The rapid shift to digital channels during COVID-19 grabbed headlines through out 2020. But for marketers, it was only one change among many in an eventful year.
Google Chrome joined Safari and Mozilla in announcing it would end support for third-party cookies, eliminating a tool marketers had long relied on to accurately attribute ad spend and market. The passage of the California Privacy Rights Act (CPRA) in November left them with more data privacy rules to address. And marketers were expected to handle all of these changes with budgets that had been reduced due to a sudden economic recession.
To understand how marketers have responded to these changes and what that means for the future of CDPs in 2021, through surveys of 300 U.S. marketers in the travel, hospitality, finance, retail and healthcare industries in November 2020
Research found that CDPs have been vital to marketers’ efforts to address the many challenges of 2020. These experiences have solidified the CDP’s position in the center of organizations’ marketing stacks and increased marketers’ confidence that the technology is here to stay. In our 2021 report, 68% of respondents said CDPs will remain a must-have technology in 2025, compared to only 57% in 2020.
The pandemic shifted marketers’ priorities
All of the organizations in our survey (100%) saw at least some
marketing budget cuts due to COVID-19, and 41% saw cuts over 20%. Though the pandemic made organizations more reliant on digital channels for reaching their customers, most marketers couldn’t afford to invest in new tech solutions. More than three-quarters (77%) of organizations cut tech initiatives in 2020 due to COVID-19.
At the same time as budget cuts were forcing them to do more with less, marketers shifted their priorities to address new challenges caused by the pandemic. For marketers without a developed first-party data strategy, the demise of third-party cookies made it harder to manage ad spend across digital channels. Tighter budgets made customer acquisition and retention more difficult. And finally, the restriction or elimination of in- person experiences put incredible pressure on marketers to offer a unified customer experience across channels — particularly digital ones.
Results suggest that marketers are using their CDPs to address
these challenges head-on. For example, in 2020 report, respondents focused on various forms of real-time functionality as the most useful capabilities of a CDP. Now, the emphasis has shifted to managing data across multiple channels and resolving customer identity — which are important for delivering seamless digital experiences in a post-cookie world.
2021 may see a rise in CDP investment
Despite the drop in tech investment overall, there wasn’t a drop-off
in CDP investment during COVID-19 — likely because CDPs are so important for addressing marketers’ pandemic-related concerns. Eighty-nine percent of marketers we surveyed had a CDP, and nearly a tenth (9%) had adopted a CDP since the beginning of the pandemic in March 2020.
Key takeaway
Marketers understand that CDPs are key to unlocking the full potential of first-party data. The right CDP will anchor a robust customer data supply chain that frees your organization from excessive reliance on third-party data. It will also enable accurate attribution of ad spend and market, enabling more effective ad spend management. Finally, a CDP will support a unified customer experience across channels, built on first-party data acquired with customers’ consent.
Recommendation
With third-party cookie loss, a first-party data strategy is no longer optional. As tech spending rebounds in 2021, look to invest in a CDP that is equipped to meet the challenge of third-party cookie loss, while also supporting better customer experiences.
State of the CDP 2021
In 2021, marketers will make up for lost time by increasing their tech investments. Eighty-nine percent of organizations will spend more on tech in 2021 than they did in 2020, and almost one-third (32%) will spend significantly more. Perhaps because they were hit harder by the pandemic, travel and hospitality marketers were most likely to say they’ll spend significantly more. The big question: Where will marketers allocate these funds in 2021?
The importance of integrations
As first-party data becomes more central to marketing strategy, CDPs are becoming more central to martech stacks, too. That means they need to integrate with more solutions across the organization — and they need to do so easily and quickly.
As a result, marketers are demanding more from their CDPs. Integration with more third-party solutions shot up from the No. 4 improvement marketers want in their CDPs in 2020 to No. 1 in the 2021.
Unfortunately, many marketers feel their existing solutions aren’t delivering. Almost two-thirds (62%) of respondents said it’s difficult to integrate new third-party solutions into their martech stacks. And 63% said they have struggled to achieve marketing goals due to the difficulty of integration since March 2020.
A barrier to cross-compatibility
When it comes to more and faster third-party integrations, one major barrier stands in marketers’ way. A majority (53%) of marketers strongly agreed that their martech stacks are walled gardens — meaning they consist mostly of solutions from one vendor that are designed to work together. Products that are part of a walled garden will almost always have limited cross-compatibility with third-party solutions.
It’s no surprise that many marketers are actively seeking new solutions that won’t limit their options: Seventy percent said they’ve discussed adapting their martech stack to incorporate third-party solutions more easily
Key takeaway
With marketers under pressure to do more with less, speed and efficiency are at a premium. Marketers need to be able to integrate new solutions into their martech stacks fast. Unfortunately, tools that are part of walled gardens — including some CDPs — can’t deliver the fast, seamless integrations marketers need.
