Blog | Treasure Data

The Difference Between First-party, Second-party, and Third-party Data

Written by Ron Zvagelsky | Apr 13, 2023 7:00:00 AM
Customer experience is what can make or break a relationship with a brand. In today's tough business landscape, having a competitive edge means delighting your customers and leveraging their data to boost revenue and slash costs. A truly exceptional, connected customer experience comes from deep customer understanding—and data is the key to unlocking that understanding. There are several types of customer and audience data, each with its own set of benefits and challenges that can guide your strategies. And while all types of customer data helps you build better experiences to some degree, they are not all created equal. Let’s look at the types of data you can use and how they differ from each other.

Customer Data Here, There, Everywhere

Customer data comes in all shapes, sizes, and systems. The data that companies collect directly is first-party data. Other data comes from partners or is purchased, what we call second-party and third-party data. And then there's zero-party data. Here's a summary of the four types of data:
First-party Data Second-party Data Third-party Data Zero-party data
Direct relationship with the customer Indirect customer relationship Indirect customer relationship Direct relationship with the customer
Collected with consent Collected with consent Unknown if it's collected with consent (depends on the data provider) Collected with consent
Individual data Individual data Aggregate Data Individual data
High accuracy and reliability High accuracy and reliability Low accuracy and reliability High accuracy and reliability
Not shared Shared only with trusted partners Shared with many companies Not shared
Examples: • Customer email • Phone number • Purchase history • Support history • Loyalty program info Examples: • Website activity • Social media profiles • Customer feedback • Customer surveys Examples: • Income • Age • Education • Websites visited • Survey responses Examples: • Communication preferences • Product preferences • Customized account configurations

First-party Data

First-party data is data you collect directly from interactions with your customers and audiences on your own channels. Examples of first-party data include demographics, purchase history, website activity, mobile app data, email engagement, sales interactions, support calls, customer feedback programs, interests, and behaviors. You can collect this data through the sales of your products and services, through support processes, forms on your website, subscriptions, surveys, social media connections, and marketing programs. In terms of all data types, first-party data is the most valuable because you collect it directly and know it’s high quality, accurate, and relevant to your business. It’s not hard to collect first-party data. All customer-related systems collect some customer data. The challenge is that they all gather, store, and manage it differently, leading to inaccurate and inconsistent data between systems. The best way to ensure your customer data is consistent across all of your systems is to leverage a centralized platform, such as a customer data platform, to consolidate, standardize, and make it available to all systems regardless of where it was first collected.

Second-party Data

Second-party data is data you acquire from a trusted partner. In most cases, you know the partner, which means you know the data quality and accuracy—and you know the partner is compliant with data and privacy regulations. You also know the data is relevant because it comes from a partner with whom you have a mutually beneficial relationship. You can also buy second-party data by connecting with partners through second-party data marketplaces. When you acquire data this way, you can discuss the data with the partner and select only the information you want. If you decide to go this route, you can be sure the marketplace is trustworthy, the partners you are connected with are reliable, and their data is collected and managed correctly. There are a few benefits to using second-party data:
  • It enables you to scale by connecting with new audiences that match your own audience data.
  • You can combine it with your first-party data to build improved predictive models. This is especially true when you don't have a lot of customers from which to develop predictive models.
  • You can develop better audience insights by analyzing a more extensive audience group. Combining your first-party data with second-party data may help you find new ways to reach your audience or find new audiences to reach out to.
One example of second-party data is the data media publishers sell to advertisers. Another example is a grocery store selling its customer loyalty data to a credit card company. Collecting second-party data is straightforward; you get it from the partner. Once you have it, you need to manage second-party data the same way you do first-party data, which means you need to store it securely and make it available through the same methods to your systems. You should also validate and clean your second-party data the same way you do your first-party data, to ensure it's accurate and relevant.

Third-party Data

Third-party data is data you acquire from a data aggregator. Data aggregators do not collect data directly but obtain it from other companies and compile it into a single dataset. As a result, the data can come from many different data sources, some large, others small, and there's not always a clear definition of the audience that data comes from. Most third-party data is purchased through a DSP (demand side platform) or a DMP (data management platform) for advertising. There are also many third-party data marketplaces, including Acxiom, Nielsen, Google, and OnAudience. There are several reasons you might want to purchase third-party data:
  • It helps you reach a broad audience for your advertising programs.
  • When combined with your first-party data, it can help you improve targeting.
Third-party data is bought and sold programmatically, and it's usually very large datasets. The biggest concern with this data is that you do not know where it came from, so you can't ensure its reliability or accuracy. You also can't be sure it was collected according to privacy regulations. Therefore, when you select a third-party data provider, you must do your research and understand where and how the data was collected.

Zero-party Data

You need to understand your customers on a much more intimate level if you are going to create differentiating personalized experiences and build brand loyalty. Zero-party data is the best way to do that. Zero-party data is a type of first-party data. Initially coined by Forrester Research, the term zero-party data is defined as “data that a customer intentionally and proactively shares with a brand, which can include preference center data, purchase intentions, personal context, and how the individual wants the brand to recognize [them].” Examples of zero-party data include data a consumer explicitly provides, such as communication preferences or the types of information they want to receive. Interests consumers share with you are another example. It can also be data obtained through gamification, such as quiz results. Since zero-party data is given freely, you have permission to use it to personalize offers, content, and other experiences. At a time when privacy regulations are increasing, and consumers are becoming more and more particular about how their data is captured and used, having access to zero-party data is crucial. Because it comes directly from the customer and tells you exactly how that customer wants to interact with your brand, zero-party data—when connected with more traditional first-party data—can help you craft a truly personalized, connected customer experience.

Best Practices for Data Collection—Privacy and Trust

Businesses use data collection to learn about their customers, improve their products, and advertise more effectively. But the way organizations collect and use customer data is evolving as customers become more informed about what information is collected, how it‚Äôs used, and how it impacts their right to privacy and data security. Many customers are choosing not to provide their data to companies because they don‚Äôt understand how their information is being used and if it‚Äôs properly (and securely) managed. Trust is the foundation of any successful customer relationship, and if customers don't feel confident that their data is being handled ethically and securely, they may be less willing to engage with your brand. It only takes one bad experience for a customer to switch to a competitor. Conversely, if they do have a trusted relationship with your brand, consumers will willingly trade their information for more relevant, personalized experiences. Therefore, it's essential for your business to implement transparent data collection practices and be upfront about how customer data‚Äîwhether it's first-party, second-party, third-party, or zero-party data‚Äîis being used. By doing so, you will establish trust with your customers, which is essential for building long-term, profitable relationships. By implementing a trusted CDP solution like Treasure Data Customer Data Cloud, you can gain access to powerful data management tools that prioritize data privacy and protection. Customer Data Cloud is a centralized customer data foundation that can deliver value across every part of the business. It allows you to meet your customers‚Äô needs, understand their pain points, and build trust. To learn more about optimizing your first-party data strategy while ensuring privacy and trust, download our white paper today. Editor‚Äôs note: An earlier version of this blog was published in 2021. This blog was revised on 4/13/23.
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