Outlining the five trends in the use and management of customer data

April 2018  |  EXPERT BRIEFING  |  DATA PRIVACY

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According to our recent survey, 29 percent of UK businesses are worried about complying with the General Data Protection Regulation (GDPR), illustrating their struggles to make their data compliant by the fast-approaching 25 May 2018 implementation date. Fifty-seven percent of respondents said they were not confident that they had freely given consent to use data acquired from third parties for marketing purposes – which is vital under the GDPR. One-third had no formal processes for data cleansing, despite estimating that poor-quality customer data cost an average of 6 percent of annual revenues – potentially millions of pounds to big brands.

The research, conducted with brands and marketing agencies from across the UK, uncovered key trends in five areas.

The GDPR is now the biggest worry for marketers and data practitioners

The forthcoming implementation of the GDPR is shining a spotlight on the data that organisations hold on their customers and prospects. Compliance with the GDPR was the number-one concern for respondents; it was cited by 29 percent of companies as their biggest worry. This had more than doubled since the 2016 study, when 12 percent listed it as a concern.

Agencies are more worried than brands, with 35 percent citing it as their biggest challenge. This implies that agencies handle a wide range of data about consumers acquired from third parties, which can be much more difficult to check for relevant permissions, or that they potentially have better awareness of the implications of the GDPR. Twenty-five percent of brands saw GDPR compliance as their greatest worry, which shows that this topic impacts all marketers and businesses.

The study asked brands and agencies how confident they were that their internally held and third-party customer data was GDPR compliant. The positive news is that 78 percent of all marketers were either very or reasonably confident that their internally held customer data complied with the new regulation – 11 percent were not confident, including 2 percent which did not know if they were compliant or not.

However, when it comes to third-party data, confidence levels drop dramatically. Just 43 percent of respondents were very or reasonably confident when it came to compliance. This demonstrates the difficulty of gathering evidence that the right permissions are in place when data has come from other sources. Only 9 percent of brands said they were very confident in their data compliance, which shows that there is plenty of work to do ahead of the May 2018 implementation date.

Under the GDPR, companies have two options to market to customers – consent and legitimate interest. Those that choose to use consent as their legal basis for marketing need to be able to prove that the consent gathered at the time of collection was freely given, specific, informed and unambiguous. Presenting consumers with pre-ticked boxes or assuming that silence equals agreement is not deemed sufficient to demonstrate consent. Consequently, companies may not have the new, higher-benchmark standards for permissions, or perhaps cannot provide evidence of them, as required under the GDPR. They are therefore urgently carrying out re-permissioning campaigns to gain consent from customers to use their data for marketing purposes. Forty-five percent of marketers are either already implementing such processes, or plan to do so in the next three to six months. In the 2016 study, the corresponding figure was 26 percent of marketers, which shows how the forthcoming deadline is focusing attention.

Re-permissioning strategies bring their own risks. Some customers are likely to refuse to give consent for their data to be used, and the communications themselves must be compliant with existing data protection legislation. For example, sending a re-permissioning request is itself classified as direct marketing, so businesses already need to hold appropriate consent if they want to send such requests by email to customers that are consumers, sole traders or partnerships. This has already led to fines from the Information Commissioner’s Office (ICO) in several cases.

Companies therefore need to de-risk re-permissioning strategies by selecting the most appropriate channels – 76 percent said they would use their own websites, which are low risk, as the customer would have chosen to visit the site of their own free will and could be asked about consent while at the site. Email is higher risk, yet 74 percent of marketers, rising to 75 percent in the case of brands, were looking to use this channel as part of their approaches. Just 31 percent of respondents said they were going to use mail for re-permissioning, despite the fact that this is advocated by the Direct Mail Association (DMA) and the medium is trusted by consumers.

This alternative approach, based on the concept of legitimate interests, does not require organisations to have customers’ consent to continue marketing to them. Instead, brands need to demonstrate (through legitimate interest assessments) that they are using people’s data in ways that would be reasonably expected, have minimal privacy impact, or offer compelling justification for processing the data. Once they have documented this legitimate interest, brands can continue to communicate to customers until that individual opts out.

Marketing challenges around data

Aside from the GDPR, the next-biggest concern around customer data management is dealing with legacy systems, this was cited by 28 percent of all respondents and 37 percent of brands. These can be inflexible and difficult to use, and act as blocks on using data to effectively meet wider marketing challenges.

The overall challenges to marketing are driven by churn rates in which nearly one in five customers defects every year. While the headline figure of 19 percent seems like a reduction from 20 percent in 2016, this gives a false impression. The churn rate for brands is actually 21 percent, which is why finding and acquiring new customers unsurprisingly remained the number-one challenge for marketers, with 42 percent citing it as their biggest challenge. However, this has fallen from 52 percent in 2016, with analysing customer data, a new option in the 2017 research survey, scoring 24 percent. Clearly, boosting analytics capabilities is a fast-emerging priority for brands and agencies alike.

Companies also seem to be giving up on the idea of reactivating dormant customers, rather than searching for new ones. In 2014, 24 percent said this was their number-one marketing priority, but by 2017 the figure had dropped to just 6 percent. This could be linked to worries about poor-quality customer data or whether dormant customer data is GDPR compliant and can be used in marketing to this group.

