The death of the internet cookie has been a long-talked-about inevitability. While Google said earlier this year that it will delay a plan to phase out third-party cookies on its Chrome browser until 2024, the changes will come eventually. The move, which will upend how ads are targeted on websites, has many debating about the future of digital advertising. Savvy marketers, however, are shifting their focus to first-party data and zero-party data.
I spoke with Ed Hallen, co-founder and CPO of Klaviyo – a unified customer platform that provides data-driven marketing tools for e-commerce businesses – on the importance of ethical data collection and how brands can leverage these practices to reach customers during the busy holiday shopping season.
Gary Drenik: Why should data collection methods matter to brands and consumers?
Ed Hallen: The way brands will be able to use third-party data—or the information you collect on users through an indirect relationship—is fundamentally changing, and it all comes down to the cookie. While these tiny pixels started as a way for advertisers to track consumers and provide more personalized content, cookies can now seem ‘creepy’ as consumers become increasingly concerned about how much of their private information is publicly available.
According to a recent Prosper Insights & Analytics survey, nearly 63% of consumers are worried about their data privacy when shopping online. Unfortunately, all the ambiguity surrounding how advertisers collect data has made consumers distrust the process, so brands must be transparent when it comes to data collection practices and remain mindful of this when developing their marketing strategies.
Drenik: How does Klaviyo use data to support its customers while protecting consumers’ privacy?
Hallen: At Klaviyo, we’re committed to our Customer-First Data Model, which is data sourced directly from a customer or prospective customer. Customer-First Data combines zero-party data (information that someone proactively shares, like their email address, phone number, or birthday) with first-party data (information observed by a brand about someone on their owned properties, like what products they clicked on that brand’s website).
Allowing our customers access to this data gives business owners the insights they need to build more intimate relationships with their customers, leading to a better user experience, increased brand loyalty, and, ultimately, more revenue. Klaviyo offers a comprehensive database and data engine that provide infinite consumer insights for our customers to leverage, including tools to predict future customer behavior more accurately.
Drenik: Why has customer data collection become so difficult, and how can business owners combat those challenges?
Hallen: Consumers are (understandably) becoming more cautious and selective about the information they’re willing to share with brands. According to a recent Prosper Insights & Analytics survey over 44% of Adults 18+ have denied permission for mobile apps to track their activity, and 33% have turned on their private browsing to protect their digital privacy.
The most important thing business owners can do to combat these challenges is to build trust among their customer bases.
Drenik: What are the differences between first and third-party data? Where do cookies fit into this?
Hallen: First-party data is information a customer willingly shares with a brand. That brand owns this data – it is the most reliable to a business because you know exactly where the information comes from. Third-party data is information stitched together from various sources, and it’s often shared or sold by big-tech companies, advertising platforms, and other marketplaces.
Essentially, zero- and first-party data are consent-driven while third-party data is not explicitly opted-in to, and the same holds true for cookies. First-party cookies are made by the website you’re visiting and are most commonly used to enhance your experience on that specific site. For example, these cookies are why you don’t have to sign in every time you visit a site. Third-party cookies are those made by someone other than the website you’re visiting. Again, these cookies are used to enhance a particular experience you’re having on a website, like an advertisement (e.g., when you click on an ad, and then you see that ad on the next couple of sites you go to).
Drenik: As Black Friday and Cyber Monday quickly approach, how can brands leverage first-party data to reach their customers successfully?
Hallen: Due to an uncertain economy, our recent Consumer Holiday Spending Report demonstrated that spending habits are changing during the most significant e-commerce period of the year. Only 2% of respondents to our survey say inflation will not have a substantial impact on their spending plans—which means that by Black Friday Cyber Monday 2022, inflation will impact how more than 90% of consumers spend their money. That said, hope isn’t lost for retailers. According to the research, consumers still plan to spend a lot over the holidays but targeting the right audiences will be crucial to brands’ success.
Different demographics are choosing their discretionary spending more carefully, making ends meet by increasing budgets for some categories and decreasing them for others. That means brands from e-commerce businesses to brick-and-mortar stores have space to increase e-commerce sales this holiday season as long as they can get smarter about who they’re targeting with which product categories.
By leveraging first-party data, brands have visibility into who their customers are and have an opportunity to understand their needs better.
Drenik: What should marketers be prepared for in 2023?
Hallen: Economists forecast that 2023 will be another turbulent year for businesses and consumers alike, and retailers will face challenges like continuous increases in cost of living expenses and an overall decrease in discretionary spending. Building customer loyalty and retention will be key to driving success in the year ahead.
Drenik: Thanks, Ed, for your insights on how Klaviyo uses data to support its customers while protecting consumers’ privacy, how business owners can combat data challenges, and breaking down differences between first and third-party data.