Customer data is so transformational, it's no longer an option for modern marketing teams to ignore it. Companies that collect and use customer data effectively achieve, among other things, higher conversions, better retention, greater customer loyalty, and a customized customer experience.

Despite this, many marketing teams have kicked the customer data can down the proverbial road. The deferral is understandable, given how overwhelming and complicated the spiderweb of customer data can feel. Managing and leveraging customer data well requires a comprehensive strategy, a solid technical infrastructure, as well as the selection and utilization of best-in-breed marketing technologies and tools.

Without question, one of these most essential marketing automation tools is a CDP. In this installation of MarTech Oversimplified, we tell you everything you need to know about CDPs in general, and composable CDPs in particular. Together, we'll explore your CDP options, and begin to recommend a solution based on your specific use case. 

What is a Customer Data Platform?

Before we dive into their composable counterparts, let's first talk about what a customer data platform or CDP is. Simply put, Customer Data Platforms are all-in-one platforms which combine data from various touchpoints to create a central customer database, based on the interactions a customer has had with your product or service. The CDP will then collate these data points into a singular simple, yet robust customer profile that can be used to construct more personalized cross-channel marketing strategies. In short, CDPs are a marketing tool that allow companies to better manage and organize their customer data and achieve their customer-facing objectives.

 CDPs often work with first-party data, across a range of data types, including (but not exclusive to):

• Events: these are actions that a user has taken—whether it be on your website, in an app, or on another one of your platforms
• Customer information: this can be any data that you may have about your customers, including names, contact information, etc.
• Predictive data: Some CDPs can be used to store predictions made with machine-learning, such as how likely a customer is to purchase
• Transaction history: CDPs regularly store transaction data, such as purchases, returns, or any other e-commerce information you have available
• Campaign metrics: these can be impressions, reach and engagement, along with any other campaign metrics you might have

Why do businesses use CDPs?

CDPs bring numerous advantages to a business, by providing a a unified view of the customer, across whatever platforms the customer may use to interact with your business.

Unified Customer Database

One of the defining traits of a CDP is its ability to provide a business with a consolidated 360 view of its consumers. This is done through the integration of customer data from various channels such as websites, mobile apps, CRM systems, and marketing automation tools. In doing so, the CDP provides you with a single source of truth about your customers that you can use to guide your business decisions.

Personalized Customer Experiences

One of the best ways to show your customers that you care is by personalizing their experiences with your company. Through data collection and analysis, businesses can create detailed audience segments, allowing for advanced personalization—the process of using data to craft tailored marketing experiences for individual customers. This could manifest in targeted marketing campaigns, product recommendations, and even customer service experiences. At the end of the day, this will result in an increase in customer loyalty and satisfaction.

Data-driven Insights

Collating all your data in one place isn't just convenient for organizational purposes, but also provides you with a plethora of information that you can use to make smart and strategic business decisions. Strategies backed by data have proven to be more successful. Organizations that use data and analytics to inform their decision-making are 23 times more likely to acquire customers, 6 times as likely to retain customers, and 19 times as likely to be profitable as organizations that don't, according to a study by McKinsey. A CDP gives you a comprehensive overview of your customer, which means better insight and analytics across the whole customer journey.

Avoid Data Siloes

A CDP also helps businesses minimize data siloes. It unifies your customer data in one location, accessible by all departments and across all business teams. Marketing teams, sales teams, customer service departments, finance & operations; all can benefit by having access to customer data across the whole customer journey.

How are CDPs different from data warehouses?

While both data warehouses and CDPs are used to manage and store consumer data, they have their differences. Data warehouses focus on transforming data from various sources in a consolidated view for the purpose of long-term storage and data analysis. CDPs, on the other hand, put focus on real-time views of customer experiences, often with the aim to enhance personalization and engagement strategies.

You can think of a data warehouse as your memories stored in your brain. You have lots of memories, they can be stored and organized in many different ways, and you can access them at various points in time. Using that same metaphor, a CDP can be thought of as the cortex; it's where the data gets processed in real-time, to make decisions.

The two are not mutually exclusive, and can often work together—bringing us to Composable CDPs.

What is a Composable CDP?

Composable CDPs are a customer data management approach that is gaining traction in the marketing world. But what exactly is a composable CDP?

