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Interview

Zero-party data: What is it and how can loyalty programs help you collect it?

An interview with Scott Harrison, Strategy Consultant at
Loyalty & Reward Co.

The landscape of marketing technology is constantly changing, and marketers need to pay attention to every change and new regulation. Not so long ago, the General Data Protection Regulation (GDPR) remodeled the data privacy security law requirements and forced European companies to change their policies. Now, another huge change is coming.
In the last year, the coronavirus outbreak shook the global economy and completely transformed shopping behaviors. In our report on Loyalty Trends 2021/2022, research confirmed that there’s another huge change coming to the market. Many loyalty experts believe that with third-party data being phased out, loyalty programs will become the key for collecting zero-party data.

Removal of third-party cookies will be a real revolution for online marketing because they’ve fueled digital advertising since the beginning of the internet. Brands and marketers need to find a way to handle it. One of the most straightforward ways is by collecting zero-party data with loyalty programs. We asked Scott Harrison, Strategy Consultant at Loyalty & Reward Co., to explain changes in the technology behind cookies and how to use the zero-party data in the cookieless economy.

What’s the difference between zero, first, second, and third-party data?

Zero-party data

Zero-party data is defined as the data a customer intentionally shares with a brand. The key difference between zero-party data and first, second, and third-party data is that the customer willingly shares their detailed personal information and purchase intentions. This is done with the anticipation of receiving a better and more relevant customer experience. All in all, zero-party data provides a greater personal context as to why a customer is engaging with a brand. 
An example of zero-party data is a communication preference center that allows a customer to choose how they are marketed to. A properly structured preference center, and strategy, can help a brand to better segment customers, personalize the experience, and ultimately build a more meaningful relationship. 

First-party data

First-party data can be collected directly via standard customer interactions within a brand’s own channels. For example, a running shoe brand will receive the personal and transactional details, like name, email, mobile, and purchase history, of a customer purchasing a pair of shoes at an online or in-store point-of-sale. 

Second-party data

Second-party data is any data, usually first-party, which has been acquired from another brand or trusted partner that will typically result in a mutually beneficial outcome. Brands may also purchase second-party data through data brokers. Using the example above, the running shoe brand may reach out to a non-competing partner, for example an athletic wear brand or online fitness blog, to share information, such as website or store activity, social media profiles, or results from customer research and surveys.

Third-party data 

Third-party data is any information acquired from external sources, usually via a data aggregator, like Acxiom, Nielsen, or OnAudience. This aggregated data may be a combination of demographic data, like income, age, or education, and psychographic data, such as likes, interests, or values, and other behaviors, such as website activity. The most commonly recognized example of third-party data is cookies. One major concern for third-party datasets is accuracy and reliability because it’s combined from different data sources.

Why are the third-party cookies going away and how will the death of 3rd party cookies reshape marketing strategies?

Third-party cookies have been a cornerstone for tracking consumer behavior for decades. However, the industry shift has required big tech companies to rethink how they handle consumer data. Apple and Firefox phased out third-party cookies years ago in their respective browsers. Google has committed to phasing out support by 2023. Once this happens, the entire digital advertising industry will dramatically change.

The death of third-party cookies is driven by the privacy revolution. New laws and industry changes, such as GDPR in the European Union and the California Consumer Privacy Act (CCPA), have redefined how consumer data must be collected, managed, and used. In doing so, consumers have become a lot more savvy when it comes to understanding the value of their data. Because they understand the value of their personal data, consumers have become a lot less willing to share it. With no third-party data, brands will need to reshape their marketing strategies. These new strategies will need to focus on zero-party data. 

Why is zero-party data important? 

Zero-party data is explicit information about the customer and their purchase intentions. It comes straight from the source itself. Consumers are increasingly expecting genuinely relevant and personalized experiences, no matter what channel they choose to interact with. Zero-party data provides the insight required to deliver what customers want.

Zero-party data strategies give control back to the customer. The customer can choose what information they want to share and how much of it. Transparency about why a brand is collecting data and what they will do with it can increase the likelihood of customers sharing insightful information. 

In the current digital ad landscape, brands can infer why a customer is purchasing a product or service. However, it doesn’t tell the whole story. For example, a loyalty program member might purchase a pair of running shoes from their favorite brand. From this, the brand learns some information about them, such as name, location, shoe size, and the product purchased. The brand may then infer extra details about them, like product, style, color preference, and even certain behaviours, such as “this customer may like running.” As a result, the brand may send the member an offer for athletic clothing based on their inferred profile and the shopping behavior of similarly profiled customers. The offer might appeal to them, and it might not. The problem is that the data isn’t perfect. The brand could further analyze the data with the hope of understanding them better, but this approach can be costly and take time.

What if the brand was utilizing a zero-party data strategy? They may have implemented a quiz at sign up or introduced a game which allows the member to select their favorite shoe styles, color preferences, and lifestyle habits (maybe the member only likes runners for the aesthetic look). This data can provide a far more accurate profile of a member, enabling the brand to deliver a more meaningful experience. The member may have shared that they also like formal dress shoes. So, instead of the brand sending an irrelevant offer for athletic clothing based on the running shoes the member purchased, they might provide an offer for dress shoes. This offer will come with some relevant product recommendations to go with it. This is a far more cost-effective approach. 

Brands which commit to a zero-party data strategy with the goal of improving the customer experience will benefit in two ways. They’ll learn more and sell more. In doing so, these brands will become more valuable and trusted. Brands which neglect the shift to a customer-centric approach will be left behind.

How can companies use loyalty programs to get more zero-party data? What are the best ways to convince customers to share their data? 

A question many companies will ask themselves is, “How do we collect zero-party data?” 
A company or brand needs to recognize that data is a currency. Data-savvy consumers are beginning to understand that their data has value, and they expect to be compensated for it. This value exchange can be viewed as the basic transaction between a brand and customer. Data is shared with the expectation of a better experience. 

Loyalty programs are one of the most effective means to collect zero-party data because they formalize this value exchange. Members sign up to a brand’s loyalty program with the expectation they will access value. Brands provide this value, through rewards or other benefits, to stimulate desirable behaviors as a means to collect zero-party data. 

Loyalty programs utilize a variety of approaches to encourage the sharing of zero-party data. These include:

  • preference centers in the onboarding process or later into the lifecycle.
  • in-store experiences for loyalty program members.
  • surveys, polls, and quizzes on social media or on the program’s platform.
  • giveaways and competitions.
  • branded digital games to stimulate a desirable behavior or educate customers on the brand’s values, products, or features.
  • face-to-face conversations or customer service staff.
  • forums and communities built around the brand.

Companies need to think strategically about how they collect, use, and reward data sharing. Brand relevance needs to be a critical consideration.
The key takeaway? Zero-party data is not a zero sum game. The approach is successful when both the company and the member benefit via a true value exchange.

About Scott Harrison

Scott Harrison is a Strategy Consultant at loyalty consulting agency, Loyalty & Reward Co. He is a customer experience and digital marketing specialist with extensive experience in loyalty, customer experience, market research, and member lifecycle management. Scott co-created the book “Loyalty Programs: The Complete Guide”. It’s the most comprehensive book available on loyalty program theory and practice.

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