Want to understand your customers—and keep them around? Without a customer data platform (CDP), good luck
Unlike old-school advertising, which targeted devices, modern marketing builds outreach around people. And people want to feel seen, not targeted.
Companies that excel at personalization in marketing generate 40% more revenue from related activities than average players, according to McKinsey & Company—and while 71% of consumers expect personalization from the brands they interact with, even more (76%) get frustrated when they don’t get it.
But while 78% of ecommerce executives understand personalization at scale is a must-have in marketing, 41% say they cannot execute all the personalized marketing tactics they deem important, Klaviyo research finds.
Why?
The answer lies somewhere in the massive amounts of data and information businesses create, capture, copy, and consume every year (up to 97 zettabytes in 2022, according to Statista).
Every time someone interacts with your business, from opening an email to refilling a subscription from your ecommerce store, they leave you a clue about who they are in relation to your brand—what makes them click, what makes them bounce, and what makes them buy.
A tech stack built for omnichannel experiences uses those clues, or data points, to deepen your relationships with customers and prospects by engaging them with personalized experiences that feel 1:1.
Personalization is a topic we’ve talked about in our industry for the last 7-8 years, but it’s still a pretty hard vision to achieve.
When it’s working, that kind of synchronicity improves acquisition, builds loyalty, and drives retention. But it’s impossible if your marketing efforts are based on a delayed fraction of everything your business knows about the people who interact with it.
“Personalization is a topic we’ve talked about in our industry for the last 7-8 years, but it’s still a pretty hard vision to achieve just because data is all over the place and brands don’t have a true understanding of their customers,” says Olivia Yuan, co-founder of Shopify-focused agency Tomorrow.
“Effectively, everybody has the same end goal—to create a clear picture of what their customers are doing and who their customers are,” agrees Justin Ragsdale, VP of business development and corporate strategy at full-service digital agency IM Digital. “But data is being siloed out in all of these different platforms, which creates really a muddied profile of who the customer is and what they’re doing.”
Data is being siloed out in all of these different platforms, which creates really a muddied profile of who the customer is and what they’re doing.
CDPs, Ragsdale says, “have been instrumental in evolving the way brands interact with their consumers and evolving the way we think about the customer experience.”
In other words, a CDP can usher your business into the future of online commerce—and help you build the experiences your customers are looking for.
Read on to learn what a CDP does, how it works, the main types of CDPs, and more.
What is a CDP?
A customer data platform, or CDP, is a system that collects, unifies, and stores customer data from multiple sources at scale, and makes it available for manipulation and distribution to systems of insight and engagement.
“Customer data” may include behavioral data, such as information about actions someone has taken on your website or app; transactional data, such as information about someone’s past purchases or returns; and demographic data, such as someone’s name, location, and age.
“Systems of insight” may include tech like your customer relationship management (CRM) platform, ecommerce platform, and analytics solution, while “systems of engagement” may include tech like your marketing automation platform, advertising platform, and customer service solution.
A CDP is a software that’s necessary to drive a high-quality customer experience.
Depending on the CDP, these systems of insight and engagement may be native or external (bonus points when they’re native). But either way, without a CDP, these systems struggle to talk to each other fluently. A CDP ties it all together, eliminating data silos in the all-important layer of your tech stack that powers customer engagement.
Of course, that’s just the nutshell version. Although CDPs have been around for over a decade, the term still means something slightly different depending on who you’re talking to—and what type of CDP they’re talking about.
But Nick Kobayashi, group product manager at Klaviyo, puts it simply: “A CDP is a software that’s necessary to drive a high-quality customer experience.”
OK, but what does a CDP actually do?
According to the CDP Institute, a vendor-neutral organization dedicated to helping companies manage customer data, a CDP is “a packaged software that creates a persistent, unified customer database that is accessible to other systems.”
Let’s break down each of those components:
- A packaged software: A CDP is a software that’s purchased from a vendor or agency and controlled by business users, frequently in marketing.
- Unified customer database: A CDP captures data from multiple systems, both internal and external. Through a process called identity resolution, it attributes customer information to a unique profile, or single customer view, and stores this information so that a business can track customer behavior over time.
- Accessible to other systems: A CDP is not a closed system. The data in a CDP is accessible to other platforms for analysis and/or to help manage customer interactions. Think of it as a data pipeline—different types of data can flow in and out. You can access the data through APIs, database queries, and file extracts.
