Rotman

Roger Martin interviews Gord Nixon Whats a CEO to do?
Nobel Laureate William Sharpe on Longevity Risk
Energizing Cities: Lighting the Way Forward
The Magazine of the Rotman School of Management / Spring 2008
The All-consuming Issue
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The All-consuming Issue Spring 2008

Features
4 Balancing Multiple Stakeholders: Whats a CEO to Do? by Roger Martin 38 Energizing Cities: Lighting the Way Forward by Janet Sawin and Kristen Hughes
Gord Nixon, Canadas Outstanding CEO of the Y ear, discusses some of his biggest challenges and opportunities as chief executive of Canadas largest bank.
14 The New Consumerism: Inequality, Emulation and the Erosion of WellBeing by Juliet Schor
Cities can lead the way to a more sustainable future, improving the quality of life for urban and rural dwellers alike.
Societys wealthiest tier has become a widespread emulative target, and there are implications for our collective well-being.
20 The Effects of Partitioning on Consumer Behaviour by Dilip Soman and Amar Cheema
26 32 62
44 Hedonomics in Consumer Behaviour by Claire Tsai and Christopher Hsee
To maximize happiness, consumers must accurately predict the emotional consequences of their options and make choices based on those predictions.
50 Tom Sawyer and the Construction of Value by Dan Ariely, George Loewenstein and Drazen Prelec
When a given quantity of a resource is physically divided into smaller quantities, it reduces both the total quantity consumed and the speed of consumption.
26 Consumption: The Happiness of Pursuit by John Quelch and Katherine Jocz
As evidenced by Toms Law, consumer valuations are malleable and have a surprisingly large arbitrary component.
56 From Plague to Paradigm: Designing Sustainable Retail Environments by Steve Bishop and Dana Cho
The consumer in each of us can learn from the citizen, and the citizen can learn from the consumer. Marketers must learn from both.
32 Social Innovation and Sustainable Development as Drivers of Growth by Patrick Cescau
Considering a shoppers context is the key to making green products and services relevant to them.
62 Blurring the Lines: Why Its Time to Rethink Marketing by Yoram Wind
Finding the sweet spot between the needs of consumers and our planet can be the path to competitive advantage.
It is time to develop new mental models that reect the complex inter-linkages between modern consumers and business.
Idea Exchange
We have way more stuff than we need, but not enough time to enjoy it. This is the quandary of the post-consumption consumer.
Seth Godin, p.70
In Every Issue
3 From the Dean 10 Thought Leader Interview: William Sharpe 101 News Briefs 108 Alumni Proles 110 Alumni Capsules 112 Alumni Network News 113 Class Notes 121 Upcoming Events
10
70 85
70 Questions for: Seth Godin 74 Questions for: Barry Schwartz 77 Questions for: Alex Steffen 80 Point of View: Nicola Morrelli 83 Faculty Focus: Sridhar Moorthy 85 Questions for: Marion Nestle 88 Questions for: Stuart Boden 91 Faculty Focus: Pankaj Aggarwal 94 Questions for: David Lewis 97 Questions for: Mathis Wackernagle
Rotman Magazine is printed on:
Chorus Art Silk (pages 1-68). This paper is made from 50 per cent recycled bre and 25 per cent postconsumer bres. Cascades Rolland Enviro 100 Smooth (pages 69-120). This paper is made from 100 per cent post-consumer bres and is chlorine-free. These paper choices have spared approximately 110 trees, 64,306 gallons of water and used 6,814 pounds of consumer waste.
94
Cert no. SW-COC-2063
Rotman Magazine, Spring 2008 Rotman magazine is published three times per year for alumni and friends of the Rotman School of Management, University of Toronto. Subscriptions are available for CAD$99 per year. To subscribe, go to rotman.utoronto.ca/subscribe Editor Karen Christensen (christen@rotman.utoronto.ca) Contributors Steve Arenburg, Dan Ariely, Steve Bishop, Patrick Cescau, Amar Cheema, Dana Cho, Christopher Hsee, Kristen Hughes, Katherine Jocz, George Loewenstein, Roger Martin, Drazen Prelec, John Quelch, Janet Sawin, Juliet Schor, Dilip Soman, Claire Tsai, Jerry Wind, Stephen Watt Design Underline Studio Inc. Cover Chris Jordan (chrisjordan.com)
Copyright 2008. All rights reserved. To submit a change of address, please contact us at Rotman Magazine, Rotman School of Management, 105 St. George Street, Toronto, on m5s 3e6 Tel: 416-978-0240 Fax: 416-978-1373 E-mail: alumni@rotman.utoronto.ca Web: rotman.utoronto.ca
Roger Martin
From the Dean:
The All-consuming Issue

THE LATEST BLACKBERRY; a country home; foreign travel. If you dont already have these things in your life, chances are you want them. Many of us are caught up in a cycle of work and spend, where consumption is our major form of reward for the long hours we work and the stress of daily life. Indeed, consumer expenditures are often the means by which we keep our frenetic lives going, whether it be stress-busters like vacations or restaurant meals, the contractingout of household services or the use of time-saving gadgets. Consumption has gone well beyond satiating needs or even fullling dreams to become an end in its own right. Globally, the inequalities are stark: the 20 per cent of the population in the highest-income countries accounts for 86 per cent of private consumption expenditures (the poorest 20 per cent, a minuscule 1.3 per cent); the richest fth consumes 58 per cent of total energy (the poorest less than four per cent) and owns 87 per cent of the worlds vehicle eet (the poorest, less than one per cent). Unfortunately, the results of our rampant consumption are becoming increasingly apparent, and they arent pretty: our cover image, from Seattle artist Chris Jordans Running the Numbers: An American Self-Portrait exhibition, shows the two million plastic beverage bottles that are discarded every ve minutes in the U.S. This issue of Rotman , which will be launched on Earth Day 2008, examines how and why we consume, and how our choices impact the planet. Our consumption habits are not only ecologically unsustainable; for many they are also nancially unsustainable. Consumption patterns are all-too-often supported by the assumption of increasingly-debilitating debt. Nobel Laureate William Sharpe discusses the investment effects of longevity risk and a new approach to saving called a lockbox strategy, on page 10.
Fifty years ago, we compared ourselves to our peers: the Smiths wanted the Joneses Chevy and nifty TV not the Rockefellers mansions and art collections. But the reference groups we now use to calibrate our consumer aspirations have become more vertical and less horizontal, as Juliet Schor documents in The New Consumerism: Inequality, Emulation and the Erosion of Well-Being on page 14. Over the past few years, peoples inability to control their consumption of everything from goods and services to food has spawned much discussion. A large part of the problem stems from all-too-easy access to resources. Rotman Professor Dilip Soman and his co-author have discovered a way to help control our varied appetites. They examine The Effects of Partitioning on Consumption on page 20. Elsewhere in this issue, Unilevers Chief Executive Patrick Cescau explains how social innovation and sustainable development can be drivers of business growth on page 32; Whartons Jerry Wind explains why its time to rethink marketing models on page 62; and our Idea Exchange features 10 thought leaders including Seth Godin, Barry Schwartz and Marion Nestle. At one end of the spectrum lies the conventional economic wisdom that consumption is good that new-and-improved products really are improvements, and that consumption makes our lives better in some meaningful ways. At the other end are those who point to ndings that once our basic needs are met, consuming does little to improve an individuals well-being. We need to nd some middle ground between these two extremes, to seek ways that consumption can be restrained and redirected in order to improve prospects for human well-being and sustainability. The amount of energy we consume is a result of two kinds of choices: those we make as a society and those we make as individuals and families. We cant all stop consuming, but we can start to consume more thoughtfully by examining how our values t with the products and services we consume. Im pleased to announce that with this issue, Rotman Magazine is going greener: the rst half of our magazine will be printed on paper with 50 per cent recycled content and 25 per cent post-consumer waste; and the second half on paper made from 100 per cent post-consumer waste. These changes mean that with each issue we will spare approximately 110 trees and 64,306 gallons of water. As consumers on a much larger scale, business faces one of the most important questions of our time: will it be a barrier to sustainability, or its greatest hope? At Rotman we believe that the latter is a possibility, and we are giving our students the thinking tools required to shape our world for the better. Because we can, and because we must.
Rotman Magazine Spring 2008 / 3
BALANCING MULTIPLE STAKEHOLDERS:
WHATS A CEO TO DO?