A composable approach is one that combines or ‘composes’ isolated components into a custom system configured for specific business needs. This means that composable systems take a modular approach to building a customer data architecture. Composable CDPs are defined by their flexibility, scalability and their ability to formulate personalized marketing experiences.

A composable CDP typically has these key components:

1. Data Collection: As the name suggests, this component collects data from various channels such as websites, mobile applications and more.
2. Data Storage: This component keeps customer data in a centralized location, such as a data lake or data warehouse.
3. Data Management: This component manages consumer data, such as removing duplicates, and cleaning up data to ensure that it is accurate and consistent.
4. Data Processing: This component interprets customer data through the use of algorithms and models to gain insights and enhance personalization.
5. Data Activation: This component is responsible for activating customer data, such as using it to drive personalized marketing experiences across multiple touchpoints and channels.

Moving Away From Traditional CDPs

But why use a composable CDP instead of a traditional integrated one?

One of the biggest differences between composable CDPs and traditional ones is flexibility. As mentioned above, composable CDPs are designed to be modular. Their components can easily be added or removed. This means that it can be easily adapted to an individual company’s needs.

Traditional CDPs are almost always monolithic systems, meaning that they are tightly integrated structures which are not easy to modify or customize. Making changes in systems like these often require changes to other components as well, making updates and maintenance more of a hassle. This isn't necessarily a bad thing if your company wants a simple user-friendly solution to managing your customer data. However, it is something to keep in mind, since making changes to a traditional CDP can be time-consuming and costly. You can read more about monoliths here.

Using traditional CDPs can result in higher chances of a company’s risk of vendor lock-in. Due to its monolithic nature, wanting to switch to a different vendor may be costly and result in significant data migration efforts. On the other hand, the flexibility of composable CDPs allows companies to switch vendors or integrate with other systems with ease.

Benefits of the Composable CDP vs Traditional CDPs

Future-proof Design

Customer demands are always evolving, and companies need to be able to pivot quickly to keep up. Investing in composable architecture affords companies flexibility and scalability. Due to their modular nature, composable CDPs make it easy for companies to adapt individual components as needed. This could manifest in growing the platform or changing certain aspects of it as required without overhauling the entire system.

No unnecessary Data Replication

Many businesses already have a data warehouse system that holds customer data. A traditional CDP replicates that data in its own database system. In contrast, a composable CDP allows you to leverage and build upon the data warehouse that you already have, only adding on the CDP functions you require. Avoiding replication also means you'll have a single source of truth for customer data. It's hard enough to build one source of truth, and you've already done it in your data warehouse; why do it again in your CDP?

Enhanced Data Security

By not having to replicate the data, but instead integrating with your existing cloud data warehouse, leveraging its data storage and processing capabilities, Composable CDPs increase security and lower privacy risk. Your customer data remains in your data warehouse, fully within your control and governance. This is in contrast with having to collect and store customer data in a separate—and often proprietary—external system as a traditional CDP system would require.

When a Traditional CDP might be better

As with all technologies, there's no one-size-fits-all solution. There are benefits to composable CDPs, but that doesn't mean that they are the best solution in every single use case. In making your decision, you should consider the specific situation at your company. Ask yourself, do you already have a data warehouse with customer data in place, or will you have to build it out from scratch? In answering this question, also take into account your team's capabilities. If your company has limited resources, and your team does not have data engineering skills, an integrated CDP vendor might be able to help you more effectively optimize the entire CDP process from start to finish.

Composable CDPs are the future

With that being said, all signs point towards composable CDPs being the future. The flexibility and scalability they provide are huge benefits, and as more companies get familiar with data systems and build their own data warehouses, composable CDPs will become even more beneficial.

We're here to help you with your Customer Data Platform

We hope you learned a thing or two from this chapter of MarTech Oversimplified, a series we are developing to demystify the complex and evolving world of Marketing Technology. Here at Product Pair, a MarTech and data solutions agency, we are strong proponents of leveraging data to unlock marketing value and empowering you to do the same.

CDP's are our specialty, so please don't hesitate to reach out and schedule a free consultation with our CEO. We'll explore your use case and come up with a plan of action, whether that entails a composable or traditional CDP solution. If resources are a constraint, we can also help you staff a team of customer data experts to execute on the strategy. We look forward to a partnership that will help elevate your marketing organization and accelerate your growth.