The retail environment is complicated, challenging and in many ways foreign. Think about viewing the retail environment through a prism. What used to be one homogeneous beam of light that large scale retailers and CPG companies could scale against has become a fractured spectrum of colors. No one really knows which color to chase first or how to take systems that were focused on a single beam and adapt them to chase more than one.

1. - 1 -
© 2012 Kantar Retail
“The Whole Is More Than The Sum Of Its Parts”—Aristotle
The retail environment is complicated, challenging and in many ways foreign. Think about viewing the retail environment
through a prism. What used to be one homogenous beam of light that large scale retailers and CPG companies could
scale against has become a fractured spectrum of colors. No one really knows which color to chase first or how to take
systems that were focused on a single beam and adapt them to chase more than one.
As the light passes through the prism it is refracted into three disparate parts:
1. The Macro Environment
2. The Shopper Environment
3. The Technology Environment
This analysis will focus primarily on the interplay between the Macro and Shopper forces by looking at the words that
describe them best, “Volatility” and “Polarization.”
We will also expand the science metaphor “one step beyond light” to understand what happens to marketing when it
gets exposed to very high speeds and very small spaces. The study of subatomic particles moving at or close to the
speed of light is known as quantum physics, in each section we’ll explore how the road paved by Albert Einstein might
provide a useful path for marketers to explore when coping with these two core change drivers.
Macro Environment Key Word—“Volatility”
Volatility is not the same as uncertainty. For the purpose of this conversation volatility is defined as “the degree of
deviation actual results have from the expected outcome”, whereas uncertainty is “the likelihood that actual results will
be different than our expected outcome.” This fundamental misunderstanding of volatility (in particular its confusion
with the related but different concept of “uncertainty”) is a critical one. A misunderstanding so fundamental it may
have inadvertently reshaped large scale retail/CPG strategy. To say the macro environment will be volatile is, to some
degree, an abdication of analytic responsibility, bordering on saying “I don’t know.”
Volatility exists on several levels, including economic, regulatory/political, the retail marketplace and structural.
Economic
Economically, the impact of volatility will primarily be felt on the following three fronts - economic growth, prices and
Interconnectivity.
ƒƒ Economic Growth—Globally, these issues will yield a high degree of deviation from expectations:
»» The U.S.—Political polarization, that is unlikely to improve significantly in the near-to mid-term, will make
economic growth in the U.S. difficult to predict.

2. - 2 -
© 2012 Kantar Retail
Quantum Marketing: Success In A Volatile and Polarized World
»» The U.S., Europe and Japan—Issues over taxation, debt and spending levels translate into currency
instability and structural uncertainty.
»» China—As purchasing power becomes more distributed across cities and regions in China, companies are
counting on growth from areas they are not as familiar with.
»» Rest of World—Growth in less familiar markets, such as smaller Asian markets, the Middle East, and Sub-
Sahara Africa, will play an increasingly significant role in growing the global economy.
ƒƒ Prices—Increasing demand for raw materials by emerging markets are driving the price of goods and services
upwards. One result of this will be that eventually currency markets will yield U.S. and European currencies that
trade at lower rates vis-a-vis the rest of the world.
ƒƒ Interconnectivity—As globally traded and priced activities increase their share of global GDP, price shocks will
become multinational in nature and more difficult to trace. More unpredictable noise in the system will drive
deviation from expectation.
Regulatory/Political
Regulatory/political volatility is always difficult to predict. Rather than focus on short-term issues we will focus on more
structural ones.
ƒƒ Regulation—Poorly understood issues will be increasingly regulated by legislative bodies with heavy influence from
vested interests. In particular, issues relating to topics of massive commercial importance like healthcare, privacy
and data are all likely to be subjected to regulation that will shift core pieces of how retail works.
ƒƒ Politics—Until at least 2014, and probably beyond, a structurally divided U.S. legislative branch will make reaching
any kind of consensus to solve the numerous issues facing the U.S. (e.g. tax policy, debt, entitlements) extremely
difficult. This has enormous implications for both the U.S. and global economy.
ƒƒ Fiscal Stability—Governmental need for new revenues is leading to increased consumption and value-add taxes
exacerbating the price-based economic volatility highlighted above.
The Retail Marketplace
Retailers propelling the market forward no longer use predictable volume as a competitive advantage, but may use
volatility as a competitive advantage. At its most basic level, Amazon seeks to disrupt the status quo, seeing its ability
to succeed in a turbulent market as a key competitive advantage. Amazon has a structural advantage in a volatile world
since change is easier in a model that does not have products distributed in thousands of stores. In addition, Amazon has
a CEO who is committed to managing as though “every day is day one.”
ƒƒ Structural—As large companies seek to optimize the predictability and reliability of their return-on-capital they may
have inadvertently pursued strategies that create more volatility.
»» Enterprise management systems like SAP have forcibly linked projected demand and supply through the
value chain. On a broad basis these strategies have stripped flexibility, safety stock and surplus capacity
out of the global economic system at an epic rate, which is why companies continue to post positive EPS
numbers in unstable growth environments.