Recommendation
It’s time for marketers to break out of their walled gardens. Look for a vendor-neutral CDP that will integrate quickly and easily into your existing martech stack, and also work with any new solutions you add to the stack later. By building the stack you want based on your organization’s particular needs — not the options available from one particular vendor — you’ll take the first step toward unlocking the full power of your customer data.
The changing privacy landscape
Data privacy regulations continued to evolve rapidly during the COVID-19 pandemic. Some organizations are still getting up to speed with the California Consumer Privacy Act (CCPA), which went into effect on January 1, 2020, just months before the pandemic hit and derailed marketing budgets. Now they must also address CPRA, which passed
in November 2020 and amends and expands CCPA.
Marketers realize that managing these new regulations — on top of existing data privacy rules like HIPAA — requires the use of sophisticated tech solutions. Data privacy protection was the top outcome marketers are looking to drive with technology in 2021.
A powerful tool for ensuring privacy
CDPs are uniquely suited to meet marketers’ need for greater control over customer data. For example, by enabling the management of data flows based on geography, CDPs support compliance with data privacy rules
for different states and countries. Powerful encryption and data recovery capabilities secure sensitive information against breaches and cyberattacks. And these are only some of the ways CDPs help keep customer data safe.
It’s likely that marketers will rely even more heavily on CDPs for data privacy controls in the future. Marketers who have CDPs agree that data privacy is the most important area for the technology to address, narrowly edging out predictive insights and customer acquisition.
It’s likely that marketers will rely even more heavily on CDPs for data privacy controls in the future. Marketers who have CDPs agree that data privacy is the most important area for the technology to address, narrowly edging out predictive insights and customer acquisition.
AI is key to 2021 marketing strategies
The pandemic has made delivering great digital customer experiences
— and doing so efficiently, at low cost — more important than ever. To
keep up with the competition, marketers must predict customer behavior and take proactive action to drive the outcomes they want. And that means effectively deploying AI and machine learning to generate predictive insights. Fifty-nine percent of respondents say AI capabilities are extremely important for achieving their marketing priorities for 2021, and 99% say they’re at least somewhat important.
Closing the AI expertise gap
CDPs are the foundation of AI and machine learning capabilities because they help ensure the data that is collected is complete and accurate, which is critical for AI and machine learning to be effective. Marketers already understand this: Customer analytics and predictive insights is the second most important solution area they want CDPs to address. Many marketers are already seeing AI success.
A majority (62%) say their organizations are very effective at deploying AI for predictive marketing insights.
However, gathering the right data to feed AI and machine learning algorithms isn’t trivial. And while marketers are mostly confident about their ability to build the data foundations necessary to deploy AI, not all feel like they have the right expertise. Among respondents who say their organizations aren’t very effective at deploying AI for predictive marketing insights, the top reasons are lack of expertise among marketers (30%) and IT (29%). It’s likely building the data skills and capabilities necessary to support machine learning and AI will be a major focus for marketers in 2021.
Key takeaway
AI will be an important growth area in 2021, as many marketers are still learning the ropes. The right CDP will help you close the expertise gap both by ensuring you collect the right set of complete, unified customer data and by offering built-in predictive capabilities that are easy for non-data-scientists to use.
Recommendation
Without the right customer data, no algorithm can deliver results. Look for a CDP that will help you build a strong data foundation for AI and machine learning by collecting and orchestrating the right datasets for your business. Adopting a CDP with easy-to- use, marketer-friendly data and machine learning capabilities will help you make smarter marketing choices and drive overall success in 2021.
However, gathering the right data to feed AI and machine learning algorithms isn’t trivial. And while marketers are mostly confident about their ability to build the data foundations necessary to deploy AI, not all
feel like they have the right expertise. Among respondents who say their organizations aren’t very effective at deploying AI for predictive marketing insights, the top reasons are lack of expertise among marketers (30%) and IT (29%). It’s likely building the data skills and capabilities necessary to support machine learning and AI will be a major focus for marketers in 2021.
“Customer analytics and predictive insights is the second most important solution area [marketers] want CDPs to address.”
The elusive revenue connection
In 2020, CDPs became more integral to marketing operations and data teams, addressing more use cases, incorporating more data and linking
to more third-party tools across organizations. This has made it even more difficult to quantify CDP ROI, since impact is diffused across so many solution areas. It’s no surprise, for example, that organizations still struggle to quantify CDPs’ impact on revenue: Just 7% of organizations measure CDP ROI based on revenue, the same percentage as in the 2020 report.
