After years of being able to easily track consumers, marketing executives now need to review their practices. The imminent end of third-party cookies seriously jeopardizes the effectiveness of traditional customer acquisition strategies. R3 Marketing and Dialog Insight have prepared this guide to help you navigate these uncharted waters.
What are the changes in regulations?
There is a rising sense of urgency around zero-party data collection (ZPD) as the market moves away from traditional profiling methods. Many measures that limit the ability of marketers to track consumer browsing and buying behaviours have already been implemented.
In Europe, the European Union (EU) has stepped up its legislation in this area, with some changes already in effect and others expected to come by the end of 2023. In early 2020, Google announced plans to eliminate third-party cookies from its Chrome browser by 2022. This has since been pushed back to the end of 2023 (update 2022-08-04: Google changes its deadline to 2024). Apple has already removed from Safari last spring, and changed its Identifier for Advertisers policy (IDFA) with the release of iOS14. Apple mobile phone users must now opt in on an individual basis for all ads.
These changes were brought about by consumers becoming frustrated and increasingly suspicious of advertisers taking their data to sell to the highest bidder.
What are the different types of cookies?
While consumers are aware of the existence of third-party cookies, not many know there are actually four kinds of cookies.
Zero-Party and First-Party Data
Traditional behavioural data is now called first-party data (FPD), while data obtained through customer communications and interactions has been dubbed zero-party data (ZPD).
Forrester1 defines zero-party data as “data that a customer intentionally and proactively shares with a brand, which may include preference data, purchase intent, personal context, and how the individual wants the brand to recognize them.”
You may not be surprised to know that consumers tend to keep their zero-party data private! However, if you ask people questions in an environment that has attracted their interest and you are transparent in your approach (they understand why you are asking these questions), they are much more willing to answer and share information.
Take for example a consumer visiting the website of a car manufacturer. They decide to use the available search tool to find a specific model. This action creates a search history, which is first-party data. Before leaving the site, the consumer uses the live chat feature to find out which vehicles have enough room for five people; this is zero-party data. While the data generated by this visit is classified in different categories, it all belongs to the car manufacturer.
What differentiates the data categories is their value. For zero-party data, consumers are willing to share more information in order to obtain a better service or a customized product.
Second-party data (SPD) is less prevalent than other categories. It represents the sharing (or selling) of first-party data from one consumer, brand, or company to another business. For example, the email address of an Air Canada customer who is buying (or considering buying) an airline ticket is shared to a hotel chain that has partnered with the airline.
Here are the key differences between these categories of data:
Zero-Party and First-Party Data
Cookies (Third-Party Data)
Identification and recognition of customers and prospects
Deeper knowledge of customers and their behaviour
Not shared or used by other organizations
Transparent data collection
Owned by your company
Customer acquisition strategy
Generic and incomplete information
Shared with many organizations, including competitors
Unauthorized data collection
What is the impact on your organization/brand?
1. The winding down of new customer acquisition strategies
Since third-party cookies serve acquisition strategies, it will become increasingly difficult and expensive to use them as a vehicle for growth.
As well, new legislation on data confidentiality is anticipated. Growing consumer expectations for privacy will only drive new laws and practices around the use of third-party data for customer acquisition purposes.
A growth strategy based on acquiring new customers is therefore not a viable approach in the medium or long term. It is imperative for companies and brands to focus on getting zero-party and first-party data.
2. Engagement must become the priority
COVID-19 has caused many changes in consumer behaviour. As revealed in a study by McKinsey and Company2, brand loyalty has hit an all-time low :
“Consumers are switching brands at unprecedented rate. The crisis has prompted a surge of new activities, with an astonishing 75 percent of consumers trying a new shopping behaviour in response to economic pressures, store closings, and changing priorities. This general change in behaviour has also been reflected in a shattering of brand loyalties, with 36 percent of consumers trying a new product brand and 25 percent incorporating a new private-label brand. Of consumers who have tried different brands, 73 percent intend to continue to incorporate the new brands into their routine. Gen Z and high earners are most prone to switching brands.”
To survive the end of cookies, a successful marketing strategy must focus on customer relationships and experience. The last few years have shown that customer engagement is directly linked to increased sales.
Investing in strategies that foster this engagement through zero-party and first-party data has proven to be much more effective and profitable than spending on acquiring new customers. Third-party cookies do not contribute towards this engagement; in fact, consumers have become increasingly averse to their usage. Businesses therefore need to find new ways to develop much more authentic relationships. Ultimately, to counter the loss of revenue caused by the end of third-party cookies, you must build a marketing strategy based on knowing and understanding your customers.
What are the steps to changing your third-party cookies marketing strategy?
Step 1: Review your acquisition and retention strategies and tactics
Many companies and advertisers, as well as agencies specializing in digital strategies and marketing, will have to rethink their data collection methods with the gradual withdrawal of third-party cookies.
The Dialog Insight team has written an article to help companies pivot their digital strategy towards zero-party and first-party data.
Therefore, your goal should be to gradually move to a business model based on building better relationships with your customer base. To achieve this, you need to increase the share of your new revenue that comes from current customers (through increasing the frequency and total value of their purchases), and you should stop focusing on the acquisition of new customers. In the end, a structured relational strategy will be more profitable and allow you to achieve your growth objectives.
Such a relational marketing strategy should be based on knowing your customers through their zero-party and first-party data: profile, preferences, purchasing behaviour, product categories of interest, etc. This data will be used to better personalize your communications (content, offers, and promotions) according to your different customer segments. This customization will allow you to:
- Improve the customer experience
- Increase engagement
- Increase conversion rates (reading your newsletter and content and redirecting them to your site for a possible purchase or an in-store visit).