3. - 3 -
© 2012 Kantar Retail
Quantum Marketing: Success In A Volatile and Polarized World
This model can be very effective as a long-term profit maximization strategy if three things are true:
i. There is upward momentum in the marketplace.
ii. Growth in the retail market is dominated by players looking to create cost-based efficiencies at scale
through predictability.
iii. The information economy is powered by massive, scale-centric mainframe-based systems.
»» In a world where there is significant upward sales momentum, having a flexible asset reduction strategy can
appear to reduce uncertainty and make business more predictable. In fact, all it really achieves is to reduce
internal volatility and uncertainty in an environment that already had upward momentum. This creates the
illusion that companies can predict the future better, when in fact they can’t.
The single most salient fact of 21st century commerce is that businesses that have systematically eliminated
flexibility to “optimize” “return on capital” have simply adapted a strategy that produces profits in predictable
environments. Mitigating the impact of an inflexible, but “efficient”, capital base is the key to competitive
strategy.
»» When virtually every large scale enterprise simultaneously undertakes the same strategy, an across the
board reduction in surplus capacity, this leads to a system incapable of responding to systemic shifts. When
shocks to supply or demand occur, every company in the world is simultaneously incapable of managing
it. This leads to a significant net increase in volatility as changes in marginal demand and supply manifest
themselves with extreme impact!
Reducing volatility is something companies can theoretically control, but reducing volatility also reduces
upside (risk and return in a free market are typically highly correlated). Reducing uncertainty internally
occurs when volatility comes down and the external world remains relatively predictable. If the external
environment is intrinsically more uncertain strategies that reduce volatility have the countering effect –
uncertainty brings more impact and more volatility to the business.
Quantum Marketing Part I—Probabilistic Strategy.
One of the core discoveries of the quantum world was just how highly uncertain and probabilistic subatomic particle
behavior is. In particular, there is a core tenet of this world known as the Heisenberg Uncertainty Principle – which
essentially states that you can know where something is, or how fast it is moving, with absolute certainty ... but not both.
One or the other is always a probability exercise.
This level of understanding of volatility applied to marketing might get us to Quantum Marketing Conclusion #1 — I can
know what happened, or why it happened, with absolute certainty…but not both.
This gets to the heart of probability. A good way to understand this is to step outside of both marketing and science
and look at politics. One of the great lessons of the 2012 U.S. election was the power of using probability studies to
understand what was really happening. Nate Silver, a statistician, effectively (and now famously) predicted an election
that most viewed as “too close to call” with amazing accuracy. He accomplished this primarily by weighting the election
polls from all 50 states to triangulate a far better guess as to WHAT was going to occur.