Canadas Outstanding CEO of the Year for 2007, Gord Nixon of RBC Financial Group, talks to Dean Roger Martin about some of his biggest challenges and opportunities as chief executive of Canadas largest bank.
Interview by Roger Martin
Roger Martin: Global capital markets are in turmoil at the moment. What key challenges is RBC facing?
Gord Nixon: We are living in a new world today even relative to where we were just six months ago. Weve been through a ten year party where theres been way too much consumed, and were now dealing with a hangover that is painful and will last a lot longer than people expected. Our key challenge in the short term is navigating through these choppy waters. Every day there are new challenges in the market for instance, write downs as a result of what started off as a sub-prime problem, and a real estate situation in the U.S. that has clearly spread into other sectors and asset classes. Being a large global nancial institution in a world where markets are in disarray some might even say crisis isnt easy. As the crisis spreads into the general markets from Bay Street and Wall Street to Main Street the operating environment for corporations and
4 / Rotman Magazine Spring 2008
And on the opportunity front?
For rms (such as ours) that have managed through the turmoil effectively and maintained a strong credit rating, I think it will present opportunities as credit spreads widen globally. Its not
PHOTO: WILLIAM CICCOCIOPPO
nancial institutions will be more difcult than it has been in quite some time. GDP growth of three or four per cent and nancial services growth of six or seven per cent which weve experienced recently is just not going to happen. So making sure that we manage our organization effectively in a much more difcult operating environment is challenge number two. Being very diligent from a risk management perspective will be essential over the next couple of years. A lot of mistakes have been covered up in our industry by the great markets of recent years, but that is no longer the case. Operational excellence is more important than ever.
Over the last ve years there has been a tremendous amount of leveraging and disintermediation, but I think there will be far less of that; in fact, I think well see a reversal of this trend.
necessarily a good thing for borrowers, but it should be positive for rms that have the ability to extend their balance sheet and take advantage of the situation. Over the last ve years there has been a tremendous amount of leveraging and disintermediation, but I think there will be far less of that; in fact, I think well see a reversal of this trend, and that things like balance sheets, customer relationships some of the things RBC does well will become even more valuable. Many of our competitors are dealing with the industry turmoil by restructuring their businesses, and I think well see another round of consolidation breaking-up of companies because the markets demand it or because balance sheets and capital requirements demand it. All of that creates opportunities. As a nancial services rm, you want to be in a position where youve got a high degree of optionality to take advantage of these opportunities, whether it be through acquisition or allocating capital to businesses that have high returns. We aim to maximize our optionality as things unfold over the next couple of years.
You were recently quoted as saying, Welcome to the new world of investing, where guilt and pride are becoming as much a part of the mix as ROI. What did you mean?
most signicant issue facing the world in the coming decades. Only three per cent of the Earths supply of water is fresh, and this precious supply will be threatened even further as we embark on an era characterized by climate change and population growth. The need for better fresh water management is critical because everyone on the planet needs fresh water. Shortages and access to clean water are already a growing problem, everywhere from Africa to Australia to California. The Blue Water Project is a $50-million commitment over the next 10 years by RBC to support global solutions for freshwater preservation, conservation and access in Canada and around the world. We felt it was important to focus on an area where we can make a difference, and where theres a natural afliation with our brand (since Canada has one of the worlds largest supplies of fresh water.) To kick off the RBC Blue Water Project, we announced a commitment of $10 million over 10 years the largest donation in our history to the ONE DROP Foundation to support a host of water projects in Canada and developing nations. As a founding partner of ONE DROP, we are proud to join forces with another Canadian organization, Cirque du Soleil, to make a difference in the world.
You have earned a reputation for being outspoken on some key non-nancial topics, including diversity and Canadas prosperity. Why are these issues so important to you?
I was referring to a media article that was circulating at the time about a woman who was very proud of her returns in tobacco stocks, but was too embarrassed to admit to her friends that she actually owned tobacco stocks. This was discussed at a workshop we held on the importance of sustainable and responsible investing. There is no question that in todays world, returns remain a very important criteria from an investment perspective; but how people generate those returns what they invest in, and governance around responsible investing are becoming equally important. Not to suggest that guilt and pride necessarily compromise return on investment: the good news is that they are not mutually exclusive.
RBC was recently named by Newsweek as the top large company in the world at effectively managing environmental risks; congratulations! Tell us about one of your latest initiatives, The Blue Water Project.
There is no shortage of environmental issues that we could have chosen to support, but we believe that access to water will be the
Rightly or wrongly, CEOs along with business school deans are put in a position where we have the ability to speak out on issues we believe are important. Obviously Canadas prosperity has a big impact on RBCs ability to succeed, because while international markets are increasingly important to our organization, our most important market is right here in Canada. Y ou and I co-authored an article for The Globe and Mail last July [Growing Global Leaders: The Hollowing-Out Solution], so I know we agree that Canada is not necessarily maximizing its potential globally. I have tried to take a fairly public position in terms of ensuring that our views on these important issues are heard, to ensure that Canadian businesses small, medium or large have every advantage and capability required to compete globally. The diversity issue is very much related to prosperity, because its an issue of human resources. We all know about Canadas demographics: we have an ageing population and a shortage of skilled
workers, which will soon intensify. Canada is a wonderful example of the value of diversity, and this is an opportunity for us to maximize the return we can get from the massive human resource potential in this country. While we are a shining example of successful multiculturalism, we are not without our problems: a tremendous number of immigrants come to Canada every year, and we have not done a good job of maximizing their potential. This is very important to Canadas as well as RBCs future.
Have you seen any progress since our Globe and Mail article appeared?
where we can play into our competitive strengths, and thats what were trying to do in both China and India. Areas where we are strong globally like global private banking, wealth management and our capital markets and trading businesses are our focus in emerging markets. Im proud to say that in China, while we are not large in terms of scale, we are protable, and we will continue to build on that. But we have to be patient and make investments for the long term.
Do you think we will see more of the ABN-AMRO consortium approach where rms get together and buy things up, then split up the proceeds?
The article denitely helped to put these issues on the front burner, where they belong. Since then, the government has put together a Competition Panel, under Red Wilson, to look at what some people like to refer to as Canadas hollowing out. In our article we went out of our way to say that people should stop talking about hollowing out, and just talk about how to maximize Canadas competitive position in the world, and thats precisely what this panel is looking at. There has also been a separate commission formed to look at taxation which I consider to be the grandaddy issue of them all. Whenever I talk about tax issues I am perceived as a greedy CEO looking to generate more after-tax earnings for his organization, but the truth is, we are no longer competing against other banks or telecommunications companies or mining companies down the street or across the country: we are competing on a global stage, and when people make decisions in terms of where they want to allocate capital or set up head ofces, a number of factors come into that. Thats why the work being done at the Martin Prosperity Institute by Richard Florida and his team is so important. They are focusing on all of these issues, which at their core revolve around human issues like diversity and culture; but they also revolve around taxation, because when we allocate capital, we have to make duciary decisions based on where we can maximize our return, and Canada is undeniably a high-tax jurisdiction. Our aggregate taxation rates in this country are actually quite competitive by international standards, but at the corporate level, we have very high marginal effective tax rates. We must continue to make progress on this front, because were competing not just with the U.S. but with Scandinavian countries and Singapore and Ireland not to mention emerging-market countries, all of which have very aggressive tax rates in terms of attracting investment.
How is RBC dealing with emerging markets?
I do think there will be a lot of restructuring in the industry. The problem with consortium bids is that theyre very difcult to execute. The one you mention is one of the only ones in the nancial services sector. I was actually directly involved in the merger of the three telephone companies in Atlantic Canada many years ago, and I can tell you that two-party transactions are complicated enough, but when you get into three or four parties it gets extremely complicated. Having said that, I think the answer is yes, we will see more of it, and there is a good chance we will also see the break-up of some large nancial services companies, either because their balance sheets will demand it or their investors will demand it. Weve already seen that with the hedge funds pressuring banks like CitiGroup, UBS, HSBC and others to look at breaking up their operations, to separate their investment operations from their wealth management operations; as that pressure builds and transactions happen, I think well see opportunities and different ways for organizations to take advantage of those assets that are sold or parcelled and then broken up.
How does Canadas banking system stack up globally?
I just got back from India last week, where we opened a new branch ofce. The challenge for us is quite different from other banks like HSBC, which actually has a history in emerging markets. Its important to recognize that our competitive strengths revolve around our history and track record in Canada and our strengths in Europe and the U.S. Hundreds of foreign banks are now operating in China and India, but the vast majority of them will not be successful notwithstanding the fact that those markets may be growing at 10 to 12 per cent a year. The key for RBC is to nd areas
Our banking system is a shining example in the world today and not just because we havent suffered as much as some of the U.S. or European banks. If you look at the delivery of nancial services within this country, at the quality of the technology and the products that are provided, its something we dont get much credit for. Its a lot easier to be critical of the big banks and beat them up than it is to recognize their strengths; but I can tell you that internationally, Canadas banking and nancial system is something that people should be very proud of. If you dont believe me, go and do some banking in the U.S. or somewhere in Europe, where you will pay a lot more, and you wont get the same services or technology that you get right here in Canada. With respect to RBC, we are clearly the most diversied of the Canadian banks: we are number one or two in virtually every sector of the nancial services industry in Canada, not just banking (where TD is a erce competitor) but asset management, credit cards, wealth management, insurance and capital markets. While we continue to invest signicantly in all areas of nancial services, most of our Canadian competitors tend to focus more on one or two areas. One question that I get from time to time is, are you big enough to be involved in so many areas? This is a very good
strategic question: should you be focused and dedicate a lot of your capital to just one area or are you better off to be diversied? My view is that there is no right or wrong answer. For RBC, diversication has been a very sound strategy. Frankly, its provided us with some degree of stability as our businesses perform differently in different environments. For example, we are very invested in the capital markets business relative to many of our competitors, but some of the diversication of our earnings has been very benecial as the capital markets business has gone through a difcult time in its cycle.
What is coming down the strategic pipe at RBC?
teamwork within an organization is extremely important. The days of aggressive autocratic CEOs are by-and-large gone. As a CEO you have to constantly be looking for ways to improve your management capability and your interface with people. I know what my personal strengths and weaknesses are: people arent shy about telling you these things, particularly when its done condentially (which is the way we do it.) Overall, you are only as good as your people: Im only as good as my management team, and they are only as good as their operating committees, and the operating committees are only as good as the 70,000 employees who make the bank work day in and day out.
What would you like your legacy to be?
On the personal commercial banking side and the wealth management side of our business, weve been investing outside of Canada both in the United States and internationally. One of our recent acquisitions is Alabama National Bank, a 1.6-billion dollar acquisition that reects our ongoing intention to build our Southeast U.S. banking capability. We now have about 430 branches in the Southeast and very strong presence in North Carolina, Alabama, Georgia and Florida. In addition to that, weve been looking at a lot of opportunities in the wealth management business both in the U.S. and elsewhere. As a result of what has happened in the international markets, we may be presented with opportunities to do some things that are more transformational in nature; we want to be well prepared to respond in the event that certain opportunities present themselves. However, we would never buy a business for the sake of expanding our operations if it were not consistent with our competitive strengths. There has been and will be lots for sale: one of the blessings of nancial services (but it can also be a curse) is that we generate a lot of capital, and one of our main responsibilities is to appropriately allocate and invest that capital, whether that means back into our existing business or adding to it. I think the worst mistake people can make is to invest for the sake of investing.
For those in the audience who aspire to reach the CEO-level one day, what advice do you have?
There is no such thing as a prototypical CEO, but I would say that one of the things that is important in terms of building a career is paying attention to mentorship. Its very important for organizations to provide mentoring opportunities, and its a two way street: we need to step up as mentors too. This has certainly been very important to my career. In addition, particularly in large companies, the ability to work with different types of people and build consensus, to develop a common purpose and a sense of
In my view, true legacies are built by people like Ted Rogers, Issy Sharp, Peter Munk and Jim Balsillie people who create companies from scratch and build them into large organizations over an extended period of time. When you look at most large public companies, Royal Bank included, we have a 140-plus year history, and the average tenure of a CEO is somewhere between ve and ten years. If every CEO was just trying to build their own legacy, half of them would be spending their time unwinding their predecessors legacy. CEOs of large public companies inherit great legacies, and thats what Ive done at RBC. Our organization has been built up over many years by a lot of wonderful individuals, including the leaders of the organization. Having said that, I do think it is essential for the CEO of any public company to recognize that modern business is extremely dynamic. CEOs should be accountable for ensuring that their organizations continue to move forward and evolve. When I look back at my time as CEO, in ve years weve gone from the 51st largest bank in the world to 19th, and sixth in North America. Of course Im proud of that; but part of it is due to the investments weve made and our operational performance, and part is a result of the mistakes that our competitors have made investments that have actually destroyed value. Assuming that I remain with the organization for a number of years going forward (which hopefully is a fair assumption) I want to look back and say that I took an organization that was strong and successful and had a great history, and I made it even stronger and more successful, with an even greater history.
This interview took place at the Rotman School on February 13, 2008. For more about Canadas Outstanding CEO of the Y ear for 2007, visit ceoaward-canada.org/history
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The Nobel Laureate and Stanford professor discusses longevity risk, the inefciencies of the four-per-cent rule, and the importance of a lockbox strategy.
William Sharpe
by Karen Christensen
There are lots of mixed messages out there for nancial services consumers. In your view, what are the key steps to nancial security?
Thought Leader Interview:
a decision as to stocks vs. bonds vs. cash and about how much to save, without acknowledging uncertainty let alone trying to estimate it seems to me the height of folly.
As average life expectancy continues to increase, so does longevity risk. How is this impacting investment planning?
The rst thing I would suggest is that people get good, realistic forecasts of where theyre likely to end up in retirement if they continue to do what they are currently doing. And by realistic, I mean taking into account not only how good it could be, but the bad and the ugly, so that they have some realistic view of their future if they continue to do what theyre doing. Having done that, they can begin to ask the hard questions: Should I save more? (very often, the answer is yes.); Should I take a different amount of risk?; Am I diversied sufciently?, etc. Second, people need to invest their savings in efcient and low-cost ways, and choose investments that are consistent with their circumstances, their other assets and their tolerance for risk. At retirement time, decisions need to be made concerning the funds that have been saved: should you buy annuities? If so, what types, and how much money should be annuitized? If funds remain, how should they be invested and spent over your retirement years? These are all difcult decisions, and they must be made as thoughtfully as possible.
You have devoted much of your career to the study of market risk. Do todays investors focus enough on the downside?
Living longer entails the need to either save more, work longer, or do both. It would be nice if there were some simple way to earn more on investments, but once the inefciencies have been wrung out of an investment program, there is no way to accommodate increased longevity without incurring the pain of consuming less, working longer, or both.
One of the most popular retirement strategies involves annually spending a xed amount equal to four per cent of initial wealth and rebalancing the remainder to a 40/60 per cent mix of bonds and stocks. What do you think of this approach?
Unfortunately, many investment decisions are being made by individuals who are ill-prepared to make them. To say to someone, here are 8,000 mutual funds or even here are 10 do whats right, is not very helpful. The software and some of the human advice people are getting often seems to ignore risk. These are bookkeeping schemes in which you earn nine per cent every year like clockwork, and you die right on schedule; theres no uncertainty at all. Making
My colleagues and I have addressed the four per cent rule, and we believe it is inefcient to couple a desired xed-spending process with a variable and uncertain investment strategy. As typically implemented, it runs the risk of running out of money within the intended period and the risk of having money left over after the period ends. It is possible to obtain the same outcomes with the same probabilities at a lower cost. In recent research we estimated that in a typical setting, such an approach may be equivalent to throwing away 10 to 20 per cent of ones retirement savings. For all of these reasons, we believe that this widely-advocated rule of thumb is not a good approach. The problem with traditional retirement security strategies is that they are split into two parts: an investment strategy and a spending policy. These really need to be integrated.
ILLUSTRATION BY COLIN BERGH
Some investments have higher expected returns than others, and by and large, theyre the ones that do the worst in bad times.
In a recent paper (Efcient Retirement Financial Strategies), you highlight the importance of creating a lockbox strategy. Please explain this term.
The approach is designed for someone who has just retired and has decided to devote a given amount of savings to spending in future years. The idea is to assess the individuals preferences for various amounts of consumption in each future year, his or her risk tolerance vis--vis spending at various times in the future, current wealth and other sources of income, and then determine an overall plan. Part of this plan involves allocating current funds to a series of lockboxes, each of which is designed to provide spending in a given future year. Thus one might put, say, $20,000 in a lockbox for the year 2020. The box would also include instructions for the management of the money from the present to the terminal year. Different boxes could well have different investment management strategies, as well as different amounts of initial funding. In the paper I show that in a so-called complete nancial market, any spending and investment strategy can be implemented with a lockbox approach. Of course the notion of a complete market is just a convenient assumption often made by economists; real nancial markets do not t this ideal. Nonetheless, investment outcomes that people might actually wish to achieve could well be obtained with existing nancial instruments. Alternatively, if there were sufcient demand for a particular set of outcomes, the nancial services industry would undoubtedly create appropriate instruments. Some current approaches to retirement investment and spending can be implemented now with the lockbox approach. An important consideration that makes lockboxes attractive is the fact that in our later years, our ability to make optimal decisions may be diminished; so in a sense, the lockbox approach allows an individual to make decisions for his or her elder self. This does not mean that lockboxes cannot be opened prematurely to obtain additional funds, nor that all the money in a lockbox must be spent in its designated year. But there are many advantages associated with the intentions reected in a lockbox strategy. Moreover, it is more likely to provide efcient investment outcomes than some rules of thumb that treat all of your savings as a single portfolio.
You have said that investments with higher expected returns tend to be those that do the worst in bad times. Why is this?
the case, people would want more of the former than the latter, which is infeasible. In future states of the world where markets are bad, there is less money, and hence people will pay more for a promise to receive $1 in a down market than for a promise to receive $1 in an up market. This leads directly to higher expected returns for investments that are expected to do worse in bad times that is, provide fewer of the expensive dollars and more of the cheap ones. In this context, bad times refers to situations in which a broadly-diversied portfolio of nancial securities of all types does badly. For example, one might want to think about the World Market Portfolio, including all traded bonds and stocks around the globe.
You have noted that a gulf exists between economists approach to retirement strategies and the 'rules of thumb' used by nancial advisors. How can the average investor navigate this gulf?
The average investor should denitely get advice from a person or organization that listens to what the economists are saying.
Do you believe that Behavioural Finance is making a positive contribution to the discipline of Financial Economics?
Some investments do have higher expected returns than others, and by and large, theyre the ones that do the worst in bad times. This is the standard result of asset pricing theory, be it the Capital Asset Pricing Model or the more general approach utilizing pricing kernels. The fundamental idea is that goods that are scarce command higher prices than those that are plentiful. If this were not
It is making and will continue to make a signicant contribution, but it is important to differentiate between two things: asset pricing and portfolio choice. There are asset prices risk and return and all that and there are the portfolios people hold. In his book The Wisdom of Crowds, James Suroweicki sensibly refers to a lot of behavioural work and efcient markets work. The basic argument is that if we have enough people, even though they may be ill-informed and irrational coming to market, it is entirely possible that the prices of assets, thereby true risks and returns, are what you would get if they were all rational and well-informed. Bob Merton and Zvi Brodie have made the same point that capital markets can give you results that are consistent with these almost-silly models in which everyone knows everything and everybody is perfectly rational; and that those models can be good in terms of prices, risk and returns and all the rest. Even though peoples portfolios are widely divergent from the market, I think where behavioural research can really help and I have been a fan of it since the 1970s, long before it became popular is in helping us to understand what people do and why.
Do you use behavioural research at your rm?
Yes, we spend a lot of time using it to help people make sensible portfolio decisions. But I remain skeptical about using it to try to beat the market.
You received the Nobel Prize for your Capital Asset Pricing Model (CAPM). Please describe it.
The basis of the CAPM is that an individual investor can choose exposure to risk through a combination of lending-borrowing and a suitably composed (optimal) portfolio of risky securities. Every investment carries two distinct risks: the rst, the risk of being in the market known as systematic risk or beta risk, cannot be diversied away. The second type unsystematic risk is specic to a companys fortunes. Since this uncertainty can be mitigated through appropriate diversication, a portfolios expected return hinges solely on its beta its relationship to the overall market. CAPM was the rst efcient capital market theory. It concluded that only one type of risk would be rewarded with higher expected return the risk of doing badly in bad times. Such risk was stated in terms of a beta value. For example, a security or portfolio with a beta of 0.5 would be expected to fall half as much as the world market portfolio in a bear market (for example, ve per cent if the market fell 10 per cent.) A security or portfolio with a beta of 1.5 would be expected to fall 1.5 times as much (15 per cent if the market fell 10 per cent). The higher an assets beta (bad news) the greater its expected return (good news). In a CAPM world, only beta risk is rewarded.
How has CAPM evolved since you created it in the 1960s?
components of an overall portfolio we need other approaches. One, often called the Information Ratio, is equivalent to a Sharpe Ratio in which a benchmark portfolio is used instead of a riskless asset when computing the expected value and standard deviation. It is also the case that when a measure such as the Sharpe Ratio is used with ex-post realized results, the value is at best an approximation of what one might expect in the future, and the latter is what matters when making investment decisions.
In November of 2007, your rm [Financial Engines] announced that it had reached $15 billion in assets under management over double what you started the year with ($6 billion.) How did you achieve such remarkable growth?
We began directly managing individuals 401(k) accounts relatively recently. As the number of plan sponsors choosing us as the provider of managed accounts has increased, the number of employees who can use our services has increased. Moreover, as we roll out our services to employees within a plan, the number choosing to have us manage their assets increases. Since we are far from a steady state in this area, our assets under management have increased substantially.
You believe that the principles of good investing can be summarized in four verbs: Diversify, Economize, Personalize and Contextualize. Please explain.
Asset pricing has evolved signicantly. People myself and others went on to what I call extended capital asset pricing models, in which expected return is a function of beta, taxes, liquidity, dividend yield and other things people might care about. Much of the current theory and practice can be traced more directly to the state/preference work of Arrow and Debreu than to the mean/variance approach of Harry Markowitz and the Capital Asset Pricing Model. However, the two are related, and the latter can be considered a special case of the former. I discuss these issues in my latest book. The fundamental idea remains that theres no reason to expect reward just for bearing risk. Otherwise, everyone would head for Las Vegas. If there is reward for risk, its got to be special: there must be some economics behind it, or the world is even crazier than we think.
Can you explain the Sharpe Ratio in layman's terms?
It attempts to answer the following question: If you want a single number to summarize the desirability of an overall investment strategy, what would it be? My answer many years ago was a ratio that I called the Reward-to-Variability Ratio and others called the Sharpe Ratio. The numerator is the expected return over and above a riskless rate of interest; the denominator is the standard deviation of that difference. Thus higher expected return leads to a better ratio, as does lower risk. The basis for the measure is the assumption that the investor can lever a portfolio up or down to obtain the most desirable level of risk and expected return, so that a portfolio with a higher Sharpe Ratio will dominate one with a lower ratio at every possible level of risk. Of course, we have computers now, so we dont need to rely on a single number to rate alternative strategies. Moreover, for
First, Diversify, Diversify, Diversify: one should hold many types of assets in order to minimize the impact on the portfolio of any single type of risk. The closer you come to holding the entire market portfolio, the higher your expected return for the risk you take. Second, Economize: money should only be spent on things like investment management fees and trading costs when there is reason to believe that the reward will be great enough to offset the cost. Third, Personalize: when investing, take into account your circumstances and the things that make your situation unique, especially the risks you face outside the nancial markets. As an extreme example, imagine that all you eat is chocolate. In that case, youd want to invest more in the stock of candy makers so that if they raise prices, your food will cost more but your stock will go up. Lastly, Contextualize: have a well considered view of the manner in which asset prices are determined in capital markets and the resultant trade-offs of risks and expected returns. Remember, if you bet that market prices are wrong (by investing heavily in a single stock or sector), you have to be able to justify why you are right and the market isnt. Asset prices are not determined by someone from Mars. Not yet, anyway.
William Sharpe is the Stanco 25 Professor of Finance, Emeritus at
Stanford Universitys Graduate School of Business, where he has taught since 1970. The founder of Financial Engines Inc., he received the Nobel Prize in Economic Sciences in 1990. His latest book is Investors and Markets: Portfolio Choices, Asset Prices, and Investment Advice (Princeton University Press, 2006).
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The top tier of societys income and wealth distribution has become a widespread emulative target, and there are implications for consumer satisfaction and collective well-being. by Juliet Schor
THE NEW CONSUMERISM: INEQUALITY, EMULATION, AND THE EROSION OF WELL-BEING

