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What is data-driven marketing (and why should we care)?

It’s no secret that data-driven marketing drives real business results and higher customer satisfaction.

In fact, businesses with data-driven strategies generate 5 – 8 times as much ROI as businesses without. And 75% say their data focus has increased customer engagement.

So, if your company isn’t doing the data-driven thing just yet, it’s time.

And just in case getting started feels overwhelming, today we asked our experts to explain:

  • What it means to be data-driven
  • Why it matters
  • What challenges you should expect
  • And why none of this is going to push you to the top of your business category unless you embrace AI, machine-learning, and data science

What is data-driven marketing?

Before we talk about how to become data-driven, let’s get on the same page about what the term even means.

Data-driven marketing is when you base your marketing decisions—who to target, when to send messages, what messages to send—on customer data.

In other words, it’s marketing that starts with the customer and their needs, habits, likes, dislikes, and behavior, instead of starting with the product, message, or creative and trying to address customer needs after the fact.

It’s marketing that knows Customer A is a working mom and so serves her up a lipstick ad about how it won’t smudge under sticky little fingers. It knows Customer B is child-free but loves her dogs, so it serves up an ad for that same lipstick showing how it won’t come off when she kisses her dog goodbye in the morning. And it knows Customer C is interested in the same lipstick because he’s toying with the idea of participating in a drag show – and so serves him up a completely different ad about the confidence of smudge-free lipstick on the runway.

Data-driven marketing means understanding not only your general audience, but also individual customers and their ever-changing unique preferences.

The benefits of data-driven marketing

So, data-driven businesses generate 5 – 8 times more ROI…but what does that look like? What are the real benefits of prioritizing customer data?

Personalization

If there’s a marketing buzzword on everybody’s lips right now, this is it. Customers are demanding more personalization than ever before (and who could blame them, with companies like Amazon, Spotify, and Netflix knocking it out of the park and making them feel seen?). And companies getting personalization right are seeing huge returns on their efforts.

In fact, Amazon says 35% of their sales come from their personalized recommendation engine. Forbes says 49% of people will buy something they didn’t intend to because of a personalized recommendation. And 98% of marketers say personalization advances customer relationships.

Of course, personalization is only possible if you have customer data. Without it, everything’s just guesswork.

Better customer experiences

Raise your hand if you love it when companies try to sell you something you bought from them yesterday. How about when you’re already a newsletter subscriber and they keep hounding you about subscribing? Or when you call customer service for the third time and apparently they didn’t keep track of the first two and you have to re-explain your problem?

It doesn’t take a rocket scientist to figure out that knowing a few basic things about your customers makes their overall experience better. And being data-driven is all about knowing those key things and building customer experiences around them.

Lower ad spend

The more you can hone in on customers who actually want what you’re selling, the less ad spend you’ll waste on those who don’t.

Nestle Purina is a great example of this. When they used a CDP to target customers based on behavioral data, their cost per conversion dropped by 90%.

Higher engagement

Data-driven marketing is proven to drive up engagement numbers too. Just look at Industry Dive, who used data to target the right customers in the right place and increased website click-throughs by 40%.

The challenges of data-driven marketing

So far, everything sounds pretty great. But here’s the rub: moving from a traditional marketing model to a data-driven model comes with its challenges too.

None of them are big enough to make it worth missing out on 5 – 8 times more ROI. But they are big enough to factor into your strategy when it comes time to move toward a data-driven model.

Collecting and connecting a tangled web of data

Step one to becoming a data-driven company is usually collecting a lot of messy, disconnected, siloed data from all over the organization, putting it one place, and cleaning it up. This is a big task and it’s one of the foundational reasons Customer Data Platforms are a fast-growing MarTech category.

Part of the challenge here is figuring out which data really matters. Do you actually need to centralize all the data across the organization? Or is some of that data outdated, incorrect, or not really that useful? Which data do you need? And which can you do without?

This is one of the key places we see clients struggle—and it’s one of the reasons our StartSmartprogram, designed to implement our CDP and get clients to their first campaign in just 60 days, asks clients to focus not on all data, but on the rightdata.

Which brings me to our second big challenge…

What kind of data do we need?

Another challenge most companies face early in their journeys is simply this: understanding the different types of data available and figuring out what kind of data they need.

The short answer to this question is that the most reliable, useful data is the first-party data you collect directly from your customers in real time. And behavioral data, in particular, is 20 times more predictive than demographic data. Which makes first-party behavioral data the most valuable data on the block.

Actionable insights

When we talk about data-driven marketing, it’s clear that the first thing we need is, well, data. But here’s the thing: data isn’t the only thing we need. We also need actionable insights from that data.

If you aren’t familiar with the term, it’s exactly what it sounds like. Insights into your customers that you can immediately take action on.

Because it’s all well and good to know that Katrell subscribes to your kitten newsletter and Lin subscribes to the puppy version. But it’s better to know that kitten newsletter subscribers are 10x more likely to respond to a time-sensitive offer than puppy subscribers. And puppy subscribers are 2x more likely to click-through to video content.

That’s data that you can use to make real decisions about newsletter content and, specifically, what kind of content is likely to resonate with individual subscribers.

People and process

When Harvard Business Review asked executives what the biggest challenges of becoming data-driven are, the answer was pretty consistent: 93% said the hard part was cultural—changing people and process.

Which means before you go too far down the data-driven marketing road, you’ll need alignment from stakeholders and buy-in from your teams. In our experience, the best way to get that is a proof of concept test that shows the value of data-driven marketing on an accelerated timeline.

Data-driven marketing examples

So, what does it look like when companies go data-first in real life? Here are three examples we love:

The Economist

For The Economist, it all started with a commitment to customer centricity—which meant a commitment to collecting customer data, gathering insights from it, and using those insights to better connect with the real people they serve.

They used Lytics predictive scores to identify the right customers for each marketing offer and serve up those offers at the right time. And the results of this data-driven approach were staggering: a 300% increase in subscriptions and an 80% drop in customer acquisition costs.

The Motley Fool

When The Motley Fool set out to become more data-driven, they focused on using data to identify high-lifetime-value prospects. They then used what they knew about those high-value customers to create lookalike audiences that targeted similar prospects who hadn’t yet interacted with the brand.

Using data to hone their efforts like this saved The Motley Fool 20% on customer acquisition for their highest-lifetime-value targets.

Airbnb

Remember when we said data isn’t enough to make your company data-driven? Airbnb is one company that takes that very seriously, using data science to glean insights from data and improve both product and marketing.

In fact, when a data scientist at the leading booking platform shared the insight that consumers in China, Japan, Korea, and Singapore had a different customer journey than customers elsewhere in the world—and that was getting derailed by Airbnb’s normal setup—the brand rushed in to make changes for those geographic regions.

The result was a 10% increase in conversions from those countries.

Data-driven marketing with a CDP

What do those three examples have in common? First, they prioritized not only data, but data with actionable, data-science-supported insights.

Second, they all have the technology to not only collect that data, but also generate those insights.

Technology like Lytics—named #1 CDP in AdWeek’s Readers’ Choice Awards this year.

If you’re ready to become a data-driven company, we’d love to show you why we consistently rank at the top of the CDP roster. Download the CDP Readiness Guide to see if your company is ready. Contact us to start the conversation today.