4. - 4 -
© 2012 Kantar Retail
Silver would happily tell you that one of the things he did not know as an outcome of the precision achieved by a better
assessment of the WHAT is any understanding of the WHY. As a predictive analyst that’s not his fundamental concern.
This approach to seeing the data, weighing the data, and viewing the data to observe patterns and draw conclusions is an
increasingly important skill set to marketers in a “Big Data” world. One of the foundational tenets of companies that use
Big Data effectively is far less concern with why things happen and greater interest in what is occurring.
Neither Google nor Amazon is a deeply philosophical enterprise. What they are is extraordinary at seeing patterns,
building approaches, and reacting. In the brick and mortar retail world a great example of a retailer who behaves this
way is Costco. Costco routinely rejects strategic argument after strategic argument in favor of a simpler “algorithm,”
does it sell? If an item sells, Costco cares less than any other retailer why … their model lends itself very well to this
type of read and react approach.
This approach works extremely well for companies whose asset base is inherently flexible (and Costco’s limited SKU,
high velocity model affords some level of flexibility). Most suppliers have significant investment in assets that do not
react the way that a server farm or algorithm can. Stores and factories need to be pointed in a certain direction in order
to be effective. To that end it seems unlikely that this type of Big Data approach on its own will be sufficient for capital
intensive enterprises to win. They need to understand the WHY. But, following our corollary, a WHY based strategy is
never going to be able to understand precisely WHAT will happen, hence the importance of strategies that can adapt to
volatility and uncertainty.
So what are the implications of this need to manage through volatility? From now to 2018, Volatility will yield a short-
term competitive response, Increased Flexibility, and a longer-term strategy, Dynamic Planning.
Volatility-Flexibility
ƒƒ Link macro factors to micro level plans. This ensures that volatility reduction strategies do not mask larger
uncertainty.
ƒƒ Reconsider safety stocks and real return on assets. In order to do this math properly uncertainty needs to re-enter
demand forecasting. Assuming that volume will grow at a set rate irrespective of strategy does not work in a slow
growth environment.
ƒƒ Portfolio management of customers and opportunities. The real advantage of scale in an uncertain world is
that scaled enterprises can afford failure. In a volatile world, companies would be well served to remember how
passionately Sam Walton embraced and celebrated failure. At some basic level, Mr. Sam knew that large scale
enterprises needed to fail sometimes in order to best maximize their opportunities.
Flexibility-Dynamic
ƒƒ Improve resource allocation. Look at every process that assigns people, money or capital to initiatives and make
that process more responsive to the external world.
ƒƒ Clustering. In an overlap with polarization, how do we fluidly aggregate disparate opportunities to create scalable
opportunity.
ƒƒ Opportunity assessment. Find people who can successfully sift through the noise created by volatility to find
opportunity in the marketplace.
Quantum Marketing: Success In A Volatile and Polarized World

5. - 5 -
© 2012 Kantar Retail
Shopper Environment—Polarization
While volatility creates inherent uncertainty about what and why things are happening, an increasingly polarized world
continues to segment shoppers/consumers into groups that are smaller, more distinctive and more differentiated from
one another. Some of the root drivers of polarization come from sources similar to those driving volatility.
ƒƒ Economic—The distribution of purchasing power and income in the world’s largest marketplace (e.g., the USA.)
is in many ways like the largest “developing” retail market on earth. Income distribution in the U.S. (e.g., the GINI
Coefficient) more closely resembles markets famous for their income polarization like Russia than it does a more
traditional high GDP/capita market like the UK, France or even Canada.
ƒƒ Retail Environment—Where and how things are sold – Across the board more and more growth is coming from
retailers we are less familiar. This fragmentation of growth across multiple business models and footprints is a core
challenge in a polarized world. Some examples include the following:
i. Non-store based retail, in particular unique business models like Amazon.
ii. Chinese regional retailers across a multitude of channels.
iii. Russian discounters like Magnit.
iv. Discount and proximity based food retail in Europe.
v. US “alternative channels” like club and discount.
vi. Single country European operators like Mercadona, Esselunga (sp?), Colyrut, Jumbo, Morrisons, dm.
vii. Alternative channels in Latin America such as drugstores in Brazil.
viii. More sophisticated Latin American based multinationals like the Chilean player Cencosud.
ƒƒ Generational/Tech Savvy/Ethnicity—These of these three topics could easily warrant a thought piece on their own but
for today’s purposes it is important to keep in mind that most people under-30 are growing up in a world which is:
i. Economically Unstable
ii. Multicultural
iii. Technologically Connected
Though the over-50 population of the high GDP/capita world is adapting to these trends, the under-30 world is
growing up with them as fundamental pillars of their existence. An odd metaphor is the success Walmart in the USA
is having attracting millennial shoppers. There was an assumption that a more “idealistic” generation would object
to Walmart because of the impact it has on society.
This is a classic example of an over-50 filter applied to an under-30 problem. To shoppers’ under-30, Walmart
doesn’t impact society, Walmart IS society. It’s part of the furniture. To that end, multicultural initiatives and
technology-based outreach to shoppers need to be adapted to an under-30 audience who view these things as part
of their normality, not something that requires an initiative. At the same time, leveraging these trends to reach the
over-50 audience will look and feel different, and will require a more specific and targeted approach.
ƒƒ Informational—Consumers live in a world that is increasingly curated and filtered. At an industry event in June
2012, ABC news legend Ted Koppel had an interesting observation about the role of curation and filtration in the
news industry. He said “you think you have the right to hear news that reflects your point of view. You’re wrong
Quantum Marketing: Success In A Volatile and Polarized World