ONE OF THE MOST SALIENT CHARACTERISTICS of the 1990s boom in North America was the extent to which income and wealth owed to the top 20 per cent of the distribution. While this phenomenon has been widely studied, little attention has been paid to how this shift in wealth distribution affected developments in the consumer sphere. In my view, it is associated with a marked shift in both the ideology and practices of consumers, which I have termed the new consumerism. The essential features of the new consumerism are a change in the operation of reference groups and a shift from a model of consumer emulation characterized by horizontal, or proximate comparisons, to one dominated by vertical emulation. This shift has enormous consequences for consumer satisfaction, social competition and ultimately, collective and personal well-being. In contrast to the dominant approach of Economics, I take the point of view of other social sciences such as Anthropology and Sociology, that consumption is primarily a social process, and that in societies such as ours, much of the function and motivation for consumption derives from social communication and symbolic action, rather than the drive to meet basic needs such as food, shelter or clothing. Indeed, we create our culture and the quality of social connection through our consumption practices.
Vertical Emulation
The new consumerism is distinguished rst and foremost by an unusually large increase in the dominant norm of consumer aspiration. The previously dominant ideal of comfort has been replaced by a norm of afuence or luxury. In structural terms, this can be described as a shift to a situation in which the upper 20 per cent of the income and wealth distribution (whose consumer patterns are roughly synonymous with afuence and luxury) becomes a widespread emulative target throughout society. This is what I have called vertical, or hierarchical emulation. We have switched from a model of keeping up with the Joneses to one of keeping up with the Gateses (Bill and Melinda, that is.) In fact, the Gateses are not really the emulative target. The dominant target is an upper middle class lifestyle, roughly speaking, a style of life that is attainable on a $100,000 and higher annual income. In 1999, the average income level of the top 20 per cent was $144,000 and the bottom of the quintile was about $90,000 (in 2005 it had risen to $103,000.) Gates does become a more relevant target within the top 20 per cent, where a similar process of more vertical emulation has also occurred. To make this shift clearer, let us consider the old consumerism. This is the world of James Duesenberry, whose 1949 classic Income, Saving and the Theory of Consumer Behaviour outlined a
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model in which consumer aspirations and expenditures were prompted by comparative processes that were mainly horizontal and proximate. Writing about the post-war United States, Duesenberrys model t a world in which increasing numbers of people were being incorporated into the suburban middle-class and the social structure was getting far more homogeneous. The phenomenon of keeping up with the Joneses was mainly neighborhood based, and operated through face-to-face contact. Mrs. Smith went next door to see Mrs. Jones new refrigerator, new Chevy, or backyard grill. Visual contact (what Duesenberry called demonstration effects) led to consumer desire and then purchase. Because neighborhoods are relatively economically homogeneous, these processes tended to be economically proximate that is, Smiths and Joneses were of roughly similar economic status and consumption comparisons were mainly intra-class. Furthermore, the growing equality of the income distribution during this time fostered proximate comparison, as did high levels of domestic labour and active neighborhood sociability. These were the structural features that would change, triggering the shift to the new consumerism.
Tracing the causes
At least three factors led to the demise of old consumerism and the development of a new emulative process. The rst was the dramatic growth in income and wealth inequality that has occurred over the last 20 years. The U.S. has recently gone through a period of unprecedented increase in inequality. This reversal of the equalizing trend began in the 1970s, but the major growth in inequality occurred during the next two decades. During the 1980s and 90s,
the top 20 per cent of the distribution increased its share dramatically, while the bottom 80 per cent lost considerable ground. According to analyses of the U.S. Federal Reserves Survey of Consumer Finances, between 1983 and 1998, the top 20 per cent increased its share of total income from 51.9 per cent to 56.2 per cent and its share of net worth rose from 81.3 per cent to 83.4 per cent. Furthermore, within the top 20 per cent there was also a worsening of inequality: the share of net worth held by the top one per cent rose from 33.8 to 38.1 per cent over this period and their share of total nancial wealth rose from 42.9 to a stunning 47.3 per cent. Unlike previous economic booms, the 1990s boom did not yield a more equitable distribution of income and wealth. The shares of income, net worth and nancial wealth of the bottom 80 per cent all declined. Second, levels of income and wealth of the top 20 per cent rose signicantly. For example, the mean income of the top 20 per cent rose from $121,700 to $147,000 between 1982 and 1997 and average net worth rose from $864,500 to $1.126 million between 19831998. Among the top one per cent, average income rose from $602,700 to $869,800 and net worth from $7.125 million to $10.204 million. By contrast, incomes were relatively stagnant for the next 80 per cent, with a roughly 10 per cent gain for the second quintile, and virtually no gain for the next 60 per cent. The effects of the changing income distribution on consumption aspirations and expenditures were signicant. The growing level and share of the top 20 per cent led to a boom in luxury spending (what economist Robert Frank has called luxury fever) which reached its apex at the end of the 1990s. The upper middle class and the wealthy spent proigately and highly visibly. The culture of consumer excess
could be seen in the growth of McMansions; the proliferation of Jaguars, Porsches and other luxury cars; $20,000 outdoor grills, $17,000 birthday parties for 12-year-old girls; diamond-studded brassieres; professional quality appliances for people who are never home to cook; designer clothes for six-year olds; and bed sheets at a thousand dollars apiece. Trends in housing exemplify this consumer upscaling. Since 1987, the fraction of new homes that are larger than 2,400 square feet has risen from 21 to 34 per cent, and the fraction with four or more bedrooms has risen similarly. The average ratio of lot size to home size has plummeted from 9.24 to 5.74, as buyers try to pack more status onto smaller plots. Consumer preferences in housing features, luxury amenities and so forth have similarly increased. By 1996, 43 per cent of the population desired a second, vacation home, up from only 19 per cent in 1975, and 36 per cent (compared to 14 per cent) wanted swimming pools. Analyses of trends in vehicles, apparel, jewelry, tourism, consumer electronics, household appliances, and many other consumer categories would yield similar conclusions: we have increasingly been buying more and higher-priced consumer goods and services. The second and third factors that led to the shift toward vertical emulation are tied to the decline of the neighborhood as a social site, and the rise of two alternate sites of sociability: the workplace and the make-believe world of television. In the old consumerism, people learned about consumer trends through extensive face-to-face contact. They socialized in each others homes. The 1950s and 60s were a period of high levels of civic engagement and neighborhood socializing. Women met together in morning coffee klatches; they talked together at playgrounds and schools; they entertained in cocktail hours. This fostered the horizontal, proximate consumer comparisons described earlier. By contrast, the decline of the neighborhood as a site of sociability led to new patterns of socializing. The rst was the rise of the workplace as a site of social interaction. As increasing numbers of married women entered the workplace, particularly those with college educations, they entered hierarchical organizations in which they interacted with people of higher corporate rank and position. At the innumerable ofce and networking meetings that characterize professional and managerial work, consumer information was shared: women discussed vacation plans, school choices, childrens extra-curricular activities, and home remodeling projects. They displayed designer wardrobes, jewelry, watches, and new cars. But because the corporation is a more hierarchical organization than the neighborhood, women were increasingly exposed to the consumer choices of those above them, fueling vertical aspiration. The third factor was the media. Since the 1970s, people have been interacting less with their neighbors, families and friends. Harvard political scientist Robert Putnam has found declining
levels of informal socializing, neighborhood socializing, game playing, getting together in restaurants and other activities. Instead, people are spending far more time with media, and in particular television. The media has two important functions in fostering the new consumerism. First, it has served as a major conduit of information on the consumption patterns of the top 20 per cent. This is primarily through the special sections of newspapers (home and garden, technology, fashion, food), magazines, television shows devoted to lifestyle, and to some extent, movies. The second effect, especially with television, is that it imparts an upward bias on an individuals sense of the prevailing consumer norms by depicting lifestyles at levels that are far above the actual norm. Television and the movies vastly over-represent the prevalence of the wealthy and very-wealthy, and they tend to depict the average household at a lifestyle which is in fact at the upper middle level (or above). Studies have shown that people who are heavy TV viewers greatly overestimate how the average American lives and the possessions they have. This effect, I argue, is responsible for my nding that television watching is positively correlated with consumer expenditures and negatively correlated with savings. With respect to the growth of new consumerism, what is particularly relevant is the large increase in TV viewing time among consumers in the latter part of the 20th century. Increased electronic media use coupled with declines in informal sociability resulted in a situation where consumers increasingly got their information and had their desires stimulated not in face-to-face settings, but through the media. The result of these three shifts (in wealth and income distributions, of women out of the neighborhood and into corporate hierarchies, and of the growing importance of electronic media) has been an escalation of North Americans consumer aspirations. The amount of money we aspire to has increased; views of what is necessary have shifted to include former luxuries; the non-material components of what is considered the good life things like a meaningful job, children and a happy marriage have declined; and the material components having a job that pays a lot more than the average job, having a really nice wardrobe, a second home, a second car, and owning other consumer products have all increased substantially.
The Aspirational Gap
The simple economics of vertical emulation suggest the ongoing problem of what I call the aspirational gap. If most of the population desires an afuent lifestyle (for which a $100,000-plus income is necessary but median income is only half that), aspirations will be frustrated. Because the economic resources and consumption levels of the top 20 per cent have increased far more rapidly than those of the bottom 80 per cent, the middle and lower-middle classes have had
The cy cle of w appea rs to b ork and spe nd e dest of time ruc -inten sive so tive conne cial ct functio ions and we llning c ommu nities.
difculty keeping up with a rising aspirational target, and many have responded by reducing their savings: household savings have plummeted for the past two decades from roughly eight per cent a year in 1980, to four per cent in 1990, to about 1.5 per cent today. People have started taking on records levels of consumer debt. Credit card debt rose dramatically during the 1990s, especially for households in the $50,000-$100,000 range, and one result was record numbers of personal bankruptcies, which have risen substantially for two decades (from about 200,000 per year in 1980 to about 1.4 million currently). The fraction of households without any assets grew substantially, the fraction in debt increased, and those living without health insurance and retirement provisions rose. Households also added extra earners and increased their working hours in order to keep up with rising income requirements. Average annual hours (not including the impact of involuntary underemployment) rose by an additional 75 per year between 1989 and 1998. The fraction of the population working continued to rise in the 1990s, as did womens labour force participation. As a result of all this, nancial insecurity and excessive working hours have led to stress and worry for millions of households. The majority of workers feel pressed for time, and many feel that their lives are out of control. The squeeze on the middle class has facilitated conservative political forces drive to cut income taxes and reduce non-military public services, and this has rebound effects on consumer pressures: as public goods deteriorate, middle class families increasingly feel they must look for private alternatives schools, security, recreational facilities, etc., further raising their income requirements. Quality of life has been affected in at least three other ways. First, the upsurge in materialist values itself is negatively correlated with well-being, as a now-extensive body of psychological literature shows. The causal relations involved are complex because materialist values both affect well-being and are a product of it. However, it increasingly appears that there is a causal link from a materialist orientation to a lower level of well-being. Second, the strength of what I have called the cycle of work and spend (long hours at work coupled with high consumer aspirations) appears to be destructive of time-intensive social connections and well-functioning communities. As the demands of the consumption competition intensify, the sources of durable well-being (friendships, healthy families and communities) are increasingly in jeopardy.
Finally, consumer upscaling has been nothing short of disastrous for the natural environment. Economic growth in general tends to be destructive of natural capital, but the trends in consumer patterns have been especially damaging: the growth in housing has led to a reversal of what had been declining residential energy usage and much greater use of materials; the shift to luxurious vehicles has led to a reversal of what had been declining fuel use per vehicle; trends in tourism have led to far more damaging patterns (frequent short air trips, use of higher-impact hotels); and trends in apparel consumption have led to increased numbers of garments produced under ecologically-damaging conditions. The list goes on.
In closing
Let me end with a few words about the task before us: a response to the new consumerism. For those of us in academia, sociologists and social scientists, my analysis suggests the need for an integrated treatment of both consumption and production. The dynamics of these two spheres are now highly integrated through obvious mechanisms such as income, but also through other factors, such as time-use and time-scarcity, which is increasingly a major component of well-being. Second, social analysis must explore the ways in which rational individual behaviour is yielding irrational social outcomes (e.g., ecological collapse). This perspective is absent from both traditional Economics and most contemporary analyses of consumption, which are locked in an often-fruitless debate between the ideas of consumer agency and consumer manipulation. Finally, we need to take seriously far more than we have the ways in which the new consumerism and the work-andspend cycle are destroying the planetary ecology, and integrate those effects into our analysis. For if we do not, our ability to understand will be seriously compromised, and our ability to transform tragically impaired.
Juliet Schor is a professor of Sociology at Boston College.
Previously, she taught in Harvards Department of Economics for 17 years. She is the author of Born to Buy: The Commercialized Child and the New Consumer Culture (Scribner, 2004) and The Overspent American: Why We W ant What We Dont Need (Harper, 1999).
When a quantity of a given resource such as food, money, or cigarettes is physically divided into smaller quantities, it reduces both the total quantity consumed and the speed of consumption.
by Dilip Soman and Amar Cheema
The Effects of Partitioning on Consumption

