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Why composability will make CDPs affordable - even when budgets are tight

What’s happened?

Last week, mParticle Customer Data Platform (CDP) proudly unveiled their "value-based" pricing model, boldly dubbing it "revolutionary". While the claim of revolution may be overstated, it does signify a significant shift for both the company and, potentially, the broader CDP category.


So firstly, what does “value-based pricing” mean? According to mParticle, the key benefits of their new pricing model are:

mParticle’s Description

Translation

“Say goodbye to overage penalties and wasted licenses”

Don’t get punished for using the product too much or having too many users

“Improve flexibility and control”

Only process data that drives value based on designated use cases rather than hoarding it “because data is the new oil”

“Augment your existing data stack”

Only pay for the functionality you need

The Oxford Dictionary defines the word revolutionary as "involving or causing a complete or dramatic change," but mParticle's recent shift is merely aligning with the broader MarTech industry. While it may grab attention as a notable move towards modular pricing, it’s more evolution rather than revolution. Customer Relationship Management (CRM) platforms, social media management platforms, and Digital Experience Platforms (DXPs) have all embraced modular pricing to varying degrees.


Speaking of DXPs, you can’t mention that acronym nowadays without instantly being pulled into a debate about composability – which is just a fancy MarTech rebrand of the word ‘modular’ (Scott Brinker’s recent breakdown of what composability actually means is well worth a read). This is relevant because DXPs are moving en masse towards composable platform landscapes (except the monoliths, of course) and mParticle may be the first major domino to fall when it comes to CDPs following suit. They even refer to their pricing model as ‘composable’ on their website, beating that poor horse once again.



So, why is this significant? Because if more providers introduce similar pricing models to mParticle, this will make CDPs more cost-effective and cost-transparent, and therefore easier to justify as a CMO’s next big CX investment. To fully understand this, you’ve got to first understand what CDPs do and how they position themselves.


What's the background?

So, let’s start with a definition courtesy of Gartner...


“A customer data platform (CDP) is a software application that supports marketing and customer experience use cases by unifying a company’s customer data from marketing and other channels. CDPs optimize the timing and targetingof messages, offers and customer engagement activities, and enable the analysis of individual-level customer behaviorover time.”


Yes, this definition looks like what ChatGPT would give you if you asked for the "top 50 BS MarTech jargon words in no particular order" but the bolded words start to give us a clue about what capabilities CDPs generally have.



Firstly, this is a broad church. There is plenty of overlap between typical CDP capabilities and other categories of platform such as marketing clouds, data lakes and CRMs – categories in which you will more regularly see modular pricing.


Secondly, platforms advertising themselves as CDPs tend to have only a subset of these capabilities and position themselves according to four typical ‘flavours’ of CDPs. Forrester articulates these as data management, orchestration, measurement and automation. These can be broadly arranged according to their focus on insight and/or activation, but they’re not mutually exclusive.



CDPs don't shine by boasting any single capability; their true strength lies in bundling multiple capabilities under one roof. While other platforms can handle similar tasks individually, the fragmented nature of having separate solutions for each task makes experimenting across marketing channels challenging and costly. CDPs, on the other hand, put cheap omni-channel experimentation in the hands of non-technical marketeers.


CDP providers face a challenge in a tough market: how to sell a product focused on experimentation when it's not the top budget priority for CMOs. Paying for all the bells and whistles when you only need a couple bells becomes an unfeasible luxury in the face of squeezed budgets. CDP implementations are big opportunities for business transformation and transformation costs big. Even a caterpillar has to pay with its cocoon to become a butterfly.


Why has it happened?

With the above in mind and the fact that inflation is still ludicrously high and showing scant signs of abating quickly, it’s logical that mParticle has made the move towards modular pricing as their potential customers struggle to sell their own products.


Companies implementing CDPs often grapple with cost-to-value misalignment due to the breadth of use cases they can accommodate. Rapidly building up use cases becomes crucial to realizing a return on investment, especially when costs are tied to the number of events or users.



To realise value in an event or user-based pricing model, every event or user needs to create value. This is challenging if the organisation has a data hoarding or give-everyone-access mentality rather than a use case-first one. Not all data is equally valuable and not all users within the organisation are equally placed to drive value.


mParticle’s “composable” pricing therefore is a logical step to grow their market share and more importantly, convince CMOs that they can still implement a CDP during inclement market conditions.


Why is it important?

Firstly, this move potentially signals a shift for the CDP category towards composability in line with the MarTech industry’s broad direction of travel. This should be a good thing for brands and their customers. Easier justification of the cost of CDP modules means more access to cheap experimentation means better CX. In the real world, this doesn’t always eventuate as simply as that but over time CX will improve as a result of marketeer-built experimentation.


Secondly, this can be seen as an admission that CDPs are too pricey in a challenging market or, at the very least, fail to deliver sufficient value under event or user-based pricing models. MarTech providers don’t charge based on time and materials, they charge based on how much value they think brands will get out of their product. Therefore, if the value attached to experimentation wavers when budgets tighten, CDP providers will face difficulties if they charge companies based how much they use the platform (events/users) rather than what they use it for (specific use cases).


Finally, in addition to aligning cost with value more tightly, this could herald a move towards streamlined and easily understandable pricing for CDPs. Many MarTech vendors make pricing their product basically impossible unless you have a master's degree in advanced mathematics and a crystal ball. However, in the current climate, CMOs crave certainty, visibility, and clarity to support budgeting amid challenging conditions. If more CDPs adopt this approach, they stand a better chance of successfully selling their product.

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