Essentially, a CDP collects data from a variety of sources and then merges that information into a single customer view or profile. The CDP consolidates, and de-duplicates where necessary, customer information—ideally, without an IT team intervening and doing it for you.
It’s about ingesting data from multiple different sources, unifying it into single customer profiles, manipulating it, and governing it, so that you can take action on it through marketing and analysis.
Marketers or other users of the CDP then use the unified customer profiles to build audience segments that serve as the foundation of a personalized marketing strategy. The data in a CDP is compliant across all marketing channels and acts as a single source of truth for marketing teams trying to personalize touchpoints across a cohesive customer journey.
Anthony DelPizzo, senior product marketing manager at Klaviyo, summarizes the work of a CDP this way: “It’s about ingesting data from multiple different sources, unifying it into single customer profiles, manipulating it, and governing it, so that you can take action on it through marketing and analysis.”
How it works: 7 core features of a CDP
Because the definition of a CDP varies from business to business, the CDP Institute assembled a list of core features all CDPs not only share, but must have in order to call themselves a CDP.
According to the CDP Institute, a software must do the following in order to qualify as a CDP:
- Accept all sources: A CDP takes in data from all sources (online and offline) and formats (structured, semi-structured, and unstructured).
- Retain all detail: A CDP stores any input data without losing details.
- Maintain persistent data: A CDP retains all ingested data for as long as a user specifies (subject to regulatory constraints).
- Unify profiles: A CDP creates unified customer profiles based on all data related to the same individual customer (subject to regulatory constraints).
- Manage PII: A CDP manages personally identifiable information (PII) such as name, address, email, and phone number in ways that comply with privacy and security regulations.
- Provide external access: A CDP gives other systems access to any data in the customer profiles via API connections, webhooks, or database queries.
- Extract segments: A CDP allows users to select customer segments and send information with specified data elements to other systems.
But it’s important to note that this is the bare minimum of CDP functionality. While these core features come together to create a solid baseline, a modern CDP should be able to do much more than this, including storing and activating data more effectively within the platform itself (more on this later).
The 3 main types of CDPs
To help orient you to the nuances of the CDP landscape, here’s an overview of the 3 main types of CDPs:
1. Data CDPs
CDPs in this category focus on either (rarely both):
- Standardizing all company data for purposes of data quality, normalization, governance, and access
- Eliminating the data headaches and limitations that traditionally accompany legacy email and marketing solutions, which tend to be restrictive in the types and volume of data they can accept
The primary purpose of a data CDP focused on the first bullet is to make it easier to collect data once, transform it as necessary, and make sure it gets wherever it needs to go. Analysis and activation focus, here, is minimal.
“These CDPs do a lot of really good things around data management, governance, quality, and normalization. As far as data in, data out, they’re best in class,” DelPizzo says—which makes them ideal for “businesses that have enterprise needs around data governance, data privacy, and really robust online and offline customer identity resolution.”
As far as data in, data out, they’re best in class.
However, “they don’t really do much on the analysis and activation side,” DelPizzo points out. “They’ll send data to other systems, but you can’t report on it as effectively, and you definitely can’t send marketing from them.”
They’re also “very complex and require a lot of IT resourcing,” DelPizzo adds.
The primary purpose of a data CDP focused on the second bullet, by contrast, is orchestration of omnichannel personalization and customer engagement via marketing automation, product or content recommendations, and more.
They tend to be expensive and complex to use, and for those that have them, their marketing channels are weak.
But although they incorporate marketing options, these data CDPs tend to be “expensive and complex to use,” DelPizzo observes, “and for those that have them, their marketing channels are weak”—which explains why so many businesses that use these types of CDPs also tend to purchase a separate, best-in-class marketing solution.
Examples of data CDPs include:
- Segment
- Tealium
- mParticle
- Simon Data
- Treasure Data
- Bloomreach
2. Marketing cloud CDPs
CDPs in this category are the result of efforts from well-established enterprise software companies to shift their integrated suite value propositions to a more open and flexible embrace of enterprise data.
The primary purpose of a marketing cloud CDP is to vertically integrate with other tools in the cloud provider’s technology ecosystem, and to gain access to enterprise-level feature sets such as robust security and governance.