you are at a local theater to watch a movie: you make your customary stop at the concession stand to buy popcorn and drinks; when you ask for a large bag of popcorn, to your surprise, the person at the counter hands you the same quantity of popcorn in three smaller bags, saying that the large bags are out of stock. Would this odd encounter change the amount of popcorn you eat or the speed at which you eat it? Our research suggests that it would. Since the days of Ulysses, human beings have been devising rules to constrain undesirable behaviour. However, these rules are sometimes broken, leading to consequences that we would otherwise avoid. We recently studied situations in which individuals try to avoid consuming a given pool of resources including money and food, and found that the packaging of the resource plays a signicant role in our ability to exert self control. In particular, we studied the effect of partitioning a larger amount of resources into several smaller amounts. The term partitioning refers to the act of creating subsets of the resource by adding articial physical boundaries around it. For example, a $50 gift card may be presented as one $50 card, or as two cards, each worth $25. In the latter case, $50 has been partitioned into two smaller amounts of $25. Each partitioned amount is a pool of resources.
IMAGINE THAT
The rules used by individuals to control consumption require the exertion of willpower to control impulsive short-term behaviour in favor of longer-term benets. When the resource in question is money, examples of such rules might include not spending more than ones current income; pre-committing to spending limits; or having a monthly savings target. People follow such selfimposed rules because failure to do so is associated with negative emotions: breaking such rules can lead to guilt, regret, a feeling of failure, or a loss of faith in oneself. We label this psychological cost of breaking a personally-imposed rule a transgression cost. We have found that consumers incur such transgression costs whenever they break rules or pre-commitments. These rules may relate to not using resources for purposes other than the ones they are earmarked for (e.g., using retirement savings to buy a new car) or over-consuming a resource (e.g., eating too much chocolate). In either case, partitioning a large pool of resources into smaller ones increases the number of available pools: the greater the number of closed pools the consumer has to break open, the larger the transgression cost, and the less likely the individual is to consume. However, once individuals do break open a resource pool and incur the related transgression cost, we have found that they may more readily consume the remaining resources in that pool.
The greater the number of closed pools that a consumer has to break open, the larger the transgression cost, and the less likely they are to consume.
The Psychological Costs of Consumption
Whenever consumers make spending decisions, they must rst choose which pool of resources to use, and then whether to engage in the transaction. While these two components of the decision have typically been considered as inseparable, an increasing body of research suggests that the psychological cost associated with the identity of the resource pool plays an important role in the decision-making process. For instance, once individuals absorb the up-front pain of payment associated with buying casino chips or a foreign currency, subsequent spending of these currencies is made easier, making them feel like funny money. In a similar vein, consumers may earmark some money for spending, absorb the psychological cost of doing so, and transfer it into the spending money account. The underlying assumption is that there is a relatively large xed cost of opening a resource pool (i.e., deciding to spend from it) and a small variable cost of consuming an incremental unit from the open pool. As a result, once the cost of using money from certain sources has been incurred, the actual transaction decisions are not psychologically painful. One corollary of this account is the fact that it is easier for an individual to spend $X from a given pool than $X/2 from each of two separate pools. The rules that govern our behaviour may be externally imposed by those who propose to have our best interests in mind, or internally construed by individuals as we perceive a need for them. In the absence of external limits, we may try to control spending by the exertion of self-imposed principles that favour long-term benets over short-term gain. Internal rules evolve over time from repeated tradeoff decisions. For instance, we may try to avoid opportunities for temptation, hold illiquid assets, sign binding contracts and seek other forms of tying oneself to the mast. When the trade-off between short- and long-term benets is not readily apparent, guiding principles are often used in decisionmaking, such as when making the decision whether or not to eat too much chocolate, or to pick up an expensive magazine at the
grocery store check-out. Other examples of applying limits to oneself include diets, monthly savings targets, and resolutions to smoke only after meals or to jog twice a week. However, exerting self-control is psychologically costly: there is an expenditure of willpower to making decisions according to principles. On the other hand, people who break rules experience guilt, regret, a feeling of failure, and a loss of faith in themselves. The psychological cost of breaking personal rules (transgression cost) may be a result of Pavlovian-style conditioning: people look to their own choices as signals of what kind of person they are, so engaging in a constrained activity may lead them to a feeling that they have let themselves down. Violations that may result in feelings of guilt or remorse include not using resources for purposes other than the ones for which they are earmarked (such as using retirement savings to buy a car), or over-consumption (such as eating too much dessert). In either case, partitioning can play a role in curbing unwanted behaviour: the greater the number of closed pools that a consumer has to break open whether the resource is money in a savings account, a bag of chips, or a pack of cigarettes the larger the transgression cost, and the less likely the individual is to consume. Critical to the argument that people employ self-control devices to monitor their consumption is the notion that individuals are in the language of economists Matt Rabin and Ted ODonoghue sophisticated, yet dynamically inconsistent. In simple English, this means that individuals are tempted to consume when it is not in their best interests, but that they are aware of this shortcoming. They can impose control on their behaviours when they are cognitively vigilant, and are consciously making decisions about whether to consume or not. However, the manner in which resources are packaged might not allow for such vigilance: when a large bag of popcorn is opened, it is difcult to imagine any movie-goer making a conscious decision about whether or not to eat the next kernel of corn. Rather, we reach a state of mindless habituation and continue consuming unless
some external constraint forces us to stop and think. When the movie-goer scratches at the bottom of a small bag to nd the popcorn all gone and realizes that she now needs to actively decide whether or not to open the next bag, the sophisticated consumer decides that it would be now prudent to stop consuming. Therefore, partitions work in curbing consumption because they give consumers a decision point an opportunity to stop and think about whether to consume or not. As such, partitions move consumers from a mindless to a thoughtful mode of information processing.
Our research
We tested the effect of partitions on spending and consumption across ve studies and found exactly what we predicted. The rst three studies measured transgression costs and explored their mediating role on the effect of partitioning on spending. We then demonstrated the effect of partitioning in two real consumption settings: consumption of chocolate and use of pre-paid phone cards. In one study, a number of participants volunteered to participate in a cookie-tasting study. Every participant received an identical box of 24 cookies and was asked to consume them over time, noting how much they liked the cookies and when they ate them. Unknown to them, there were differences across participants: some participants (lets call them Box A) received 24 cookies in a box; others, who received Box B, got the same box and the same cookies, but each cookie was individually wrapped in foil. We found that the typical consumer of Box A took six days to nish the cookies, while those that got Box B took 24 days to nish. A simple sheet of thin foil paper had the power to slow down consumption by a factor of four! We tried varying packaging of biscuits, chocolate and popcorn and found the same results. Interestingly, we found similar results when we partitioned money. In one study, students were given $100 cash coupons to participate in a gambling study an activity that is considered fun but somewhat sinful. Some students were given all $100 coupons sealed in one envelope, others were given 10 coupons in each of $10 sealed envelopes. We found that once the big envelope was opened, it became easier to spend the $100 coupons. However, with the smaller envelopes, people tended to spend much less in one study, about half as much. In an ongoing series of studies with daily-wage labourers who receive cash wages, we found that giving them cash divided into sealed envelopes increased their savings rates dramatically as compared to giving them a single wad of notes. And in an analysis of data from prepaid calling cards, we found that people who purchased ve $10 cards rather than one $50 card spaced out their phone calls over a longer period of time. In one study, participants were presented with a scenario in which they were saving up for their retirement. As a part of this program, they recently put $5,000 in savings at an annual interest rate of three per cent, for a minimum of 10 years. A portion of the
participants were told that they had simply saved $5,000 while the other group was told that the money had been invested in a certicate of deposit (CD), either one $5,000 CD, or two valued each at $2,500. All participants were then told they come across a promotion by a local car dealership for a car that they have been thinking of buying for some time. The discounted price was attractive, but the promotion would expire at the end of the month, and required a cash down payment of $5,000. The only cash they had for the down payment was that which they put in the CDs. We expected that participants who had to break open two deposits to buy the car would experience higher transgression costs than those who had to only break open one deposit. We also expected that those who were aware of the articiality of the partition involved that the banks highest valued CD was valued at $2,500 would experience lower transgression costs. The data supported both expectations: the impact of partitions on the spending decision was reduced when the articiality of these partitions was highlighted. Another study demonstrated the effect of partitioning on the consumption of food. Participants received a sealed box containing six pieces of different types of chocolate. They were asked to eat the chocolates over the following week, and to return the response sheet after nishing all the pieces. The packaging of the chocolate varied. Half the participants received a sealed box containing unwrapped pieces: breaking open the box allowed them to access all six pieces unhindered. The remaining participants received sealed boxes containing pieces that had been individually wrapped in foil. The data revealed that participants took signicantly fewer days to eat the unwrapped chocolate pieces. The type of chocolate did not affect the speed of consumption and was not a factor. Only the packaging signicantly affected results; once again, partitioning was shown to inhibit consumption. Our nal study explored how partitioning pre-paid telephone calling cards into different pools affected their usage. According to the scenario, the seller of the phone cards would often run out of large denomination ($50) cards, and instead give customers multiple small cards (5 x $10). Card users were charged a at rate per minute of their call and there were no other usage fees. We expected that individuals who received several smaller-denomination cards would use them signicantly less than those who received the $50 cards, because of the transgression cost associated with breaking open a pool (i.e. using a new card). The data supported this hypothesis: consumers who had one resource pool (a large denomination card) used it up much faster than those who had several smaller resource pools. Taken together, our ndings paint a consistent picture of the impact of partitioning on transgression costs and consumption. The rst three studies demonstrate that partitions trigger transgression costs, which then inuence spending. They also identify the moderating role of partition articiality: highlighting articiality lessened
For consumers, the message is simple: for consumption that you want to control, the simple act of partitioning a resource will help curb consumption.
transgression costs, reducing the impact of packaging. The nal two studies looked at the effect of partitions on consumption in the real world. Since these latter studies used fewer controls and were conducted in a real world environment, they were more successful in ruling out the possibility that another, unknown behavioural factor was swaying the results. Across our studies, participants appeared to be averse to opening pools of resources when doing so required them to break external or internal rules. Partitioning one large pool of resources into several smaller resource pools consistently decreased spending and consumption. Consumers frequently exercise self-control to avoid using certain pools of resources for current expenditures through such devices as savings accounts and credit cards. However, once they incur the transgression cost to overcome their own rules and break open these pools of resources, they may be insensitive to the amount consumed from each resource pool.
Implications
spending limit deteriorates subsequent performance. As we have indicated, breaking open a pool leads the individual to incur the transgression cost, and subsequent spending from the opened pool becomes easier. The behaviour we describe here is also indicative of crossing a bright line such as in the example of an alcoholic who swears to never drink again, but does so which decreases the individuals belief in him or herself being able to follow that rule in the future, placing that person on a slippery slope of future rule violations.
In closing
Our results have signicant implications for consumers who start spending from closed pools such as savings accounts, or who break pre-set spending rules. Such consumers risk engaging in a spending spree from the opened pool without restraint once the initial transgression cost is endured. Possible parallels exist with research on the shopping momentum effect, which details how the momentum from one purchase makes a subsequent purchase more likely. Our research demonstrates that this effect may persist only while the consumers are spending from the opened pool of resources. If they have to break open another pool, and incur the associated transgression cost, this effect could be diminished. Our results are also consistent with theories about the counterproductive effect of goals, where exceeding a pre-committed-to
For marketers, our results suggest that simple forms of packaging have the ability to create dramatic variations in consumption. For consumers, the message is simple for consumption that you want to control (but that is tempting), the simple act of partitioning the resource will help curb consumption. This might mean cutting up food into smaller portions, partitioning money across smaller stashes or adding small costs that force us to think about consumption. In short, we can divide and conquer the consumption epidemic.
Dilip Soman is the Corus Chair in
Communication Strategy and professor of Marketing at the Rotman School of Management. Amar Cheema is an assistant professor of Marketing at the Olin School of Business at Washington University.
For a complete copy of the paper from this was excerpted, e-mail christen@rotman.utoronto.ca
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Wealth and Risk Management
The consumer in each of us can learn from the citizen, and the citizen can learn from the consumer. Marketers must learn from both.
Consumption: The Happiness of Pursuit

