The role of the CDP in Customer Experience Management

While sectors and industries vary, one thing they have in common is an affinity for acronyms. If you attend a conference, you likely won’t go five minutes without hearing someone talk about AI, ML, DX, or even SaaS.

Now that Customer Experience Management (CXM), Customer Relationship Management (CRM), and Customer Data Platform (CDP) have become commonly used terms in our acronym lexicon, what is the fundamental difference among them? Although the terms can travel as a trio, they are often mistakenly used interchangeably. Ensuring you have the right definitions will enable you to leverage the right system with the right strategies for your brand experience.

In this article, we’ll unravel CXM, CRM, and CDP to give you a clear definition of what they are and, just as importantly, what they are not. We will also dive deeper into CDPs as this article explores:

• Common use cases
• Types of CDPs
• Core capabilities
• How CDPs drive customer experience

CXM, or sometimes referred to as CEM, encompasses marketing strategies, tactics, systems, tools, and processes that a brand will use to understand and influence customers as they engage their way through the buyer’s journey. The key characteristics of CXM center brand`s efforts on the customer experience, the customers’ brand perceptions, and increasing customer value to drive revenue.

Customer experience management is vital in today’s ultra-competitive business landscape:

• 74% of customers say they are either “somewhat” or “very likely” to buy from a brand based solely on their experience, regardless of product or price.
• Customer experience drives more than two-thirds of customer loyalty, outperforming brand and price combined.
• In terms of stock market performance, customer experience leaders outperform laggards by 300%.

Customer Relationship Management (CRM) is the strategy around the tactics, systems, tools, and processes that brands utilize to understand their customers. The key difference with CRM is its emphasis on optimizing outreach to drive revenue. For instance, CRM technologies enable companies to identify and nurture their relationships for optimizing their sales interactions with customers.

Points of distinction between CRM vs. CXM:

• Driving profitability: CRM optimizes for customer data vs. CXM optimizes for customer engagement.
• Optimizing data: CRM leverages quantitative data to predict sales trends vs. CXM leverages data across the customer journey to deliver customer experiences.
• Customer engagements: CRM is more narrowly focused on retention and growth vs. CXM is broadly focused on the customer’s overall interactions with the brand.

Gartner provides a memorable way to grasp how CRM differs from CXM — while also appreciating how they work together: CRM is an “inside-out” approach, and CXM is an “outside-in” approach.

What is a Customer Data Platform (CDP)? Gartner defines a CDP as “a marketing system that unifies a company’s customer data from marketing and other channels to enable customer modelling and to optimize the timing and targeting of messages and offers.”

The value a CDP provides to a brand is the ability to identify actions customers are taking within the customer experience and what type of content that is most likely going to optimize customer engagement, deepen the customer relationship, and ultimately facilitate a sale and long-term loyalty.

With a CDP, marketers no longer have to make guesses about what types of content (and delivered through certain types of channels and touchpoints) will drive customer experience. They can make these decisions based on reliable, actionable intelligence. Given this benefit, it is not surprising that CDPs have emerged as one of the most important elements in the martech stack. The global CDP marketplace is projected to reach a whopping USD 5.5 billion by 2028, which represents a compound annual growth rate (CAGR) of 25% between 2021-2028.

A CDP helps brands continuously remember that customer experience is at the center of the ecosystem. Here are some of the practical ways that brands use a CDP to solve challenges and achieve goals:

• Creating a single-source of truth: Connect online and offline customer data (often captured in a CRM system) that was historically siloed and underutilized and create a 360-degree view of customers across the buyer’s journey.
• Increase customer value: Boost customer engagement and customer lifetime value with insights on how to optimize cross-sell and up-sell opportunities.
• Drive robust customer profiling: Improve the accuracy and reliability of customer segments.
• Reduce operational costs: Enable marketing and sales teams to access real-time insights, automate customer journeys, optimize resources, and leverage segmentation data to optimize advertising spend. McKinsey & Company reported that personalized campaigns and customer experiences that are triggered by customer data can increase the efficiency of marketing spend by up to 30%.
• Meet data compliance regulations: Create future-proofed data management processes to comply with prevailing or imminent regulations and standards (e.g., GDPR, CCPA).
• Real-time personalization: Establish a martech stack that adapts to constantly changing customer behaviors across multiple touchpoints.
• Brand trust: Reduce the risk of data mismanagement. According to PwC, 71 percent of consumers will stop doing business with a company for giving away their sensitive information.

Gartner outlines three types of CDPs in the marketplace:

1. CDP engines and toolkits include feature sets that are best suited for IT teams that want to create new apps on top of an existing CDP. As such, data-handling operations are emphasized over marketing infrastructure and operations.
2. CDP marketing data integrations enable granular real-time governance of marketing event data streams via an interface that is considerably more user-friendly than those offered by CDP engines and toolkits. Marketing data integrations provide control over delivering segments to downstream marketing touchpoints and channels. However, they do not handle analytics and decisioning, which therefore must be handled by other apps.
3. CDP smart hubs drive leverage granular data analytics and controls from both event-triggered and planned campaigns to emphasize marketing orchestration and personalization. This type of CDP is best suited for a hub-and-spoke configuration that enables marketers to use a single, centralized interface to direct multiple execution solutions.

For marketers, a CDP needs to have five core capabilities to drive customer experience — and ultimately facilitate sales, loyalty, and advocacy:

1. Data management captures, integrates, organizes, and makes available customer data from various online and offline sources in real-time. This capability is critical for breaking down silos that prevent marketers from generating a complete view and understanding of current and prospective customers.
2. Segmentation tracks all customer behavior (e.g., clicks, taps, searches, buying signals) from both known and anonymous customer profiles and uses real-time data to create robust customer profiles and segments.
3. Decisioning leverages predictive analytics, AI and machine learning to create personalized experiences across the customer journey. Decisioning technology helps make optimal choices about different customer segments (i.e., who to reach, when to reach them, how to reach them, what time to reach them, and what content to use), and enables A/B testing on any digital channel.
4. Optimization orchestrates interactions across all channels, establishes seamless experiences that follow customers as they jump across channels, delivers hyper-relevant experiences for every customer, and triggers personalized messages that help customers take action.
5. Activation nurtures customers (i.e., segments) along the buyer’s journey by pushing activation instructions to engagement tools that support various campaigns and events (e.g., email, mobile, social, etc.).

A CDP enables brands to leverage their CRM and CXM strategies to create an experience based on the what’s important to the customer – and not just about products or services.

There is no silver bullet that fulfils this all-important, all-encompassing objective of retaining customer loyalty and trust. A comprehensive, enterprise-grade CDP is a pivotal piece of the customer experience puzzle. If deployed and utilized effectively, a CDP delivers transformative benefits for both brands and customers alike.