But although these tools are sold in conjunction with the rest of a vendor’s products, they are often shoehorned into deals out of convenience—not because they are functionally the best option.
It’s basically equivalent to buying a CDP, marketing platform, and analytics tool from 3 separate companies.
DelPizzo points out that although many enterprise software companies make claims of seamless vertical integration across their offerings, “many of these suite tools have been piecemealed together through acquisitions, so they’re not built on the same infrastructure. They’re super complex, and they’re not actually that well integrated.”
“It’s basically equivalent to buying a CDP, marketing platform, and analytics tool from 3 separate companies,” Kobayashi agrees.
Examples of marketing cloud CDPs include:
- Adobe Real-Time CDP
- Data Cloud for Marketing by Salesforce
- Oracle Unity CDP
3. Analytics CDPs
CDPs in this category provide data management plus analytical applications, including advanced customer segmentation. Applications may also extend to machine learning, predictive modeling, revenue attribution, and journey mapping.
The primary purpose of an analytics CDP is to enable cross-functional data insights, reporting, and analysis.
Examples of analytics CDPs include:
- Lexer
- Amperity
- Amplitude
Not all CDPs are created equal
Let’s recap. A CDP is a software that:
- Pulls all customer data together into a single view of the customer.
- Resolves identities between data sources.
- Activates (or sends) data either natively or across other external systems.
But given the range of CDP types and functionalities, it’s also true that not every CDP checks all of these boxes—or checks them well.
According to a recent report from Zeta Global and Forrester Consulting, only 10% of CDP users feel their current CDP meets all their needs—and a dismal 1% believe their CDP meets their future requirements.
What’s going on, here?
Problems with traditional CDPs
First, CDPs have historically been out of reach for all but the largest enterprises—companies that have substantial financial and developmental resources to invest in implementation, maintenance, and everyday operations.
“Traditional CDPs require an entire data engineering team to manage,” Kobayashi explains. “That means any change to a new data source you need to bring in, and any new type of attribute you want to segment on, will typically require sprints to plan and implement through a data engineer, rolling it out to different teams, as well as data integrations and testing.”
Traditional CDPs require an entire data engineering team to manage.
In other words, they’re notoriously difficult to use, and they require deep technical knowledge and custom dev work that prevents marketers from acting quickly or on their own—resulting in what Kobayashi calls “a very slow, cumbersome, and expensive process.”
Second, “most traditional CDPs store data for a certain amount of time, but not forever,” DelPizzo cautions. “They’re not set up to retain data for long. After 90 days or so, they have to actually offload it somewhere else.”
Most traditional CDPs store data for a certain amount of time, but not forever.
And finally, “often, CDPs today will do a great job collecting the data, ingesting it, and unifying it. But then they fall short in terms of data analysis and activation,” DelPizzo points out.
It’s become the norm for SMBs to purchase:
- A data warehouse to store their data
- A traditional CDP to segment their audiences
- A business intelligence/analytics tool for reporting and analysis
- A marketing automation platform to deliver personalized customer experiences
Marketers and their IT partners, then, are forced to learn and work across multiple systems, often missing opportunities for conversion rate optimization due to inefficient workflows and data gaps across clunky connectors. “That means your CDP becomes one more thing where you have to constantly make sure all your pipes are working correctly,” Kobayashi explains.
A traditional CDP, for example, “might be able to send audiences to Facebook Ads or connect to data warehouses via an ETL/reverse-ETL pipeline, which is just basically sending bulk amounts of data, extracting it, transforming it, and then loading it to and from a data warehouse,” DelPizzo explains.
Traditional CDPs don’t do sophisticated cross-channel marketing within their own platform. They just send it elsewhere, and most don’t do reporting.
“But then they don’t really do sophisticated cross-channel marketing within their own platform,” DelPizzo points out. “They just send it elsewhere, and most don’t really do reporting.”
Similarly, with a CDP that outsources data analysis applications, you might have to “run an analysis in your analytics tool and then pipe that data back into your marketing tool, and figure out how to set up a marketing campaign using that data,” DelPizzo explains.
That “not only takes a long time—you’re also guessing if it’s the right thing to do because those insights might’ve been pulled by a separate team, or by users who have different skill sets,” DelPizzo continues. “It’s really hard to translate. Realistically, even if everything’s connected, it still takes time and education and a lot of back and forth to be able to put those insights into action.”
