How Do you Calculate The ROI of a CDP?


Customer Data Platforms (CDP) are an emerging type of marketing technology that enables organizations to both integrate customer data and activate cross-channel, customer engagement.

I’m often asked ‘What’s the ROI from Investing in a CDP?’ This is an important question as many organizations have already invested millions of dollars in marketing technologies and related support. Many of these have been very good investments while others have produced mixed results. When explaining my perspective, I channel the Eric Clapton song ‘It’s In The Way That You Use It,’ written coincidently for the movie ‘The Color of Money.’ I say this because while many technologies enable you to do one thing better, a CDP can support a range of strategies – which spreads the ROI burden.

In organizing this thinking, we’ll review three areas: (1) Enabling the Right Strategies, (2) Thinking Near-Term and Long-Term, (3) Model for Calculating Return-on-Investment.

I.  Enabling the Right Strategies

The CDP itself doesn’t generate ROI. You may only use it for one initiative or multiple initiatives, it depends on your business. But when developing both goals and strategies you should be aware of all of your options including how a Customer Data Platform can help your team. A few examples:

Advanced Segmentation: When you enhance your data in a CDP, you can leverage the data to create micro-segments on the fly and target valuable groups that you wouldn’t otherwise.

More Effective Media Buying: Why do firms invest in questionable third-party data? Because they don’t have a better option. A CDP enables you to use richer first-party data without the cost. Also can use CDP’s to suppress acquisition offers to be served to your existing customers.

Cross Channel Attribution: Attribution should be calculated with cross-channel data that is integrated at the customer level. CDP’s can enable you to transform your attribution modelling and assign true value to marketing activities across platforms.

Personalize Website & Digital Properties: Increase conversion and engagement by personalizing experiences based on rich, real-time data. The better the information, the better your ability to meet your customer’s needs.

Fuel Artificial Intelligence Initiatives: Data is the fuel for AI and Machine Learning. Even if you don’t know what these initiatives will be. Having integrated data ready will help you when you are ready to get started.

Create A New Data-Related Product/Service: Publishers are using CDP’s to launch new media offerings. You could use a CDP to enhance an existing service or launch a new one. If you have a valuable audience or hard to reach audience you may have the opportunity to sell data for a new revenue stream.

Enable Automation: Many services that are manually provided today will be automated tomorrow. Rich customer data will increase your options.

Orchestrate the Omnichannel Customer Journey: Many firms are engaging their customers more effectively by ‘Orchestrating’ experiences across platforms and touchpoints.

GDPR Strategy: A CDP can help with GDPR compliance, by helping organizations efficiently give individuals access to data when requested. But thinking beyond penalty avoidance a CDP can improve the customer experience so they don’t opt out.

There are other opportunities as well, but the point stands that it’s important to understand what you can do with a CDP and develop the right strategies for your business. You may decide to invest in a CDP to support a single strategy. However, once you have it you should consider it for other opportunities as well. For example, a digital marketing manager may purchase a CDP for site personalization, but the relationship may expand to the email marketing manager, media buyer, BI analyst, and more.

II. Think Near-Term and Long-Term

Many firms prioritize initiatives that generate results right away. However, much of the value and benefits of a CDP will be realized in the future. So how do we take both into account?

You may want to consider an approach that starts by reviewing business objectives and customer needs on a short-term and long-term basis. For near-term goals, we look for ‘quick wins’ and strategies to drive sales and lower cost per acquisition. The potential for short-term returns vary, but for many firms it is possible to recoup the CDP investment in the first 12 to 18 months.

Longer-term, we recommend envisioning how customers are likely to purchase and engage vendors in your category. For example, are there potential disruption opportunities or threats?  How can AI and automation change the game? Recognizing that most disruptors such as Facebook, Amazon, Netflix and Google leverage customer data to deliver personalized engagement, your customer data/personalization strategy will likely be critical. A CDP can be an important part of your plan. (See Exhibit A)

III. Refined Path’s ROI Model

Our base ROI model is the sum of your data asset value, performance lift, operational savings less costs. We customize this model for each client based on their situation.

The Value of Your Data Asset

Start off by recognizing your data as an asset. This may require a shift in mindset as most companies do not have formal data valuation processes. Why should you value data?  Consider when Microsoft bought LinkedIn for $26 billion. The value isn’t based on the user interface, the most valuable component was the unique database of professionals. How important is asset value? PwC estimates that in the financial sector alone, revenue from commercializing data will grow to $300 billion per year in 2018.

So how do you calculate the value of your data asset?

This is complex exercise and one that you can discuss with your finance department. The clearest business case for data valuation is the acquisition, sale, or divestiture of business units that have significant data assets. Also, many companies have valuable data but no expertise in selling it. They may have to go to outside experts to value their data. Consider the value of what you have and how the value increases by enhancing it.

Aside from the value if you sold your data asset. How critical is it to you in achieving future goals? For example:

Category Disruption:  You may have a plan to disrupt your category or fend off disruption. What are the data requirements for your plan? Can you calculate buy versus build?

AI Plan: As with ‘disruption’, understand data requirements for any plans that you have.

New Data-Driven Products: As we mentioned earlier, if you have a valuable audience, there may be new ways to monetize your integrated audience.

Even if you don’t have a solid plan in place for dealing with disruption or AI today that doesn’t mean you should hold off integrating your customer data. Building an integrated database takes time and by starting now you will have a better shape to plan and execute when you are ready.

Lift Sales & Marketing Performance

Customer Data Platforms enable you to serve your customers and prospects in more targeted and meaningful ways. Your ROI Calculation should include:

Incremental new business: CDP will enable better targeting and nurturing of prospects. They will also can alert you to important buying signals that you would otherwise miss.

Improved retention: Serve your current customers better. Understand their needs and improve response.

Upsell / Cross-sell: In addition to nurturing prospects you can enable better nurturing of existing customers. You can improve listening, to understand their evolving needs and serve appropriate offers.

Realize Operational Savings

Automated sales, marketing and service: We are likely to see sales, marketing and service automation get more sophisticated in the in the coming years. Your CDP-generated data will be a core component.

GDPR compliance: How will your company respond to consumer requests? The administrative costs alone could be prohibitive (never mind potential penalties). A CDP can play a significant role in both compliance and administration.

Media savings: With better data you can target more precisely and save dollars on wasted impressions and with better first-party data, you may invest less in weaker third-party data.

What Costs Should Be Considered?

Customer Data Platform: The most obvious is the cost for the CDP itself, both implementation and on-going maintenance.

Professional services & training: Implementing your strategy requires expertise and bandwidth. This may include new hires or partnering with a consultant or specialist agency.   With greater personalization you also may need to budget for increased content generation.

Maintenance & data enhancements: Over time you will need to continually maintain and enhance your customer data.

Summary

So, there you have it. Select the right strategies, take into account both short-term and long-term impact and then calculate your ROI. And I’ll wrap up by again citing Eric Clapton. In the film ‘The Color of Money’ he sang:

It’s in the way that you use it

It comes and it goes

So, don’t you ever abuse it

Don’t let it go

Data is all around us. Some is picked up and harnessed while much goes unused. Be thoughtful in what you collect and integrate. Also remember to use it to both serve your customers better and achieve your business goals. Protect your customer’s data and ensure they see the value in how you use it. If not, they may let you go. But activating the right data with the proper strategies will lead to happier customers and shareholders.