by John Quelch and Katherine Jocz
WHETHER WE ARE EATING, drinking, switching on a light, talking on the telephone or attending a sporting event, consumption is the stuff of everyday life. While each instance of consumption is mostly routine and not much deliberated on, it can have far-reaching consequences. Taken together, all of the small, everyday decisions we make about whether and what to consume inuence what is available in the marketplace. Although few people give much thought to the effect of their spending on national economic well-being, Americans were made aware of it following the terrorist acts of September 11, 2001. Amid fear and uncertainty and an ongoing economic downturn, President George Bush and New York City Mayor Rudolph Giuliani told citizens how they could do their part for the country: go out and spend money. In the U.S., consumer spending on durable goods, non-durable goods and services represents about two-thirds of the national economy as measured by GDP. Accordingly, closely-watched indicators of the economys health include housing starts, new-home sales and retail and food service sales. In addition to adjusting consumption according to their income, prices for goods, and nance rates, consumers also base their spending on what they think prices, the job market, general economic conditions and so on will be like in the future. Consequently, consumer condence levels are another vital economic indicator, one that Bush and Giuliani were likely trying to boost. With the exception of the Great Depression and World War II, consumer demand steadily expanded during the 20th century, and consumption did not slow down after a basic stock of goods was acquired: the average household continued to consume new things and upgrade existing consumption. With few exceptions, no matter how wealthy todays households are, they continue to acquire additional goods and services.
The Democratization of Consumption
In modern societies people take for granted equality of consumption rights: if the Smiths have the means, they can buy and consume
whatever the Joneses consume. In addition to the right, consumers have the ability to consume, constrained mainly by their means or credit limits. Low-cost goods including groceries, household items from discount stores, electronics or appliances with their declining prices, and cheap auto imports from Asia along with the availability of consumer credit mean that most consumers can acquire most types of goods and services, and middle-income buyers can move up from adequate goods to higher-quality goods and even luxuries. Makers of luxury goods also do their part to democratize consumption. At the risk of diluting the cachet derived from exclusivity and costliness, as well as quality, many offer lower-priced versions of their traditional luxury products. Mercedes-Benz, for instance, brought out an A class of smaller vehicles; Burberry offers accessories that are more affordable than its iconic trench coat; and Isaac Mizrahi sells outts at Target. Marketers also create ner versions of mass-market products. Even if consumers cannot afford a luxury brand, premium versions of relatively small-ticket items like ice cream or coffee are within the reach of nearly everyone. Technology, too, democratizes consumption. Online retailing allows consumers in remote areas to gain access to nearly every product at competitive prices, ensuring that they are no longer hostage to the prices charged by one or two local distributors. In addition, small suppliers of specialized products can serve narrow niches worldwide: eBay has created a massive global marketplace where consumers can nd products discoverable locally only by chance such as a vintage tablecloth and can purchase items that other consumers are nished with. In a further example of democratization, eBay allows any consumer to nance consumption by reversing roles and acting as a seller as well as a buyer. The retail space is democratic in that it is the individual consumer who decides what and how much to consume. Marketers dont dictate consumption; instead, they broker individuals consumption needs and inuence whats available. The match is not perfect, but technology lets marketers track peoples consumption in close-to-real time and make quick adjustments of stock levels and pricing in response. For example, a combination of manufacturing and information
technology helps innovative retailers such as Benetton fabricate all of its sweaters in gray: only in the nal stage does it dye the nished garments, depending on what colors are selling at that moment. Overall, the democratization of nance the ready availability of mortgage debt, car loans, and unsecured debt such as consumer credit cards gives prudent consumers the nancial freedom to consume things that otherwise would be out of reach. In many developing countries, nancial institutions willingness or ability to extend credit to emerging consumers lags households ability to pay. Alternatively, in developing, as well as developed, countries, consumers may be able to obtain direct credit from marketers: local shopkeepers often run tabs, and manufacturers of high-ticket goods may offer extended-payment plans. In the long run, greater democratization of credit offered by nancial institutions will be critical to increased consumption and economic growth in developing economies. For example, most Mexican consumers have for years lacked easy access to banking and credit. Major purchases had to be paid for in cash, so consumption of durable goods was low. Houses were built room by room over time, paid for from savings. Since 2000, however, consumer credit has tripled. Now, more middle-class families can buy homes, cars, and major appliances on credit. As a result, sales of high-ticket items have gone up, and volatility in consumer spending has decreased.
Happiness and Consumption
As one would expect, surveys consistently nd that people in rich
countries like Canada or Switzerland are happier than people in poor countries like Bangladesh. But surprisingly, once a countrys level of per capita income reaches a moderate threshold about CAD$10,000 there are small, if any, increases in its citizens sense of well-being. In the U.S., Japan, and other countries, average life satisfaction has remained at since the end of World War II, even though GDP per capita has climbed steadily. In the U.S., income tripled during this period, but life satisfaction scores remained constant. In part, this is because there is always a gap between what people have and what they want: increases in national income levels are accompanied by increases in material aspirations. An economist would say that these aspirations are essential because they motivate economic growth. But national well-being depends on social capital and political capital in addition to economic capital. Thorstein Veblen introduced the term conspicuous consumption to describe the phenomenon of people choosing to buy certain goods in order to advertise their social standing and not because of the intrinsic enjoyment they get from consuming the good. Clearly, wealthier people can aunt their social status by buying a Lexus instead of a Toyota or staying at the Four Seasons rather than the Marriott. The question is whether they actually get more intrinsic enjoyment from the Lexus than the Toyota. But according to economist Robert Frank, there is considerable evidence that buying a larger house or a more expensive car does not lead to greater happiness. Continued on p.30
Tracking the Growth of Indias Middle Class

Indias rapid economic growth has set the stage for fundamental change among the countrys consumers. The same energy that has lifted hundreds of millions out of desperate poverty is creating a massive middle class centered in the cities. A recent study by the McKinsey Global Institute suggests that if India continues its recent growth, average household incomes will triple over the next two decades and it will become the worlds fth-largest consumer economy by 2025, up from 12th now. Along the way, spending patterns will shift signicantly as discretionary purchases capture a majority of consumer spending. Indias potential should make it a high priority for most consumer goods businesses, but to succeed in this complex market they must overcome some major challenges. Private consumption has already played a much larger role in Indias growth than it has in that of other developing countries. In 2005, private spending reached about 17 trillion Indian rupees ($372 billion), account-
by Eric Beinhocker, Diana Farrell and Adil Zainulbhai
ing for more than 60 per cent of Indias GDP, so in this respect the country is closer to developed economies such as Japan and Canada than are China and other fast-growing emerging markets in Asia. Our research shows that aggregate consumer spending could more than quadruple in coming years, reaching 70 trillion rupees by 2025. Opportunities will blossom as millions of rst-time buyers step up to cash registers and as the bulk of consumer spending moves from scattered, hard-to-reach rural areas to more concentrated, accessible urban markets. Indian consumer spending will shift substantially from the informal economy, with its individual traders, to the more efcient formal economy of organized businesses. That transition will lower prices and further boost demand. Neither incumbents nor attackers will have an easy time: bureaucratic hurdles and wellrecognized infrastructure shortcomings will frustrate many strategies. These challenges will force companies to be more dynamic by
adapting their products, services, and business models to the rapidly-changing needs and incomes of Indian consumers. The Birth of a New Middle Class While urbanization isnt proceeding as quickly as it is in other Asian economies, rapid population growth means that in absolute terms the countrys urban population will expand signicantly, from 318 million today to >>
Average Expenditures by Canadian Household Type (2005)
Figure 1
Canada
Couples with children $ 92,730.00 $ 9,630.00 $ 16,600.00 $ 3,760.00 $ 12,800.00 $ 5,740.00 $ 2,420.00 $ 1,490.00 $ 230.00 $ 1,280.00
Lone parent/female $ 47,900.00 $ 6,520.00 $ 10,180.00 $ 2,370.00 $ 6,360.00 $ 2,820.00 $ 1,590.00 $ 1,160.00 $ 120.00 $ 970.00
Single person
Seniors (65+)
Total expenditure Food Shelter Clothing Transportation Recreation Education Tobacco/Alcohol Games of chance Gifts of money/contributions
$ 66,857.00 $ 7,135.00 $ 12,614.00 $ 2,588.00 $ 9,073.00 $ 3,918.00 $ 1,220.00 $ 1,422.00 $ 278.00 $ 1,753.00
$ 36,070.00 $ 3,940.00 $ 8,580.00 $ 1,180.00 $ 4,230.00 $ 1,810.00 $ 330.00 $ 1,030.00 $ 230.00 $ 1,480.00
$ 47,610.00 $ 6,230.00 $ 8,760.00 $ 1,600.00 $ 6,530.00 $ 2,360.00 $ 150.00 $ 820.00 $ 410.00 $ 4,430.00
SOURCE: STATISTICS CANADA SURVEY OF HOUSEHOLD SPENDING
523 million in 2025. The Indian middle class has already begun to evolve, and by 2025 it will dominate the cities. By then about threequarters of Indias urbanites will be part of the middle class, compared with just more than one-tenth today. About 400 million Indian city dwellers will belong to households with a comfortable standard of living. Companies shouldnt underestimate the market presented by the countrys most afuent consumers: those earning more than 1,000,000 rupees a year $21,890 in real 2000 dollar terms, or $117,650 in terms of purchasing power parity (PPP). They will remain a small portion of society: about two per cent of the population in 2025, up from 0.2 per cent today. But in absolute numbers, by 2025 Indias wealthiest citizens will total 24 million, more than the current population of Australia. These consumers have tastes similar to those of their counterparts in developed countries: brand-name goods, vacations abroad, the latest consumer electronics, and high-end cars. >>
Share of average annual household consumption, %

100% (thousand Indian rupees2) =
3 1
60
4 11 2 2 4 14 3 5
82
7 5 17 8 12 6 3 3
140
9 6
248 Health care

13 9
Education, recreation Communication
19 9 12 5 3 10 56 5 42 34 25 20 11
Transportation Personal products, services Household products Housing, utilities3 Apparel Food, beverages, and tobacco
Discretionary spending Spending on necessities (ie. food, apparel3) 1995
20054
2015
2025
Forecast Figures may not sum to 100% because of rounding. Real 2000 rupees; 45.7 ruppes = $1 in real 2000 dollars or 8.5 rupees = $1 adjusted for purchasing power parity. McKinsy Global Institutes cross-country comparisons of necessary consumption exclude housing from the category of necessity because of signicant variantions in national housing market structures, regulations, and measurement methodologies. 4 Estimated.
1 2 3
SOURCE: MCKINSEY GLOBAL INSTITUTE ANALYSIS
Instead, the ability to afford inconspicuous goods such as freedom from a long commute or a stressful job and the ability to devote more time to families and friends, exercise, sleep, travel, and other restorative activities results in healthier, longer and happier lives. Economists, sociologists, and psychologists have found that strong social relationships are a hugely important component of both individual happiness and national well-being. While this fact may not appear directly linked to consumption, it actually helps to explain its lure: building social relationships is one reason why people keep consuming. Perhaps consumers are blocking out or forgetting simpler sources of satisfaction booking a costly cruise instead of sitting in their own backyard, or playing the latest video game instead of hanging out with friends. For driven achievers, leisure seems to mutate into work and consumption: you hire a coach to help perfect your tennis game, consult a landscaper and invest in expensive plants and equipment so that your garden looks like a magazine photo, or buy the latest-model high-end mountain bike to shave minutes off your competition time. To be sure, plenty of people
simply relax in front of a television set, but TV programming and ads further promulgate the consumption lifestyle. Many are currently concerned whether developing or underdeveloped countries will attempt to replicate the Western experience in building their economies around personal consumption. Some economists predict that workers in developing Asian economies those producing inexpensive goods for the world market will sooner rather than later insist on fullling their own pent-up consumer demand. When that happens, China will become the worlds largest economy. Chinese consumers have already rapidly embraced the automobile: from six million cars in 2000, there are now about 20 million on the roads, and every day a thousand new cars are sold in Beijing alone. Heavy consumption of natural resources like water, energy, and tropical forests by some nations can have far-reaching environmental consequences for other nations. Even among developed countries, the U.S. consumes a disproportionate share of energy: approximately 25 barrels of oil annually per capita, versus 12 for Germany, and 16 for Japan. What will happen as developing nations China, India, or others try to obtain a greater share?
Tracking the Growth of Indias Middle Class (contd)

