Third-party data helped pave the way for eCommerce personalization. It’s been the cornerstone of retailers’ marketing strategy for decades.
As technology has evolved, marketers have increasingly realized the deep value of personalization, and many have concluded that third-party data is no longer enough on its own. This has led to the integration of zero-party, first-party, and multimodal data alongside third-party data. These additional methods are more accurate, reliable, and consensual, which not only enhances user trust but also aligns with new data privacy laws.
In other words, businesses can no longer rely entirely on third-party data.
What is third-party data?
Third-party data, or 3P data, is demographic and psychographic information collected by companies to aggregate and sell to other companies. This data may include:
- Purchasing histories
- Household income
- Lifestyle factors
- Brand affinities
- Major life events (e.g., marriage, new parents, graduation)
- And more
While third-party data can be used to understand customer demographics and identify high-value customers, it has serious flaws when it comes to cost, accuracy, and consent. So, if you’re still using 3P data, it’s time to change your marketing strategy.
Why third-party data is no longer reliable
For over a decade, third-party data has been every marketer’s go-to information source. But a cookie-less future requires a different approach. The issue at hand? The very nature of third-party data collection undermines its quality and reliability — and, in some cases, leads to hefty fines.
Government regulations
Over time, privacy regulations like the California Consumer Privacy Act (CCPA) & California Privacy Rights Act (CPRA), the EU’s General Data Protection Regulation (GDPR), and the Personal Information Protection and Electronic Documents Act (PIPEDA) in Canada have imposed limitations on what data companies can collect and how they can use it. Now, consumers have the right to know when other parties are collecting their personal information and what they intend to do with that data. They’re also required to provide an easy way to opt-out. What’s more, Congress looks likely to pass the American Privacy Rights Act (APRA) soon, which would expand and standardize data privacy across the US.
These regulations have forced even the largest companies to respond. Apple has already phased out covert cookies and cross-app tracking, while Google has announced plans to phase out the same tracking by the end of 2024. Consumers now have to opt in to data collection, making behavioral tracking across sites and apps far more difficult. In fact, nearly half of US citizens opt out of cookies, which compromises the usefulness of the data.
The bottom line: if you’re using 3P data, you’re receiving an incomplete snapshot of your customer base and its counterparts.
Data accuracy
Another concern is the accuracy of third-party data. The issue? Third-party data comes from disparate sources, which leads to inaccurate user profiles.
For example, 3P data from a customer’s browsing history might show they were searching for a new camera. However, if they made their purchase already, they may no longer be in the market for such goods. Given the issues with cookies and cross-app tracking described above, the likelihood that this inaccuracy occurs is rising.
This sort of error is no minor oversight. When multiplied across a large customer base, ads targeted at those who ultimately won’t convert leads to a huge waste in marketing spend. Therefore, not only is the financial cost high, but these sorts of errors undermine customer trust.
Third-party data increases security risks and harms brand reputation
Third-party data also leaves your business vulnerable to security breaches and privacy violations. In fact, data breaches through third-party vendors are on the rise. A staggering 98.3% of organizations experienced a 3P-data breach in the last two years alone. The need has never been greater for stringent security protocols and practices that protect sensitive data and maintain customer trust.
The point of 3P data is to learn more about your customers so you can increase AOV and revenue. But if doing so compromises customer security, you may actually cost your brand money — not to mention time and reputation. In other words, the price of third-party data is far too high for what little it can offer you.
Poor data security exposes your brand to significant cyber threat
Following best practices can be time-consuming and expensive, and people often think of 3P data as a turnkey solution. Spoiler alert: it’s not.
Without the proper legal, security, and compliance practices and teams in place, many brands are not set up to safely use third-party data. On average, 89 vendors access a company’s network every week. Each instance increases the cyber attack surface and creates more entry points for threats. To secure customer data, you must conduct regular audits. This way, you can identify vendors that don’t meet regulatory requirements or have weak security practices. Then, you can respond appropriately and demand change or divest altogether to protect your interests. That requires a lot of time and resources.
Ask yourself: Are we monitoring the compliance of our vendors? And if not, can we afford to do so? If the answer is no, it’s time to ditch 3P data.
Fines and penalties are always a risk
Another reason to leave third-party data behind? Collecting data without consent violates the EU’s GDPR. And no company is safe from the ramifications of using 3P data without consent — Meta was fined over $1 billion for violating the data transfer aspects of GDPR.
A lack of transparent data collection procedures also presents a compliance risk. Regulatory agencies like the FTC and FCC levy hefty fines and penalties for noncompliance. In other words, if you don’t get in trouble with your customers, you’ll get in trouble with the law.
Still, it’s important to note that these laws also reflect customer sentiment: 52% of American users choose not to use products or services due to worries about how much personal data is being collected through them.
The bottom line? You can’t afford to rely on third-party data.
3 benefits of third-party data
Despite the pitfalls, third-party data has a few silver linings. When incorporated strategically, 3P can be a valuable asset in your marketing and personalization efforts, especially when contextualized alongside other data types.
1. 3P data presents an unrivaled breadth of information
No other data source provides such a large swath of information on consumers. That’s why it’s consistently been at the core of identifying lookalike audiences.
With time and resources, analyzing 3P data helps develop these target personas and uncover new customer segments. It’s the first step toward reaching the group of customers with the highest likelihood of conversion — and creating products they’ll want to purchase.
2. Third-party info fills the gaps in your existing data
When contextualized with other types of data, 3P data can fill in information gaps. It provides so much content that you can create comprehensive audience profiles with:
- Demographics – Age, gender, etc.
- Psychographics – Customer opinions, purchasing motivations, etc.
- Additional purchasing data – Other brands that customers shop for.
This helps create a 360-degree view of your customers that benefits your marketing efforts and brand trajectory.