A further complication for using customer data for marketing purposes is that responsibility for it is split across departments. While 51 percent of marketing teams set their companies’ data strategies, for some companies, other groups such as central data management and the board were also involved. Unsurprisingly, legal and compliance teams were heavily involved in privacy and permissions decisions, taking lead responsibility within 38 percent of organisations. Forty-four percent of marketing departments led in this area, compared to 20 percent of IT or IS teams.

Responsibility for data management was even more diverse. For 37 percent of companies it was down to marketing, central data management also had this role for 37 percent of companies and IT or IS was in charge in 30 percent of cases. Clearly, cooperation between different departments is increasingly vital if companies are to meet the challenges of managing their growing volumes of data and marketing to customers in a post-GDPR world.

Using data to improve marketing success

Marketers now have more data on customers than ever before. So what needs to happen to improve the overall performance of their campaigns and programmes? When companies were asked where the gaps were that need filling, the results mirrored overall marketing challenges. The same number of companies – 24 percent – pointed to analysing customer data as their biggest issue, a figure that rose to 28 percent within brands. This demonstrates a clear need for greater analytics skills and capabilities, particularly for brands.

Perhaps reflecting that they already had analytics skills, the biggest area for improvement that agencies flagged was access to better-quality customer data, cited by 29 percent. Figures for this were lower for brands at 18 percent, due to the larger, more granular amount of customer data they tend to hold, though the gap between brands and agencies points to a lack of data sharing when the two work on campaigns together. Brands also struggle to embed data cultures within their businesses. Twenty-one percent said that a better understanding across the organisation of the importance of good-quality customer data would improve performance. This demonstrates a need to put data at the heart of the entire business, not just within the marketing department.

When it comes to driving successful campaigns in terms of response and conversion rates, marketers agree it is all about data and how you use it. On a scale of one to five, the four top success factors reported were quality of contact data (4.6), segmentation and targeting (4.6), personalised content (4.4) and timing (4.3). By comparison, creative design scored just 4.0 out of five. These top-four factors all rely on good-quality data and analytics in some way, and marketers reported that they had all increased in importance dramatically since last year.

Collecting and managing customer data

Having established the importance of customer data to marketing success, how are marketers going about collecting it? The answer is that increasingly they are looking outside their organisations – the number that only used data gathered directly by themselves fell from 49 percent in 2016 to 42 percent in 2017. This self-collected data comes from a variety of owned channels, led by their websites (92 percent), direct sales (56 percent) and company contact centres (45 percent).

Rather than relying solely on their own sources, marketers are now looking to enrich the data they hold with information from third-party data providers. Fifty percent now follow this strategy, up from 47 percent. This jump may partly be down to the GDPR, with marketers using external sources to help them gain consent by working with reputable and compliant third-party providers ahead of the May 2018 deadline.

The most common third-party data used to enrich internally held customer data is email addresses (43 percent), followed by demographic data (37 percent) and enhanced address data (30 percent). These headline figures do mask major differences between agencies and brands. Sixty-two percent of agencies rely on email address enrichment, against 28 percent of brands, with in-house marketers instead focusing on demographic (35 percent) and address data (22 percent). In fact, agencies overwhelmingly use more third-party sources to enrich their data, which shows the relative lack of customer information they hold compared to brands.

Dealing with data quality

Nearly one in five marketers said poor-quality customer data was their biggest challenge. But what leads to this? When asked to prioritise the different causes of poor-quality data, marketers cited basic errors as the main culprits, specifically out-of-date information and incomplete data. The research found that problems such as duplicate data, spelling mistakes and data in incorrect fields tended to rank lower when it came to data-quality issues.

Validating data as it is collected is key to maintaining good-quality data. Although this is becoming an increasingly automated process, both on websites, for which 46 percent of marketers automatically check address data, and in internal systems, 40 percent automatic checks, nearly one in five marketers said they did not validate website data, and 16 percent did not check data coming into internal systems at all. An additional 25 percent relied on manual address checks in internal systems. At a time when good-quality customer data and operational efficiency are high on the marketing agenda, there is clearly a need for brands and agencies alike to find new ways to automate the continuous cleansing and validation of customer data.

Data is a living entity and, as marketers understand, quickly becomes out of date. The overall picture is that brands and agencies are focusing on more formal, regular data cleansing – 22 percent do this daily or continuously, and just 11 percent annually, down from 14 percent last year. However, 33 percent still have no formal processes in place to clean customer contact data, although this has dropped from 37 percent in 2016. This means a sizeable minority are putting themselves at risk of data-quality issues – and potential GDPR investigations over non-compliance.

Even without GDPR fines, poor-quality data hits the bottom line. Marketers recognise this, having estimated the average cost of poor-quality customer data at 6 percent of annual revenue, a similar figure to that from 2016. For major brands, this is measured in millions of pounds – and even this may not be the complete picture. Poor-quality data impedes overall marketing performance, impacts response rates and reduces conversion rates, making the overall cost potentially much higher.

Conclusion

The fast-approaching GDPR implementation date may be hitting the headlines and providing a new set of challenges for both brands and agencies. Achieving compliance is only serving to reinforce the importance of good-quality customer data as a means to improve marketing performance, deliver great customer experience and drive revenue, both now and in the future.

 

Jim Conning is managing director of Royal Mail Data Services (RMDS).

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Jim Conning

Royal Mail Data Services (RMDS)


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