Urban households, millions of households
Middle Class 70 Actual 60 50 40 30 20 Aspirers 10 0 Globals Deprived 1985 1990 1995 2000 2005 2010 2015 2020 2025 Strivers Forecast Seekers Annual income bracket1
1 Annual income: globals = >1,000,000 rupees; strivers = 500,000-1,000,000; seekers = 200,000-499,999; aspirers = 90,000-199,999; deprived = < 90,000.
SOURCE: MCKINSEY GLOBAL INSTITUTE ANALYSIS
Changes in Consumption As Indians climb the economic ladder, the composition of their spending will change considerably. In a pattern witnessed in many other developing countries, discretionary expenditures, such as mobile phones and personal-care products, will take up more room in the nations shopping basket. This shift from necessities, dened in our analysis as food and clothing, is already under way and taking place at lower
income levels than we have seen in other countries. We expect that discretionary spending in India will rise from 52 per cent of total private spending today to 70 per cent in 2025. Food (including beverages and tobacco) will post the sharpest decline in relative consumption, even as overall spending in the category rises. The fall in the share of food expenditures during our forecast period to 25 per cent, from 42 per cent is linked closely to the growth of
the middle class. Despite this relative decline, food will remain the single largest category of expenditure, and we expect that growth in consumption will accelerate to 4.5 per cent annually, from 3 per cent over the past 20 years. That growth will appear tepid compared with the rise of other categories: in particular, spending on purchases that improve economic prospects and quality of life health, education, transport, and communications will soar and eventually command a greater share of consumption than they do elsewhere. The inadequacy of Indias public-health system, for example, means that private health care is a high priority for many Indian families when their incomes grow. This imperative will drive growth in private health care spending by almost 11 per cent a year, so that it will account for 13 per cent of the purchases of Indian households by 2025, a larger share than current levels in all of the countries we examined except the United States. In another remarkable shift, spending on education will grow by 11 per cent over the next 20 years, to nine per cent of household consumption, higher than todays levels in any of our benchmark countries. In rural areas, households emerging from poverty will make educating their children a priority, while higher-income urbanites will be spending more on better-quality education, >>
In closing
In industrialized democracies, the consumer marketplace and the political marketplace have something important in common: in both cases, the consumer is the ultimate authority. Moreover, the consumer marketplace evolved within the context of democratic societies, and in the consumer marketplace there are close parallels to the conditions that dene democracy. We believe that both a better democracy and a better marketplace are possible if people aspire to combine their strengths as citizens with the strengths they have as consumers. Citizens are called upon to subordinate narrow self-interest to the goal of the common good; consumers expect value from an exchange and hold providers accountable. The consumer in each of us can learn from the citizen, and the citizen can learn from the consumer. Marketers must learn from both. Far-sighted marketers may exercise restraint in choosing the kinds of consumption they promote. In response to increasing concerns about childhood obesity, for example, Kraft Foods announced it would shift advertising of sugar-laden Oreos and Kool-Aid away from children between the ages of six and eleven.
No doubt the long-term goal is to retain consumers good faith in the companies marketing these products. Globally, rms will likely see continuing and increasing pressure to cut down on forms of consumption that affect the environment and the availability of natural resources. These issues will not go away, and neither will concerns about the use of pesticides, chemical fertilizers, and genetically-altered seeds in farming. In the democracy of the marketplace, consumers will increasingly choose to consume those products and services they consider to be healthy, environmentally-sound or otherwise socially valuable.
John Quelch is the senior associate dean and Lincoln Filene Professor of Business Administration at Harvard Business School. His blog is located at quelchblog.com. Katherine Jocz is a research associate at Harvard Business School. Previously, she was vice president of research operations at the Marketing Science Institute.
The preceeding is an excerpt from Greater Good: How Good Marketing Makes for Better Democracy (Harvard Business School Press, 2007) by John Quelch and Katherine Jocz. Reprinted with the permission of Harvard Business School Press.
university degrees, and study-abroad programs. Despite Indias fondness for cricket and Bollywood movies, recreational products and services will take a smaller slice of household spending there than in other countries. Transportation, already the largest category of expense after food, will take a bigger portion of household budgets in coming years, exceeding its share in all of our benchmark countries. The highest growth will come from car purchases. Categories such as clothing and household goods are expected to post slower annual growth relative to overall consumption 6.4 per cent and 6.9 per cent, respectively and thus to lose share of wallet. Yet even in these categories, growth rates will remain highly attractive as compared with those in other markets around the world. Implications for Business Three-quarters of Indias consumer market in 2025 doesnt exist today. About 52.6 trillion rupees a year in future purchases will be up for grabs. Incumbents and challengers alike face a sea change, but Indias domestic companies will start with many advantages: existing relationships with customers, an understanding of their needs, and recognized brands. Growing incomes and consumption will
pressure incumbents from two directions. First, such companies must adjust to the pace and magnitude of change, for as consumers rise through the income brackets, their needs, tastes, aspirations, and brand loyalties will evolve along with their lifestyles. Second, Indias growing consumption will attract a raft of challengers, and ongoing economic reform will signicantly intensify competition in many markets. New competition will come from multinationals entering the Indian market, from established Indian companies looking for expansion opportunities, and from entrepreneurs. Indeed, if the countrys policy makers create the conditions for Indias entrepreneurs to succeed, major new companies could be built on the back of consumer growth. For attackers, the challenge will be to spot the gaps and opportunities that arise as Indias income and class structure change; they might, for example, ask themselves where small markets or limited competition, or both, have served middle-class consumers poorly. Attackers could also turn to other emerging economies to seek lessons on how tastes and needs will likely evolve in India, perhaps looking in particular for categories in which spending shifted from local products and brands to international ones as aspirations rose. Attackers seeking to exploit these changes should
consider what new needs will be unique to Indian tastes and the market as the middle class grows. In India, as in many emerging markets, multinational companies will nd themselves squeezed between the desire of the countrys consumers for a modern middleclass lifestyle and the realities of their limited budgets. In 2005 the average middleclass family spent just over 300,000 rupees annually roughly $6,600 a very modest sum in real terms, but in PPP terms equal to around $35,000. Multinationals must innovate to deliver an aspirational middle-class lifestyle to families on an Indian budget. Companies that can develop new business models, design products with carefully targeted features, and create brands that appeal to Indias upwardly mobile citizens will attract huge numbers of eager consumers.
Eric Beinhocker is a consultant with the McKinsey Global Institute, where Diana Farrell is director. Adil Zainulbhai is a director in McKinseys Mumbai ofce.
Reprinted with permission from McKinsey Quarterly. The full report, The Bird of Gold: The Rise of Indias Consumer Market, is available at mckinsey.com/mgi/publications/india_consumer_ market/index.asp
SOCIAL INNOVATION AND SUSTAINABLE DEVELOPMENT AS DRIVERS OF GROWTH

by Patrick Cescau
Finding the sweet spot between the needs of consumers, society and our planet is a complex task, but it can be a signicant source of competitive advantage for those who do it well.
WHEN I WAS AN MBA STUDENT AT INSEAD
in the early 1970s, subjects like corporate responsibility and sustainable development barely existed. The green movement that was emerging at the time was the province of politics and protest, not business. The idea that companies had responsibilities to society beyond making a few charitable donations had not yet taken hold. Today, as CEO of a leading consumer goods company, I am pleased to say that social responsibility and environmental sustainability are core business competencies, not fringe activities. There is growing recognition that the social and environmental challenges
facing us in the 21st century are so complex and multi-dimensional that they cannot be solved unless government, NGOs and industry work together effectively. It is difcult, for example, to imagine a problem like climate change being addressed without the active participation of Shell, BP and Toyota. Likewise it is hard to imagine an issue like poor nutrition being effectively tackled without the involvement of the worlds major food companies. We have come to a point where this agenda is not only central to business strategy, but will increasingly become a critical driver of business growth. Indeed, I believe that how well and how quickly
Over 40 per cent of our business is now in developing markets, which makes them bigger for us than Europe, and sales there are growing much faster.
businesses respond to this agenda will determine which companies succeed and which will fail in the coming decades.
Partnering in Economic Development
While multinational companies can and do play a signicant role in the development agenda, the positive role of business is rarely talked about in the media. If brands are mentioned at all, it tends to be those that have not behaved responsibly. Part of the problem is that companies do not normally measure their social, economic and environmental footprint in the markets in which they operate and, as we all know, communication without facts is tough. My own company is one of the worlds leading consumer goods companies: 160 million times a day, someone somewhere will buy a Unilever brand. Our commitment to addressing social and environmental issues has been strengthened over the years by our deep roots in developing and emerging countries. Today, over 40 per cent of our business is in these markets, which makes them bigger for us than Europe, and sales there are growing much faster. By 2012, more of our business will come from Asia, Africa and Latin America than from the developed markets of Europe and North America. In 2003, Unilever joined forces with Oxfam to analyze the impacts of our business in one of our largest markets, Indonesia a country where I have seen the damaging effects of poverty rsthand. Our ndings highlighted a number of interesting things. Firstly, we found that most of the cash value Unilever creates in Indonesia stays in the local economy. This challenges head-on the perception which some NGOs have that multinationals are mere extractors of wealth who make large prots locally that are then immediately remitted to shareholders in London and New York, without beneting the local economy. Secondly, the report looked at the impact of our upstream supply chain and found that some 84 per cent of our raw and packaging materials were sourced from local suppliers, thereby creating not just jobs, but technology transfer from other Unilever factories around the world. Finally, the report revealed the extent to which our operations have a major multiplier effect on job creation. While Unilever Indonesia itself employs only 5,000 employees, the business supports the full time equivalent of 300,000 jobs, more than half of them in the distribution and retail chain.
Impressive though these figures may be, this exercise also revealed the very limited impact that our operations had in helping the farmers and shopkeepers at the furthest ends of the value chain to lift themselves out of poverty. Nevertheless, the evidence from Indonesia is that a global company with embedded local operations what we call a multi-local multinational can have a very positive effect on developing economies. Encouraged by the Indonesian exercise, we embarked on another study, this time in Africa. Working with INSEAD Professor Ethan Kapstein, we have been investigating the social, economic and environmental impacts of our operations in South Africa. Prof. Kapstein will not only be measuring our footprint in quantitative terms, he will also seek to capture and analyze our soft impacts such intangibles as training and skills transfer; support for government capacity building; black empowerment initiatives; and environmental standard setting. Following are some specic examples of how Unilevers presence in the emerging economies of Asia and Africa is contributing to the development agenda.
1. Capacity building
Capacity building is the term economists use to describe the creation of the skills, physical infrastructure, public health and administrative frameworks that are so necessary for developing countries to prosper. Capacity can be built at both the macro level of the state and at the micro level of individual companies and communities. In Africa, Unilever engages at both levels. A good example of an intervention at the macro level is the work we are doing to facilitate cross-border trade on the continent. We were one of the founding members of the Investment Climate Facility, a new public-private partnership that aims to address some of the structural bottlenecks holding back investment in Africa. We have committed one million Euro to getting this going, and are concentrating our efforts on working with African governments to rethink their approach to customs and border controls something that has traditionally been approached with a revenue rather than a trade mindset. If Africa is to develop as an economic region, there need to be fewer restrictions on cross-border trade. These not only discourage foreign
direct investment but also stie intra-regional trade an important driver of economic growth. In the Association for South East Asian Nations, for example, 60 per cent of trade is between neighbours; in Africa its more like 10 to 15 per cent. An example of capacity building at the micro or community level in Africa is Business Action Against Chronic Hunger an initiative we helped to launch last year. This is a program orchestrated by the World Economic Forum and involving The Millennium Villages Project a United Nations initiative pioneered by Columbia University Professor Jeffrey Sachs. Our shared aim is to help communities lift themselves out of poverty through sustainable income generation. The pilot program is in Western Kenya, where agriculture is the primary livelihood, but the land available for farming is less than half a hectare per household insufcient to produce enough food for the average family. As a result, 60 to 70 per cent of the population lives below the poverty line. Agronomists from Unilevers Kenyan tea plantations are helping farmers to convert their small holdings from commodities like maize to higher-value crops like sunowers, herbs and spices. The land was prepared in January and February of 2007; the seeds were planted in March; and in September, they were harvested. We have guaranteed these farmers that we will buy their crop at market prices. The sunower oil will be used in our Blue Band margarine and the herbs in Royco a local brand of bouillon stock cubes. Our aim is for the farmers to make enough money in the rst year to be able to feed themselves and create a surplus for next year. In return for help with training and start-up costs, the farmers have agreed to put 10 per cent of the value of any surplus they make in future years into community projects. While we are still in the embryonic phase of this project, we plan to scale it up from 30 farmers to 4,000 beneting some 20,000 people. Our objectives are clear: to work with others to make Kenya a healthy, prosperous society in which businesses such as ours can ourish.
2. New business models
sector to create new business models. Some of these are designed to reach down towards what C.K. Prahalad has called the fortune at the bottom of the pyramid. An example of this is our Shakti initiative in India. At the end of the 1990s, Hindustan Unilever realized that if it was to maintain its growth trajectory, it would need to nd a way to sell its products to the rural poor. One in eight people on the planet lives in an Indian village, and very few of these are served by a retail distribution network. The solution we came up with to reach these consumers was to tap into existing networks of womens self-help groups that had grown up on the back of micro-credit schemes. From these groups, we recruited and trained Shakti entrepreneurs, who became our local sales representatives, going door-to-door, selling our products not our standard range of products, but re-engineered ones that were affordable to people on desperately low incomes. More often than not, this implied small pack formats mainly sachets which could be sold at prices as low as one or two rupees. The Shakti initiative lies at the intersection between social responsibility and business strategy. The social benets are obvious: it creates economic activity at the very bottom of the pyramid; it gives poor people access to products that address their basic needs for hygiene and nutrition; and it gives dignity and a sense of empowerment to a large number of rural women. At the same time, the business benets are huge. Today we have 30,000 Shakti entrepreneurs operating in 100,000 villages serving nearly 100 million consumers. The revenues generated are now close to $100 million per year, and the margins are very similar to those we achieve through our mainstream distribution channels. Make no mistake: for Unilever, Shakti is not a philanthropic activity. It is a serious and protable business proposition. Such innovative routes-to-market enable us to serve the needs of rsttime consumers, which in turn gives us the opportunity to address some of the nutrition and hygiene needs of some of the poorest people on the planet.
3. Products that meet social needs
Capacity building is critical for long-term economic development. Of more immediate impact, however, is the ability of the private
Every ten seconds, a child dies from diarrhea somewhere in the world. One third of these deaths are in India, and most are children
under ve. Yet according to the World Bank, something as simple as washing hands with soap can reduce such diseases by half. Lifebuoy has been Indias leading soap brand for decades. In the late 1990s, we launched the largest rural health and hygiene education program ever undertaken in India: Swasthya Chetna which means Health Awakening in Sanskrit. Piggybacking on the infrastructure created by Shakti, Lifebuoy health education teams visit thousands of schools and communities to teach children about the existence of germs and the importance of washing their hands. Marketing activity of this kind is a classic win-win: the education program has a measurable impact on public health; and the benets for Lifebuoy come through in an expanding market for soap, which leads to strong sales growth nearly 10 per cent in 2006. One of the biggest nutritional challenges in Africa is the absence of certain nutrients in the diet. Iodine deciency is a case in point: it affects millions of people and can cause mental retardation and brain damage. In Ghana, for example, simply adding iodine to our Annapurna salt brand helped to nearly double iodine consumption by over half the population. Our impact was amplied by partnering with UNICEF to create and implement a program of social marketing. Once again, this was a win-win situation: UNICEF and the Ghanaian Ministry of Health achieved their public health goals of increasing iodine consumption, and Unilever Ghana was able to open up a new market.
Social Innovation
Social innovation entails nding new products and services that meet not only the functional needs of consumers for tasty food or clean clothes, but also their wider aspirations as citizens. In the developed markets of Europe and North America, we are observing new patterns of consumption, driven by the emergence of what has become known as the conscience consumer. These consumers are worried about social and environmental issues and realize that they can inuence change through the brands they choose to either buy or boycott. Our market research tells us that when making purchasing decisions, a growing number of consumers want to be reassured that the brands they buy will benet society and the planet, not harm them. This movement is gathering momentum, and we believe it has all
the hallmarks of ushering in a new age of marketing and branding. Forty years ago, brands were all about functional benets whether, for example, Persil washed whiter than Ariel. Then advertising agencies, inuenced by the social sciences like Psychology and Anthropology, started building in emotional benets wash with Lux, the soap the stars prefer, and some of Hollywoods glamour will rub off on you. Now there is a new dimension: brands with social benets that appeal to consumers as citizens. Dove is a Unilever brand whose social mission is to change peoples stereotypical views of female beauty. Research shows that 90 per cent of women are not happy with the way they look. Much of the problem lies with the unrealistic way women are portrayed in advertising, fashion and the media. Through the Dove Self-Esteem Fund, we are helping women, and young women in particular, to see through the artice that permeates the world of fashion and, in doing so, build their self-esteem and become more condent about the way they look. Incidentally, it was neither pressure from the NGO world nor legislation that drove the Dove team towards the Campaign for Real Beauty: it was consumer insight. Intelligent interpretation of market research highlighted that this issue resonated strongly with women of all ages around the world. The team realized that by championing the cause they would not only be doing something worthwhile, but at the same time strengthening the loyalty of their consumers to the brand. Today we are reaping the benets of this in rapid rates of growth for Dove all around the world. Another Unilever brand with strong credentials is Ben & Jerrys. We acquired the business in 2000, but the values of its eponymous founders, Ben Cohen and Jerry Greeneld, remain the values of the company today. One of Ben & Jerrys key concerns is the environment and, in particular, the devastating effect global warming is having on the earths polar ice-caps. As Cohen and Greeneld like to say: Listen to two old ice cream guys if its melted, its ruined. Their Lick Global Warming campaign and Climate Change College, which they set up in partnership with the World Wildlife Fund, are outstanding examples of how you can make a complex subject accessible to people and relevant to their everyday lives. Recently, Ben & Jerrys announced its intention to become a climateneutral brand the rst big food brand to do so.
Brands can continue to provide consumers the functional benets they seek, while at the same time maximizing social benets.
Sustainability
With over two-thirds of Unilevers raw materials coming from agriculture, we have had an active program of sustainable agriculture for more than a decade. Teams of agronomists have been learning how to grow crops like tomatoes, tea, palm, peas and spinach without using too much water and with minimal use of pesticide and fertilizer. Until recently, this valuable work never aroused the interest of our brand teams, but they are now beginning to understand that this is an area where there is a convergence between our longstanding expertise in sustainability and consumers concerns as citizens. For example, many consumers are increasingly worried about the welfare of the people in developing countries who grow and harvest the food and drink they enjoy as evidenced by the phenomenal growth of the fair trade movement. However, until now this has largely been the preserve of niche operators. A couple of large companies like Starbucks and Nestl have dipped a toe in the water by introducing fair trade versions of their coffees; but these represent just a small fraction of the total volumes they buy. Coffee companies are not the only ones trying to capitalize on consumer concerns in this area. Countless brands are jumping on the eco-ethical bandwagon. This is an agenda where you are judged by your actions, not by your press releases. Consumers are quick to spot the difference between those brands that are authentic and those that arent: companies that try to promote themselves as being ethical in one aspect of their business but who tolerate bad practice in another will pay the price. At Unilever we believe that this agenda offers huge potential for innovation and brand development, but it will only work for us if it is fully integrated into our way of doing business. To help us achieve this, we have developed a diagnostic tool called Brand Imprint. It helps our brands take a 360 look at their impacts on society and the environment and gain deep insights into the external forces shaping this agenda. A number of our global brands have started to use this tool and the rst fruits of their work are starting to emerge. For instance, we recently decided to commit to purchasing all of our tea from sustainable sources, and have asked the Rainforest Alliance to start auditing the estates from which we buy our tea, including our own in
Kenya. Unilever is the worlds largest tea company and Lipton is the worlds favourite tea brand. We aim to have all Lipton Y ellow Label and PG Tips tea bags sold in Western Europe certied as sustainable by 2010, and all Lipton tea bags sold globally certied by 2015. It is the rst time a major tea company has committed to introducing sustainably-produced tea on such a large scale and the rst time the Rainforest Alliance will audit tea farms. The decision has the potential to improve the crops, incomes and livelihoods of nearly one million tea growers and pluckers in Africa. Eventually, up to two million people around the world could benet nearly all of them in developing countries, and many of them living on or below the poverty line. Once again, this is a win-win situation: our consumers will have the reassurance that the tea they enjoy is both sustainably grown and traded fairly; subsistence farmers will get a better price; tea pluckers will be better off; the environment will be better protected; and last but not least, we expect to sell a lot more tea.
In closing
The lesson here is rather simple: brands can continue to provide consumers with the functional benets they seek, while at the same time maximizing social benets and minimizing environmental impacts. Doing business responsibly has served Unilever well. If you look at our share price over the past 25 years and compare it with the S&P 500, it is evident that doing good and doing well are not mutually exclusive. I strongly encourage business people everywhere to get to know this agenda, and to come to understand how it can be a driver of growth. Very soon, the business world will be divided into those that recognized its potential early on, and those who woke up to it too late.
Patrick Cescau is Unilevers Group Chief Executive, based in London, England. Unilevers brands include Dove, Knorr, Becel, Axe, Hellmanns, Lipton and Sunlight.
Cities can lead the way to a more sustainable future, improving the quality of life for urban and rural dwellers alike.
Energizing Cities: Lighting the way forward