For example, an electronics retailer could segment its communications (newsletter or promotional emails) according to customer preferences or purchase history. If 80% of the purchases of a particular customer are in the photography category, they would not receive a newsletter about the release of new smartwatches, but rather about “The top 10 Best Cameras of 2022.” Ideally, this newsletter would also include visuals related to photography.
In short, you need to develop an action plan to start collecting zero-party and first-party data on your current and prospect customers in an authentic and transparent way. Several tactics can be used to collect this data: profile creation requests, surveys, Google Analytics, RFM analysis of online sales, POS analysis, etc. In all cases, you should clearly indicate to your customers how their data will be used — as well as comply with any applicable regulation regarding confidentiality and personal information.
Step 2: Audit your relational performance
You should start the process by asking yourself what you know and don’t know about your customers.
You should then audit your relational marketing strategy. Identify the elements to be prioritized and improved based on best practices for your industry. What tactics should you put in place to collect this customer data and how will you use it to better customize your communications?
What resources, consultants, or employees can help you improve the identified elements?
The R3 team has various analytical tools to audit your relational marketing strategy before third-party cookies become obsolete, and we are available to help you navigate this uncertain period.
Step 3: Measure the impact of a better relational strategy
At this point, you should ask yourself the following questions: How can you create value for your customers and prospects? How can customized communications and a better relational marketing strategy contribute to your revenue and growth?
To find the answers to this last question, complete the following exercise:
- Determine the share of your marketing budget that should be devoted to customer acquisition and retention
- Evaluate how much an increase in the retention rate of your best customers, and the frequency of purchase for certain segments, could bring you annually
- Compare the performance of your investments in customer acquisition versus a relational strategy
Here is an example of the type of assumption that can be used to assess the incremental revenue and profitability of a relational strategy:
What would be the impact on increased sales and gross margins if…
- X% of your best customer segment increased their purchase frequency by two transactions every year?
- The annual retention rate of your top two segments increased by X%?
- The average transaction value of your two largest segments increased by X%?
Step 4: Choose the right technology solutions
The number of technology solutions for customizing or segmenting communications is constantly increasing, and their cost is continually falling. However, you should avoid choosing or buying one or more solutions — or even start talking to potential partners and suppliers — without first doing your homework and defining your specific needs:
- Your goals for customization and data collection
- Your technology needs (centralization of customer data, development and management of targeted campaigns, KPI reporting and monitoring, marketing automation, etc.)
- The data categories (zero-party data and first-party data) you want to collect and use
- The desired level of segmentation and communications customization
For this exercise, consider a three-year plan. Mistakes in the choice and implementation of technology solutions are often costly and taxing on managers. You should therefore take the time to clearly define your needs and assess the different solutions based on those findings.
Step 5: Implement, test and adjust
Your content strategy must provide added value. Your customers and prospects should want to spend time with your brand and come back to see you. To do that, you must meet their needs and provide them with the answers they require.
Use zero-party data to:
- Create an emotional connection
- Foster engagement
- Inspire confidence
- Identify brand ambassadors
Determine which relational tactics should be prioritized, as well as the implementation phases of your overall strategy. Do not forget to test and measure the performance of your communication initiatives through control groups (also known as “A/B tests”) and adjust your strategy and investments accordingly.
What are the elements to consider for your new strategy?
First-party data often comes from your most committed customers since they have the greatest emotional connection: they therefore represent your best opportunity to foster a strong engagement. These customers should be your main target when customizing your offers and communications. You can optimize your impact on your customers and increase your conversion rates by making your communications relevant to your audience.
To achieve this, it is essential to equip yourself with the right tools to foster a relationship with your target. Several relational marketing platforms to help improve your customer experience are readily available.
One such platform is Dialog Insight, which allows you to manage all your customer data in one place. You can thus generate relevant and customized communications to meet the needs of each of your customers, all automatically segmented by channel.
The first impression has never been so important. Visitors to your website should be greeted with unique welcome messages and custom visuals. Introduce different customer benefits: special content, free trials, promotional offers, etc. Customize their experience based on their past purchases, browsing history, and progress on your website. These measures will lead to increased signups and data sharing.
You should add product filters, preferences, and user profiles to your website to increase your data collection capabilities, which will thereafter allow you to better segment and customize your communications when customers return to your site.
Referral strategies and sponsorships
Referral and sponsorship strategies are experiencing a resurgence in popularity. We live in a time when people like to share and talk about what they’re passionate about, and everyone is an influencer to one degree or another.
Many companies offer generous rewards to those who refer clients to them: 20$ gift certificates, 10,000 bonus loyalty points, free gifts, etc. It is even possible to further develop user profiles by tracking individual referral codes.
Acquiring new customers will become increasingly complex and costly due to changing consumer behaviour, the gradual obsolescence of third-party cookies, and new legislation regarding the use of confidential data. Companies relying on traditional acquisition strategies should therefore review their approach, and possibly even their business model.
These upheavals have already begun, and companies that are slow to adapt to this new environment risk being excluded from it. Now is the time to reconsider how you allocate your marketing budget and how much you should focus on customer acquisition.
No need to panic, however! You still have time to move to a more relational approach. Without third-party cookies, your marketing strategy must shift to zero-party and first-party data. It should focus on understanding your customers, building their loyalty, boosting their engagement, and increasing their purchase amounts.
Now is the time to rethink your strategy! The experts at R3 Marketing stand ready to guide you through this process.