing customer insights and creating personalized experiences.

• Second-party data: can fill data gaps, enhance predictive analytics and expand audience reach.

• Third-party data: useful for learning about market insights and trends, including finding new audience groups to target.

• Zero-party data: can be used to deliver highly personalized experiences and gather explicit customer feedback.

Practical Use Cases and Examples

Using First-Party Data

First-party data provides direct and ongoing insights into your customers. Because of this, it’s often used in data-driven strategies such as segmentation and personalization.

For example, let’s say that a company tracks customer interactions across various marketing platforms and then combines the data in a CRM system.

From here, they look for patterns and shared characteristics that they can use to carry out audience segmentation. Different segments are then targeted with personalized content recommendations that are relevant to their interests.

Using Second-Party Data

Second-party data can be highly valuable for filling in gaps in existing data. By partnering with another organization, you can supplement your first-party data and enhance its capabilities.

For example, imagine that an online running magazine forms a partnership with a sportswear brand. The magazine sells data about its customer demographics and interests to the sportswear brand, which can then be used to refine its targeting and content strategies.

Using Third-Party Data

Third-party data offers insights into a wider market than your existing customer base. By comparing against your own first-party data, you can recognize opportunities to broaden your audience targeting.

For example, a human resources (HR) software company could purchase third-party data providing information on hiring trends and employee turnover rates across different industries. When the company compares this against their own data, it identifies industries they are not currently targeting that can benefit from its solutions.

Using Zero-Party Data

Zero-party data is information that your customers want you to know. When you use these explicitly shared preferences to build highly personalized customer experiences, you build trust and increase engagement.

For example, let’s say a software company implements a customer preference center on its website. Customers can choose their preferred communication method and log which features they find most useful.

The company then customizes each individual’s user interface to prioritize the features they use most often. They also send targeted guides on how to use the platform effectively through the customer’s chosen channel.

Originally published on ON24 blog.