In the 2020 report, respondents cited data quality as their top way to measure CDP ROI, which isn’t ideal. Data quality is important, but hard numbers about monetary impact are key for securing leadership buy-in. The 2021 data shows that marketers have made some progress tying CDPs to operational savings, which is now the No. 1 way to measure CDP ROI, up from No. 2 in 2020.
Time to value is a major differentiator
Perhaps due to the increasing sophistication of ROI measurement, or the difficulty of integrating CDPs with the martech stack, average time to value for CDPs has increased. In the 2020 report, more than half (53%) of companies saw ROI from their CDP in six months or less. But in the 2021 report, less than one-third (30%) of companies did so.
A majority (57%) of marketers expect to see ROI from martech solutions within six months or less. That means only some CDPs are meeting marketers’ expectations for time-to-value — the rest are lagging behind, possibly due to slow integrations.
The CDP of the future
CDPs are a relatively new technology, and marketers are still working out which use cases make the most sense for them. But in 2020, marketers made significant progress toward more effectively integrating CDPs into their marketing operations.
CDPs were central to solving the biggest challenges of 2020, including budget cuts, new data privacy legislation and a sudden shift to digital channels due to the COVID-19 pandemic. The prospect of third-party cookie loss in particular brought CDPs to the fore: A first-party data strategy anchored by a CDP used to be “nice to have” — in 2020, it became absolutely vital for marketing success.
In 2021 and beyond, CDPs will be increasingly foundational to the martech stack. They’ll adapt flexibly to new regulations, continue to underpin customer acquisition and retention strategies and enable powerful AI and machine learning capabilities. To set themselves up for success, marketers should look for CDPs that:
- Are vendor-neutral: Faster, easier integration will speed time to value and increase overall ROI.
- Offer predictive insights: User-friendly AI capabilities will empower marketers to deliver standout customer experiences.
- Protect data privacy: Capabilities like data encryption and consent management keep organizations compliant with regulations like CPRA. After the challenges of 2020, now is the time for marketers to plan strategically for the future by investing in tech. Equipped with the right CDP, marketers can make 2021 a record-breaking year for their businesses.
- Marketers struggle to fully leverage integrated customer data, which has driven hype around the opportunity of customer data platforms. Tempered expectations of the effective scope of customer data platform (CDP) use cases are pushing this market toward the Trough of Disillusionment on Gartner’s Hype Cycle for digital marketing and advertising.
- ■Effective use cases for customer data platforms often depend on or overlap with capabilities in IT systems such as master data management, which contain customer data but are typically managed outside of marketing.
- ■Although the diverse vendor ecosystem is composed of vendors with rapidly evolving capabilities, pure-play CDP vendors compete against those with legacies in either technical data management or marketing, such as multichannel marketing hubs. Vendors frequently add new features and capabilities, but buyers struggle with a single CDP label used by vendors to cover the entire spectrum of use cases when most only excel at a subset of these.
- ■Most CDP vendors originated as solutions for B2C use cases, and only a handful of solutions support the account-level aggregations and ABM tactics required for facilitating B2B marketing orchestration
How to Make a CDP Work for Your Organization
Whether you’re choosing a CDP for the first time or switching to a new CDP, don’t rush the process. Take the “crawl, walk, run” approach when considering the right Customer Data Platform and plan for the long-term. You’ll want to ensure that you choose a CDP that your organization can grow into: a scalable CDP that supports a wide range of third-party integrations, real-time capabilities and strong data governance.
Navigating the CDP landscape alone is an overwhelming process for an organization. We help you evaluate which CDP technology best aligns with your organization’s roadmap for improving the customer experience. Our Customer Data Platform (CDP) consultants work with clients to help break down data silos, ensure data quality and activate use-cases, all the while respecting increased concerns for customer privacy.
Recommendations
To best evaluate the CDP marketplace using data and analytics technology:
- ■Identify whether the majority of your use cases are operational by solving for inefficiencies in data management or data delivery, or analytical, such as growing customer spend or reducing churn.
- ■Consult with key stakeholders in your organization before deciding whether to deploy a CDP. Determine your brand’s willingness to source technology externally versus building and maintaining in-house and clearly document your needs for marketing orchestration and native execution.
- ■Conduct an inventory of existing skills in order to evaluate the marketing team’s ability to collaborate with IT and other stakeholders for data science, customer modeling, data management and execution. Select marketing solutions that complement and integrate with other enterprise systems such as data warehouses, CRM tools, or personalization engines.
- ■Evaluate the level of risk tolerance in your organization for emerging technologies by determining whether a CDP — or related technology system — is an ideal fit.
Strategic Planning Assumption
By 2023, 70% of independent CDP vendors will be acquired by larger marketing technology vendors or will diversify through M&A of their own to enter adjacent categories such as personalization, multichannel marketing, consent management, and/or MDM for customer data.