⚡Panorama Powerplay: There are softer ways to gather demographic and psychographic information. Consider a quiz, survey, or preference center that solicits customer information such as style preferences, skin type, age, gender, shopping motivations, and more. Panorama AI can help you launch these zero-party data collectors and turn this rich data into predictive insights.
3. It provides market context for your business
3P data allows you to zoom out the lens on data insights and understand the bigger picture. Following the trends from 3P data provides insights into large-scale customer interests, preferences, and shifts in demand.
For example, you can sort your data by geographic area to learn what’s popular in different markets. Or brainstorm new product ideas based on your top customers’ preferred items. These insights add color and specificity to the world where your customers exist.
4 best practices for ethical third-party data collection
Of course, the best alternative to 3P data is not to use it. That’s why we’ve invested in more reliable and consensual methods of data collection. In fact, Panorama AI generates so much value from safely collected zero- and first-party data that it renders third-party data obsolete — and it drives incredible value for brands.
But if you do plan to use third-party data, we recommend implementing the proper guardrails to ensure your organization minimizes risks like data breaches, privacy law violations, and loss of consumer trust.
These four best practices will help ensure your company’s third-party data collection is in prime condition.
1. Implement strong, systemic security measures
3P data is an expensive asset that you’ve paid for, cleansed, and legalized. It only makes sense to keep it locked up tight. Getting out ahead of potential breaches or data leaks safeguards your data storage and transfers against unauthorized access from harmful parties. Implementing appropriate encryption protocols and encrypting your databases keeps your data and people safe. It’s also far simpler to establish ground rules on behalf of the company than to expect every single employee to maintain constant vigilance.
However, you’ll still want to audit your security practices regularly to identify vulnerabilities before they become real issues. Doing so also reinforces the security posture of your organization as standards evolve.
We recommend hiring an independent auditor. They can help you identify the security controls you need to:
- Analyze your systems for potential security risks
- Review event logs for actions that could indicate threats or breaches
- Identify tools for automated scanning and assessments
Finally, incorporate your policies into employee training and conduct regular internal audits to confirm standards are being met.
2. Identify data use cases and test data accuracy
Because 3P data can be unreliable, you can’t be confident in it without running your own due diligence. Avoiding misguided decision-making means regularly cleaning up data, implementing validation checks, and cross-verifying information with reliable sources.
Another way to ensure data quality is to identify what you need data for. This will help you meet compliance requirements such as disclosing those use cases and pointedly acquiring only that data.
This strategy also lowers privacy risks by limiting the data you obtain. The less data you acquire, the fewer opportunities for cyber attacks. (And the less testing you have to do to ensure accuracy.) Over time, you’ll find that there’s some data you need frequently and others you only need once.
For one-time situations, consider discarding your data after you use it. For example, you might identify the use case of creating customer personas with gender, income, and hobby 3P data. While you may want to repeat the process every few years, you do not necessarily need to acquire this sensitive data regularly or store historical data. Going without it creates data cleanliness — if you don’t hold on to old data, its security can’t be compromised.
3. Make compliance a priority
Even when approached with the appropriate time and effort, remaining in compliance is complex. At a minimum, data privacy and security compliance requires you to:
- Prove a use case for data acquisition — Most privacy regulations, such as GDPR and CPRA, require you to disclose the reasons you’re collecting data — and that use case must be limited to that specific intent only.
- Stay informed about updates to legislation — New regulations, such as APRA, are constantly popping up. Staying abreast of proposed legislation and understanding subsequent changes are vital components of compliance.
- Strengthen your expertise — Build up your own global privacy laws knowledge, but don’t hesitate to consult a legal expert. The cost of attending a conference or hiring a lawyer is far less than the potential penalties of falling out of compliance.
Legal penalties can sink an organization — especially a small business. If you’re not conducting something as delicate as 3P-data acquisition by the book, it’s not worth the trouble.
4. Pick vendors that prioritize compliance and security
Prioritize third-party vendors that are committed to privacy and security. Choosing vendors that meet your stringent requirements mitigates the risk of third-party data breaches and ensures compliance from the get-go. It also lessens the compliance lift on your part with audits that are more likely to come back clean.
To assess your vendors’ security, thoroughly review their compliance certifications and audit reports. You can verify their adherence to industry standards and applicable legislation.
Conducting your own audits will also help you prioritize compliance. Continuous oversight ensures ongoing compliance and protects you from legal trouble and cyber attacks. To run these audits, schedule regular assessments, review compliance documents, and interview vendors’ staff.
Build a compliant, reliable, and effective data strategy with Panorama AI
Panorama AI’s platform places privacy, security, and compliance at the heart of personalization to help retailers drive profitability and deliver highly relevant customer experiences without using third-party data.
Our AI-powered Insight Engine produces high-quality customer predictions with zero- and first-party data as well as multimodal data that is safely and securely collected.
Here’s how it works:
- Create your unified customer profile – Panorama AI can plug in to your CDP and get to work on personalization. Don’t have a CDP in place? No worries! Panorama AI can seamlessly join data sources across your organization to create a holistic customer view.
- Collect and understand any data, no matter how complex – Panorama AI helps customers consensually collect multimodal (i.e., photo, video, audio, unstructured text, etc.) zero-party and first-party data that customers create over time. Numerous security layers are applied to this data, ensuring total compliance. The Insight Engine analyzes it, generating myriad predictions about customer behavior.
- Hyper-personalization benefits customers – Teams like Marketing, Product, Customer Service, and Merchandising can leverage your predictions across your organization. Predictions allow you to make decisions based on a customer’s lifetime value, likelihood to convert, sensitivity to a discount offer, and more. This improves online shopping experiences, guest care, channel engagement, and more to increase conversion, retention, and, ultimately, revenue.
