Audience Targeting
March 18, 2016

Enough of the buzzwords: What exactly is second-party data?

Although nearly one-third of senior-level marketers regard second-party data as the most effective type of data for increasing the lifetime value of customers and six in 10 want to increase second-party data usage, many marketers still haven’t fully grasped what the term means.

Although marketers’ use of first- and third-party information predates the Internet, the concept of “second-party” data has emerged more recently as new technology has made it easier for companies to share information with one another. Here’s a quick primer on what second-party data is, and how it can be useful.

In a Nutshell

One way to think of second-party data is simply as another company’s first-party data that you’ve been given permission to use in your own initiatives or marketing efforts. While third-party data is typically purchased from a data broker that has acquired it in chunks from a number of sources, second-party data comes directly from a single company or source that has collected the information itself.

Let’s pretend you’re a marketer at a luxury clothing retailer; your first-party data—information you’ve collected directly from your customers, visitors or services you own—could include in-store purchases, loyalty members, website clicks and behavior, app downloads and usage, CRM data (i.e. Salesforce), newsletter subscribers and any other demographic or personal information customers have shared with you.

Let’s imagine that your luxury brand has been very successful using first-party data to build loyalty and turn one-time shoppers into repeat customers, but you want second-party data to expand your reach to new customers. In order to leverage second-party data, you would need to negotiate a deal with another organization that would agree to share some of the data that they have collected directly from their own customers. As an example, you might make a deal with a premium publisher that gives you access to online behavioral information about readers who frequently consume content about high-end fashion trends, giving you access to a fresh, relevant audience of readers who may be interested in your luxury products. Or, you might agree to exchange customer information with another advertiser who sells a different product to a similar demographic, such as a luxury automobile manufacturer.

Weighing the Benefits

The primary benefit of second-party data is that it offers the quality of first-party information, while allowing you to expand your reach to new audiences. While first-party is both unique to your business and highly trustworthy—you collected it yourself, after all—its scope is limited to the people with whom you’ve already interacted.

Meanwhile, retailers can use third-party data to gain insight into large audiences, though it can sometimes be difficult to determine the quality of third party information—particularly if you don’t know the source. While there’s certainly quality third-party data out there, it’s important that you establish where the data is coming from, how recently it was collected and whether the data comes from observed user behavior or the modeled behavior of past customers. Also remember that if you are purchasing third-party data from a widely used DMP, your competitors may have purchased the same segments—meaning your prospective customers could already be receiving advertisements from competitors.

In contrast, second-party data gives marketers the opportunity to connect with new audiences that are interested in a similar category of products, sometimes called “look-alike” audiences. In some cases, there will be overlap between existing first-party customers and those in the second-party data set, allowing you to enrich your current customer profiles with additional information from outside your company. This makes second-party data an extremely powerful tool, both for attracting new buyers and increasing sales from your existing customer base. Since you know exactly where it’s coming from, second-party data is often the most reliable information you can find outside your own first-party collection.

The downside of second-party data is most often the time and money spent seeking, vetting and negotiating partnerships with a second-party vendor. Before pursuing second-party data, it’s crucial to weigh the strategic value of a potential partnership carefully. Make sure the data doesn’t just sound relevant on the surface, but it also aligns with the goals of your specific campaign, whether that is to convert more high-intent shoppers, enrich your customer profiles or increase your brand reach.