Data clean rooms: The power of second-party data

A staggering 81 percent of advertisers depend on third-party data to reach customers and understand prospects’ buying habits. Their reliance on this data, however, comes with a problem. Exponential cookie decay, government legislation, and increasing consumer demand for data privacy make accessing this data more difficult.

Many brands are turning to data clean rooms (DCR) as a solution. DCRs help companies leverage second-party data to hone their marketing and advertising. In fact, 80 percent of advertisers with media buying budgets over $1 billion will use DCRs by the end of 2023. So, what makes DCRs so popular? This article will show how DCRs can be an incredibly powerful MarTech tool that fosters collaboration among brands, enabling them to gain insights, form ‘lookalike’ audiences, and advertise directly to their user base.

What is a data clean room?

A DCR is a secure and compliant data-sharing solution that brands can leverage to learn more about another brand’s customer data. Brands will share their first-party data and place it in a clean room to share this information in a controlled, privacy-conscious way. This creates second-party data.

Why would a brand do this? Suppose a brand doesn’t have enough first-party data, information a company collects directly from its customers, and can’t find reliable third-party data, information collected by companies that don’t have a direct relationship with consumers. In that case, another brand may have the information they need to make strategic business decisions. DCRs help brands leverage this second-party data.

Let’s dive into some of the reasons why brands are turning to DCRs to gather customer insights.

Follows privacy laws

Of course, data privacy concerns are growing among consumers. Data security is one of the benefits of a DCR. Clean rooms follow privacy laws and make sure that a brand’s data is protected, ensuring that personally identifiable information (PII) is not exposed or misused. When brands enter a clean room deal, access, availability, and usage are agreed upon, and the DCR provider enforces those agreements. These protocols ensure that the brands are not sharing consumer data without consent.

Enables collaboration to reach new audiences

Enabling collaboration between brands that have complementary or overlapping customer data can help them make informed marketing and advertising decisions. After all, a brand is likely turning to a DCR because its first- and third-party data can’t fill in the gaps.

Take, for example, this scenario. Brand A specializes in ski and snowboard clothing and wants to reach audiences interested in ski vacations. Meanwhile, Brand B is a travel agency specializing in booking vacations at ski resorts. These companies might start a DCR.

Brand A can leverage Brand B’s first-party data to learn what websites consumers visit, then advertise deals for its ski and snowboard clothing there. This allows Brand A to reach its target audience, leveraging Brand B’s first-party data to make these informed marketing and advertising decisions. Through this arrangement, Brand B can also utilize Brand A’s first-party data to see where customers are looking to vacation and during what time of year, adjusting their own business strategies to meet these needs.

Works well with data management tools

That said, the best way to gain customer insights from a DCR is going in with clean first-party data. After all, if you enter a DCR partnership with messy data, you’ll likely not achieve the desired results.

So how can brands ensure that their data is accurate? Brands can leverage DCRs with other data management solutions. One such solution is customer data platforms (CDP).

A CDP is a platform that pulls customer data across touchpoints -- online purchases, customer feedback, loyalty programs, etc. -- to create an accurate, unified view of the customer. This offers brands the most updated customer profiles that maximize the value a brand can bring to data collection. This allows brands to share the most precise, in-depth information with one another, creating unified second-party data that is trustworthy and reliable. 

By leveraging a CDP, first-party data is ready to use in a DCR, allowing the brands to collaborate on an accurate set of second-party data.

Creates lookalike audiences

Lookalike audiences share similar characteristics, behaviors, and interests with their existing customer base. It’s a marketing tool to reach new people who are likely interested in your business. This allows you to scale up your advertising reach without sacrificing precision.

Now imagine combining that with second-party data. A DCR enhances the creation of lookalike audiences by enabling brands to work together to expand their customer insights. Marketers can then create lookalike models for their campaigns and deliver relevant messages through optimal channels. This can lead to improved marketing performance and foster stronger customer loyalty.

Discovers high-value customers

Likewise, it’s much easier to find high-value customers when brands work together. High-value customers may be frequent purchasers, loyal customers, or those who make large purchases. That’s why having first-party data is so important -- the more you can understand about a customer, the more likely you’ll find your repeat and high-spending customers.

When brands enter DCR partnerships, by combining their respective first-party data, brands can gain a comprehensive view of customer behaviors, preferences, and purchasing patterns. This holistic understanding enables them to identify and target high-value customers more effectively. With clean and unified first-party data, brands can refine their segmentation strategies, personalize marketing efforts, and optimize customer experiences to attract and retain those individuals who have the greatest impact on their bottom line.

Improves return on ad spend

DCRs can help marketers to scrutinize their campaigns for any inconsistencies or issues that could hinder their effectiveness.

For example, over-serving ads to the same individual can lead to ad fatigue, diminishing the impact of the campaign and potentially leading to negative brand perception. By identifying these issues, DCRs help brands to maintain a balanced and effective ad frequency, thereby improving the overall ad experience for the user.

Likewise, marketers may not realize until they get into a DCR that they’re suppressing certain customers from campaigns. Typically, these are customers who have already converted or are deemed unlikely to engage. By using DCRs, marketers can review how they’re communicating with customers and prevent ad spend waste.

The future of DCRs

The future of DCRs looks promising as more and more companies reap the rewards of sharing second-party data. And as they become more aware of data privacy regulations, DCRs promise security while offering more precise targeting and personalization in advertising.

Image Credit: Wayne Williams

Derek Slager is co-founder & chief technology officer at Amperity. Derek co-founded Amperity to create a tool that would give marketers and analysts access to accurate, consistent and comprehensive customer data. As CTO, he leads the company’s product, engineering, operations and information security teams to deliver on Amperity’s mission of helping people use data to serve customers. Prior to Amperity, Derek was on the founding team at Appature and held engineering leadership positions at various business and consumer-facing startups, focusing on large-scale distributed systems and security.