Realistically, even if everything’s connected, it still takes time and education and a lot of back and forth to put those insights into action.
Kobayashi sums it up this way: “With most CDPs, you’re basically getting access to a table. You still have to manage how those schemas and data models are different between those different use cases.”
Looking ahead: how CDPs are evolving
In order to be useful, particularly to SMBs, a CDP needs to provide fast access to unaggregated all-time and real-time data.
It also needs to be affordable and easy to use, and it needs to handle data collection, management, activation, and analysis all under one roof—“meaning you’re able to take action on your insights within the same place that you find them,” DelPizzo says.
In addition to data ingestion and management, DelPizzo says, a good CDP activates data for segmentation, marketing, and analysis across applications like:
- Cross-channel marketing: The CDP enables marketing automation within the CDP.
- Ads and on-site personalization: The CDP enables ad targeting, remarketing, and on-site experiences.
- Data syncing: The CDP enables sending data in real time to downstream systems.
- Reporting and analytics: The CDP enables reporting on many different types of data (cohorts, funnels, marketing channels, revenue, etc.).
To date, no CDP has combined all of those functions well or even adequately, experts agree.
Enter: the CDP that spans multiple categories—and therefore offers the best of all worlds.
Klaviyo CDP: the first CDP built for businesses of all sizes
Any CDP can, in theory, help you make sense of your customer data and use it to inform personalized, omnichannel marketing.
But to truly shorten the distance between data, insight, and action, you need a user-friendly CDP like Klaviyo CDP—a vertically integrated CDP that simplifies your tech stack and empowers you to more effectively manage and activate your data.
As a best-in-class marketing automation platform, Klaviyo already ingests data from a variety of sources (with hundreds of pre-built integrations), stores that data in a highly actionable way, and reveals how owned marketing channels are performing through various reporting tools.
But as the first CDP built for businesses of all sizes, Klaviyo CDP goes even further, providing marketer-accessible tools for unifying and transforming data, running more advanced reporting, and syncing data in Klaviyo with other systems—at scale.
Here are 3 key differentiators that make Klaviyo CDP stand out from other CDPs on the market:
- It shortens time to value. Klaviyo CDP:
- Is built for businesses of all sizes, not just large enterprises
- Is user-friendly and accessible to marketers of all technical skills
- Requires minimal additional set-up
- It lowers total cost of ownership. Klaviyo CDP offers:
- Best-in-class vertical integration
- Unique ability to store unaggregated, lifetime event data for every customer
- Built-in native data analysis, ingestion, syncing, and manipulation
- Lower software spend, fewer development hours, and less ongoing maintenance
- It provides fast access to unaggregated all-time and real-time data. That means:
- Granular visibility into your brand’s lifetime of data, from real-time browsing behavior to transaction behavior from years ago
- More advanced analysis and complex personalized marketing at scale
- Higher customer lifetime value (CLTV) and retention rates
- Lower acquisition costs
Because Klaviyo’s core platform is built on top of powerful data infrastructure that centralizes customer data and makes it robustly actionable for highly targeted marketing, Klaviyo CDP enables you to do more, more effectively, with the data you already have in your marketing technology stack.
Want to go beyond CDP basics? We cover everything you need to know to make sure you start from a place of value and end with loyal, lifelong customer relationships in this CDP marketing series. Check out:
- CDP benefits
- CDP marketing use cases
- The best CDP software for your business
- Klaviyo CDP case studies
Customer data platform FAQs
What are the key challenges associated with using a CDP?
The most common CDP challenges include inability to scale, slow time to value, high operational overhead, usage difficulty, and lack of analytics or activation capabilities. When selecting a CDP for your business, pay particular attention to how the vendor addresses all of the above.
Is a CDP suitable for an SMB?
The short answer: Historically, no. Now, absolutely.
The long answer: Historically, CDPs were designed for enterprise businesses with substantial financial and developmental resources to invest in implementation, maintenance, and everyday operations—leaving SMBs with unmet needs around data storage, unification, and activation. But now, with a user-friendly CDP like Klaviyo CDP, SMBs can now flexibly ingest, store, and centralize high volumes of data for real-time marketing and advanced analysis—without predefined schemas, custom development, or data scientists.
How does a CDP work?
A CDP works by pulling customer data from multiple sources together into a single customer view, resolving identities between sources, and activating (or sending) data either natively or across other external systems.