6. - 6 -
© 2012 Kantar Retail
about that.” His point was that the ability to receive news curated to your ideological perspective was net harmful to
society.
An interesting idea and while marketers may or may not lament the creation of these self-reinforcing belief systems
they must deal with them. Successful brands can reach consumers despite the fragmentation of media in the
curated and tailored bubbles they have created for themselves. Polarization, however, requires that brands use a
wider variety of mediums and messaging to reach consumers in these tailored spaces.
Quantum Marketing Part II—Behavior in Small Spaces
One of the core lessons of quantum physics is that a lot of the laws of conventional physics break down in intensely small
spaces. You can draw that parallel to the world of shopper insights. Many shopper insight professionals spend most of
their career explaining to more conventional marketers how their assumptions about consumer behavior break down at
the “subatomic” level of decision that shoppers are making, often unconsciously.
It will be interesting to see if the “laws” of marketing are bent or changed by bringing to life propositions in a world
that morph over time into one where individuals use a combination of conscious choice and outsourced curation to
present themselves with a distinctive, almost personalized, lens to view the world. Some attributes of this “subatomic”
marketing might be:
ƒƒ Convenience will become contextual and situational, and will require reaching people as they move through the
world through mobile platforms in engaging and useful ways.
ƒƒ A one-sized fits all approach to pricing makes very little sense when analytics and personal communication
platforms are combined. Most shoppers may come to expect “their own” pricing over time.
ƒƒ A great experience in-store (particularly one that teaches the shopper something) will need to be increasingly
contextualized to that person’s situation or mode at that time.
ƒƒ Loyalty is all about optimizing what you buy. Loyalty cards are simply transactional record keepers. Tomorrow’s
loyalty will go to the retailer that can articulate and fulfill an unmet need while providing intrinsic rewards.
The implications of how to “quantum market” in the small spaces created by polarization are profound, particularly for
large companies.
Polarization—Targeted Demand Creation
ƒƒ Positioning—Companies must have a clearer understanding of trade-up/trade-down. Every shopper portfolio has
four types of positioning
»» Trade-up formats that are pure play high income – Willie Sutton Premium Marketing – “That’s Where The
Money Is”
»» “Ladder-Up Formats” – Formats that allow people to “punch above their weight”
»» “Ladder-down Formats” – Formats that allow people to feel like “they got one over on the system”
»» Robin Hood Formats – Formats responsible for redistributing well-being
Quantum Marketing: Success In A Volatile and Polarized World

7. - 7 -
© 2012 Kantar Retail
ƒƒ Place—The urban retail landscape in our post-rural society will be a major platform for retail development.
ƒƒ Pricing—Retailers that “punch above their weight” from a scale point of view (e.g., Amazon) are adopting dynamic
pricing models that significantly disrupt the status quo.
ƒƒ Product—Niched product, focused brands and small companies are going to be some of the most challenging
competitors large multi-brand players face.
Polarization—Targeted Enablers for Success
ƒƒ People—Everyone responsible for commercial strategy will have to become more analytically fluent to be able to
weigh emerging opportunities.
ƒƒ Data—The two words to challenge our information architects to get right are granular and contextual. Balancing
these two needs will require really good system and toolkit design.
ƒƒ Measures—Companies need to reward people who aggregate disparate opportunity into scalable initiatives
disproportionately.
ƒƒ Work—Polarization will require better skill sets at and processes for more customized outputs.
Targeted—Personal Demand Creation
ƒƒ Positioning—A personal relationship with shoppers based on knowledge and insight.
ƒƒ Place—Understanding the relationship between purchase location and distribution point. As shoppers increasingly
decouple the path to purchase from the path to replenishment, shopper insights will be challenged to understand
this dynamic far better.
ƒƒ Pricing—Many retailers are going to react to the disruptive pricing environment by trying to take their pricing out of
the public domain. Understanding personal and private pricing will be a fascinating challenge.
ƒƒ Product—EOD (Everything-on-Demand) Where can I let people be a “segments of one” from a product perspective?
Targeted—Personal Enablers for Success
ƒƒ People—Collaborating to build fact based stories – the rise of analytics does not decrease the importance of
bringing those quantitative insights to life in a more powerful way.
ƒƒ Data—A combination of “lakes” (massive databases of information) and “rivers” (massive quantities of real-time
behavioral and external data that flow by) that are used for pattern recognition.
ƒƒ Measures—Incent people to find opportunities that are significant but outside their companies core competency.
ƒƒ Work—Multidisciplinary analytic platforms.
Hopefully these ideas help you in your planning process and give your company the capabilities to navigate this volatile
and polarized world. In the end, the goal is to put together as Aristotle said a “whole” greater than the sum of these less
certain and more distinctive parts!
Quantum Marketing: Success In A Volatile and Polarized World