by Janet Sawin and Kristen Hughes Illustration by Amedeo De Palma
AT NIGHT, THE EARTHS CITIES are visible from space as chains of light in a sea of blackness, exuding energy. A closer examination reveals complex webs of streets, enormous buildings, vehicles, and burgeoning populations all of which require energy to build, use, and sustain. To meet these needs, cities draw energy from the world around them, with health, security, and environmental consequences for all. Even as industrializing nations seek to expand their economies to levels nearer those of richer nations, the Earths atmosphere and ecosystems are demonstrating real limits to our ever-increasing consumption of resources. As cities continue to expand, the enormity of their contributions to major social and environmental problems is only expected to rise. Cities in the future will bear the brunt of many challenges related to todays unsustainable energy systems from air and water pollution to climate change particularly as growing populations put increasing pressure on resources. Cities around the world are working to reduce their ecological footprints, recognizing that they hold the key to mitigating problems through urban planning, building design, and informed choice
of end-use products and energy resources and technologies. The very enormity of scale that today appears such a challenge, also offers cities the potential to make benecial changes that will have signicant impacts not only locally, but globally as well.
Reducing Demand Without Dimming the Lights
Globally, buildings account for more than 40 per cent of total energy use, and as cities become more populated, more and more of the worlds buildings are found in urban areas. In 2005, Shanghai constructed more building space than exists in all the ofce buildings of New Y ork City; and every month, China adds urban infrastructure equal to that found in Houston, Texas, simply to keep up with the masses of people migrating from its rural areas to cities. Around the world there is a small-but rapidly-growing movement to make buildings green lowering their energy needs, for example, through efciency improvements and on-site energy resources. Green buildings incorporate designs and technologies often considered new and innovative; in reality, many of these ideas
Lighting accounts for nearly 20 per cent of total electricity consumption worldwide, and much of this occurs when the sun is shining.
have been around for centuries. Architects, planners, and others are rediscovering traditional ways to light, heat, and cool indoor spaces and adapting them for modern uses. Lighting accounts for nearly 20 per cent of total electricity consumption worldwide, and much of this occurs when the sun is shining. Energy use could be reduced dramatically with simple design techniques such as natural daylighting, mirrors and reective paints, and light shelves horizontal ns at windows that act as shading devices, reduce glare, and allow daylight to penetrate deep into buildings. Technology has improved to the point where glass transmits light while reecting unwanted heat. These techniques and materials not only offset some of the lighting load, they also lower the signicant heat gains associated with lighting, reducing air conditioning needs. Energy demand can be reduced further with modern technologies like motion sensors which turn lights, appliances, or machinery off when they are not needed and energy-efcient bulbs and lamps. Conventional incandescent bulbs convert about 10 per cent of energy to light and the remainder to heat. In contrast, compact uorescent bulbs and light-emitting diodes (LEDs) use far less energy to produce a comparable amount of light while producing a fraction of the heat. These alternatives cost more upfront, but they save energy and money over their lifetimes. Heating water and space also requires signicant amounts of energy. Better insulation, proper building orientation, and the use of solar heating and other techniques can dramatically lower energy demand and associated costs, as can reducing the scale of buildings. In developing countries, one of the most cost-effective ways to increase thermal comfort for the urban poor is to install ceilings beneath their roofs in order to reduce heat loss; energy savings from such programs in South Africa have exceeded 50 per cent. Waste heat that is vented in conventional large-scale power plants or in small systems like microturbines or fuel cells can be captured for heating, cooling, or additional power generation. Such combined heat and power systems improve overall efciency levels
dramatically. The Verdesian, a new building in New York Citys Battery Park, captures heat from a natural gas microturbine to produce hot water, increasing overall energy efciency to 80 per cent or higher, compared with the 2535 per cent efciency of a typical fossil fuel power plant. During hot months, space cooling is becoming increasingly important to keep cities running. The concrete and asphalt jungles that replace natural life absorb heat and raise urban temperatures further, creating what is known as the heat-island effect. In Chinas major cities, air conditioning accounts for 40 per cent of the publics summer energy demand and is the primary cause of power shortages that began in 2003. And in Tokyo, a modeling study found that waste-heat emissions from air conditioning are responsible for one degree Celsius of warming during the summer, exacerbating the heat-island effect. A similar study of Houston, Texas, found that total waste-heat emissions were responsible for warming of up to a half-degree Celsius in daytime and 2.5 degrees at night. Another way to reduce energy demand for cooling is to top buildings with reective surfaces such as white paint or metal shingles that act as radiant barriers. An Environmental Protection Agency-funded study that considered both cooling benets and heating penalties of such cool roofs found signicant net savings in energy use. Green roofs and walls reduce heat gain in summer and they also insulate buildings from cold in winter. Temperatures on conventional roofs can be 50 degrees Celsius (90 degrees Fahrenheit) higher than the ambient temperature; atop a green roof, the temperature on a hot day can actually be below ambient. With enough green rooftops throughout a city, substantial reductions in the urban heat island effect are possible, with the added benet of less smog. Green roofs also lter and retain storm water, reducing urban runoff problems, and create habitats for birds and recreational space for people. The integration of intelligent design with several of the efciency measures described above can reduce energy use to half or less than in a comparable conventional building.
Powering Cities Locally
2. Urban waste
Cities can generate power locally in the following three ways:

1. Sunshine
Wherever the sun shines, buildings can become mini-power or heating stations. Solar photovoltaics (PVs) generate electricity directly from sunlight, often at precisely the time when power demand is greatest and electricity is most costly. PV technology has advanced to the point where it can literally be integrated into structures in roong tiles and shingles, outer walls, and glass windows generating not only electricity but also shade and insulation. When used for building facades, PVs can be cheaper than granite or marble. Building-integrated PV (BIPV) is now widely used in Europe and is spreading to other regions as well. The IEA estimates that BIPVs could meet nearly one fth of annual electricity demand in Finland, more than 40 per cent in Australia, and about half of the total in the United States. Solar thermal systems, which use the suns warmth to heat water and space, adorn rooftops from Freiburg in Germany to Jerusalem in Israel and can pay for themselves in just a few years through fuel savings. Shanghai and other Chinese cities are becoming hotbeds for solar energy, driven by the need to reduce coal and oil consumption. China now leads the world in the manufacture and use of solar thermal systems.
Although cities have little land available for energy crops, they have an enormous potential resource for biomass energy: urban waste. New York City, for example, produces 12,000 tons of garbage per day. The waste must be shipped as far away as Ohio, and disposal costs the city more than $1 billion annually. In industrialand developing-country cities alike, per person generation of municipal waste is increasing with population and lifestyle changes. Due primarily to a lack of resources and disposal sites, as much as 90 per cent of the waste in some developing-country cities is not collected; instead, it is burned or left to rot in the streets, creating heavy smoke and fumes, water pollution, and disease. But one persons trash is anothers black gold: urban waste can be used to produce everything from cooking fuel for individual households to grid-based electricity for ofce buildings and homes or biofuels for modern vehicles. Where waste does make it to landll sites, methane can be extracted to generate electricity, reducing release into the atmosphere of a greenhouse gas (GHG) that is 21 times more potent than carbon dioxide. Landll gas produces electricity in many U.S. cities, in So Paulo in Brazil, and in Riga in Latvia, and it meets nearly two thirds of power demand for lighting in Monterrey, Mexico. Waste can also be treated in anaerobic digesters, which break down almost any organic material from paper and yard waste to
Green Roofs for Healthy Cities: Questions for Steven Peck

What is the mission of Green Roofs for Healthy Cities? Our mission is to celebrate and encourage the transformation of the building industry, in all of its manifestations, into a powerful force for sustainability within a generation. The integration of living, organic systems with the lifeless elements of modern building design is essential to achieving this transformation the movement, if you will, towards a living architecture. Green roofs and green walls are proven systems that provide an unbelievably broad range of social, economic and ecological benets to their owners and the broader community. After ten years, these technologies and their numerous applications continue to capture my energy and enthusiasm. How did you get involved in these issues? My background is in sustainable community >>
Interview by Karen Christensen
garbage and municipal sewage into compostable solids, liquid fertilizer, and a gaseous fuel that can be carried or piped to stoves, heaters, electric turbines, and any device fueled by natural gas. Most poor people in the developing world spend at least 20 per cent of their monthly incomes on fuel for cooking. But low-cost, household-sized digesters fed with feedstock readily available in urban areas can displace dung or rewood, reducing pressure on local forests while providing families with a smoke-free and healthier environment. And a Tanzanian study found that biogas could save ve hours of household labour daily, giving women and children more time for productive activities. Many cities including Frankfurt, Vienna, and Zurich are already converting waste to gas for energy, and in 2006, San Francisco launched a pilot project to produce power from dog waste after nding that it accounted for nearly four per cent of the residential garbage collected. Oslo, Norway, has perhaps the largest system in the world that uses raw sewage to produce space and water heating: heat is drawn from the sewer and transferred to a network of water pipes that feed thousands of radiators and faucets throughout the city. New technologies can convert even inorganic materials from hospital and industrial wastes to car tires into electricity and transport fuels.
3. Wind and Water
Although the potential is limited in urban areas, even wind and
water can provide some cities with much-needed energy. Tokyo has installed 2.5 megawatts of wind turbines along its waterfront, and in May 2005 an electricians union installed the rst commercial wind turbine in Boston, which will provide electricity for the unions regional training center. Cities along coastlines or large water bodies can tap local resources from new directions, helping to alleviate transmission constraints. The Middelgrunden Windfarm off the coast of Copenhagen meets four per cent of the citys electricity needs and is the worlds largest cooperativelyowned wind power project. Both New York and San Francisco have proposed projects to use marine energy for power, and some cities are literally tapping local water sources for cooling. Paris pumps water from the Seine River to run air-conditioning systems, and Toronto uses the deep, frigid waters of Lake Ontario for district cooling. Torontos system has enough capacity to cool 3.2 million square meters of ofce space, or the equivalent of 100 ofce towers. Although few cities will meet all their energy needs with distributed renewable resources in the foreseeable future, some urban areas are already doing so. A new district with 1,000 dwellings in Malm, Sweden, meets 100 per cent of its electricity needs with solar and wind power, gets its heat from sea and rock strata and from the sun, and fuels its vehicles with biogas from local refuse and sewage. While renewable energy technologies are capital-intensive, they have low-to-zero fuel costs, reducing exposure to uctuations in fossil
Green Roofs for Healthy Cities: Questions for Steven Peck (Contd)
development. I spent more than a decade researching the barriers to improving community sustainability, and the role of government investment in supporting new and emerging environmental technologies. When I was rst introduced to the concept of green roofs in 1996, it seemed too-good-tobe-true. Here was a technology basically unknown in North America that faced many of the classic barriers to market acceptance: lack of consumer awareness, lack of professional training, lack of research, and a lack of public policy support for its implementation. Green roofs help us build more sustainable communities by making them more livable, reducing the burden on public infrastructure, like storm sewers. If implemented in sufcient numbers, they can save millions of dollars on energy while cleaning the air, providing food, allowing for
ecological restoration to protect plants and animals and taking advantage of the many recreational opportunities associated with currently-wasted roof spaces. Has the response in Canada been sufcient to date? We've been advocating for green roofs since 1999, and we've achieved a lot: there are dedicated green roof research facilities in Vancouver, Calgary, Toronto, Ottawa, Montreal and Halifax, to name a few. What we have not yet accomplished is widespread acceptance of the value of signicant public investment in green roofs as a form of public infrastructure, similar to roads and bridges. As a nation, we desperately need to nd more cost-effective methods of revitalizing our urban infrastructure. Green roofs have the distinct advantage of delivering multiple public benets, including
energy efciency, cooling the urban heat island and reducing smog formation; but they are still the new kid on the block. Most of the public investment to date is coming from cities such as Chicago, Seattle, Washington and Toronto. Senior levels of government need to recognize that high-performance green buildings are one of the key approaches to dealing with the growing infrastructure decits in our cities. If one new building generates more renewable power than it uses and supplies it to the grid, cleans the air, harvests rainwater, processes it own sewage and manages its own organic waste, for example, it is impressive but not big deal: but if 500 or 1500 buildings are designed to do that over a decade, you have enormous potential for infrastructure savings. We say, lets shift public resources from all three levels of government in this direction. >>
fuel prices. They also have far lower impacts on air, soil, and water and, as a result, on human health than conventional fuels and technologies, and can provide a reliable and secure supply of energy.
In closing
Selected Municipal Energy Targets

City Target
Figure 1
Cities have an unprecedented opportunity to change the way they supply and use energy. New eco-cities such as Dongtan in China are leading the way, even as existing cities turn to technologies rooted in the past from adobe architecture to passive solar heating. When complemented by conservation, more-efcient technologies, and new decentralized, small-scale energy services, these efforts can help cities condently navigate the challenges ahead while reducing the impact of climate change. Done right, energy transformation in cities can be the doorway to security and vitality in urban life.
Beijing
Reduce energy intensity of the citys economic output by 32 per cent between 2004 and 2010 Incorporate solar water heating into 75 per cent of new buildings All new buildings must rely on district heating (electric heating banned) Reduce municipal building energy use 50 per cent from 1990 level by 2025 Increase municipal use of renewable energy by 50 per cent from 1996 levels and private use by 22 per cent by 2010
Berlin
Copenhagen
Leicester, UK
Melbourne
Janet Sawin, Ph.D. is Senior Researcher and Director
of the Energy and Climate Change Program at the Worldwatch Institute, an independent research organization based in Washington, DC. Kristen Hughes is a research associate and doctoral candidate at the Center for Energy and Environmental Policy, University of Delaware.
This is an excerpt from the 2007 State of the World Report, published by the Worldwatch Institute. The complete report can be ordered at worldwatch.org/taxonomy/term/38
Portland, Oregon 100 per cent green power for municipal government by 2010; all new city-owned construction to meet LEED Gold certication Tokyo Renewables proposed to supply 20 per cent of total energy by 2020
What advice do you have for readers who want to get involved? If you work in the building industry, actively work to promote living architecture. Designers and installers can work towards becoming Accredited Green Roof Professionals, a
professional designation that we are launching in 2009; and there are courses on green roofs and walls offered in every major city in Canada. If you are a consumer and you own a building, make sure that it is operating efciently and make plans to install a green roof the next time you replace yours. In the short term, consider installing a green wall. If you are part of an organization that is building new buildings, require that they are LEED Platinum the highest green building rating from the Canadian Green Building Council. Make sure that the nancial model you are using allows for longer-term paybacks on green building elements such geothermal and solar photovoltaic systems. Looking ahead to the year 2020, what will success look like for your organization? When green roofs and walls have become a
mainstream building practice in Canada and the U.S., we will have gone a long way to achieving our goals. We need to be able to measure green roof and wall installation in square miles instead of square feet. Each year we survey our members to determine the square footage of green roofs installed and publish a top ten city list. Right now, there are no Canadian cities on this list. By 2020, Id like to see three of the top ten cities be Canadian. Visit greenroofs.org for a searchable database of members, a Web-enabled Life-Cycle Cost Benet Calculator and a searchable database of research studies and polices. Steven Peck is the founder and president of Green Roofs for Healthy Cities. For more, visit greenroofs.org
by Claire Tsai and Christopher Hsee
HEDONOMICS IN CONSUMER BEHAVIOR

To maximize happiness, consumers must accurately predict the emotional consequences of their options and make choices based on these predictions.
philosophers and theologists have debated how to attain joy and avoid misery. In recent decades, the debate has expanded to include consumer researchers, psychologists and economists, who have accumulated empirical data and developed testable theories on happiness. In the realm of consumption, there are two general approaches to improving consumer happiness:
1. Enhance the magnitude of a desired external stimuli (e.g., the amount of income, size of home or number of shoes); 2. Find the optimal relationship between external stimuli and happiness
OR THOUSANDS OF YEARS,
The following analogy illustrates the distinction between these approaches: suppose a child loves wooden blocks and
possesses a set. He has played with them for a while, and becomes bored. How can he increase his happiness? One approach would be to obtain more blocks; the other would entail nding a new and better way to combine the existing pieces and build more enjoyable projects. The rst approach is most widely embraced by consumers in our society, who generally seek to earn more money to buy more and more goods. The second approach is the focus of this article: it involves seeking to optimize the relationship between external stimuli and happiness without having to increase the magnitude of the external stimuli. We refer to this approach as hedonomics. Hedonomics would not be important if either of the following statements were true: rst, that happiness depends primarily on the magnitude of a desired external stimuli; and second, that consumers fully understand the relationships between external stimuli and happiness, and in making consumption decisions
If a stimulus we care about suddenly improves, we will rst experience a positive feeling, but with the passage of time the elevated feeling will fade.
they are already maximizing their happiness. As we will show, both of these statements are false.
Hedonic Editing
Prospect Theory, developed by Daniel Kahneman and Amos Tversky, was originally proposed to describe choice under risk, but the theory also has important implications for consumer experiences. An individuals experience with an external stimulus depends not on its absolute magnitude, but on the difference between the absolute magnitude and some reference point. A positive difference is felt as a gain and evokes a positive experience, whereas a negative difference evokes a loss and a negative experience. Per Kahneman and Tversky, the negative experience evoked by a loss is more intense than the positive experience evoked by a gain of the same magnitude a principle they have termed loss aversion. Building on Prospect Theory, researchers have proposed a set of strategies to maximize happiness termed hedonic editing:
Strategy 1: If a consumer has two good events to enjoy (e.g., dining out with a charming friend and watching a favorite video), she should enjoy them on separate occasions, because multiple gains will yield greater total happiness if they are experienced separately than if they are experienced as one aggregate gain. Strategy 2: If a consumer has to experience two bad events (e.g.,
seeing a dentist and spending time with in-laws), it is better to experience them in close proximity, because multiple losses will yield less total pain if they are experienced as one integrated loss than if they are experienced separately.
Strategy 3: If a consumer has a big/bad event and a small/good
bonus miles. However, recent research suggests that whether consumers are sensitive to the magnitude (for example, amount, quantity, duration, probability, or mileage) associated with a stimulus depends on at least two factors: evaluation mode and the evaluability of the relevant attribute. The evaluation of any stimuli proceeds in one or some combination of two modes: joint evaluation (JE) and single evaluation (SE). In JE, two or more stimuli are juxtaposed and evaluated comparatively. For example, if a passenger receives two sets of bonus miles from two different airlines, she is in JE of these two bonuses. Under SE, only one stimulus is present and evaluated in isolation; for example, when a passenger receives only one set of bonus miles at a time. Does 3,000 bonus miles always make a consumer happier than 2,000 bonus miles? Not always. Passengers receiving 3,000 bonus miles are not going to be happier than passengers receiving 2,000 bonus miles if they do not compare the awards in JE. If passengers are in SE and if they are not familiar with the distribution or range of such promotions (i.e., mileage being an attribute low in evaluability), they will not be happier with the 3,000 miles. Life often presents itself in SE. For example, most passengers do not receive multiple sets of bonus miles from different airlines at the same time. However, passengers often have to make purchase decision in JE: for instance, they simultaneously compare many airline companies when planning a trip. Furthermore, consumers do not have much information about the range and distribution of most product attributes. Thus, more of a good thing does not necessarily make consumers happier.
Hedonic Adaptation
event to experience, she should experience them separately.

Strategy 4: If a consumer has a small/bad event and a big/good event to experience, she should experience them in close proximity. Quantity and Value
Most utility theories assume that more of a desired stimulus is always better. For example, an airline passenger will always be happier if she receives 3,000 bonus miles than if she receives 2,000
Many things consumers care about change over time. If a stimulus one cares about changes for example, moving from a small apartment to larger unit one will rst experience a positive feeling and with the passage of time the elevated feeling will fade away. This phenomenon is called hedonic adaptation. Hedonic adaptation occurs for multiple reasons. One is basic psychophysical adaptation: the longer we are exposed to a stimulus, the less sensitive we feel about it. For example, when a person rst immerses his hand in 50 degree water, he will feel cold. After a while he will adapt to the temperature and no longer nd the water cold. Another reason for hedonic adaptation is dilution of attention. For
example, after a person moves to large apartment from a smaller space, she will rst be overjoyed with the extra size, but before long, her attention will shift away from the house to many other things, such as her crying baby or her nagging husband. As a result, the size of her new apartment is just one of the myriads of events that cause the ups and downs of her daily life. A third reason for hedonic adaptation is what has been referred to as ordinization. Once an affective event happens, consumers have a tendency to rationalize it, make it seem ordinary, and thereby dampen its affective impact. This can happen to both positive and negative events. For example, if a bidder wins an auction for a
painting on eBay, he might think to himself, Its no surprise. I bid a lot for it. But if he was outbid, he might justify the loss by thinking, It wasnt a very good painting anyway. Hedonic adaptation occurs mostly when the new state remains stable, for example, when a person remains in the new apartment after moving or a person remains paralyzed after an accident. However, many events we care about constantly change over time for example, gas prices, stock prices and body weight. How do people react to such ongoing changes? First, our momentary experience with such changes depends on the direction of the change: positive if the change is in the desirable
Obstacles to Maximizing Happiness

Following are eight types of consumption biases that serve as obstacles for maximizing happiness. 1. Impact Bias When asked to predict the experiential consequence of an event (e.g., moving to a larger apartment), consumers often ignore the power of adaptation and thereby overpredict the duration and the intensity of the experience. Impact bias can be attributed to two things. One is neglect of ordinization: when an emotion-triggering event happens, people will make sense of it and make the event seem ordinary. Yet most people underestimate this ordinization effect. The second reason for impact bias is focalism: consumers pay too much attention to the focal event, overlook the dilution-of-attention effect and thereby overestimate the affective impact of the focal event. 2. Distinction Bias This bias arises because consumers are in different evaluation modes during prediction versus consumption and they often overestimate the effects of product attributes that can distinguish one option from another. Predictions are often made in joint evaluation (JE), and consumption often takes place in separate evaluation (SE). For instance, prospective house buyers typically compare alternative homes in JE and predict their experiences. When they actually live in a home, they experience that place alone in SE. If consumers do not realize the distinction bias, they may sacrice things that are actually important to their consumption experience (e.g., the availability of indoor parking) for things that are not as important (e.g., the difference between 1,250 and 1,500 square feet). 3. Belief Bias Consumers may expect adaptation when it does not exist. For example, in one study, students believed that their liking for their favourite ice cream would decrease if they had it every day, but in reality their liking did not decrease as much as predicted. Another common belief is that more options are always better; but whether that is true depends on the size of the choice set, the mode of evaluation, and the level of involvement. 4. Projection Bias Consumers often nd themselves in different visceral (i.e. arousal) states. When individuals in one visceral state predict experiences in another visceral state for themselves or others, they often project their current state into their predictions. For example, if a person is full now, she will underestimate how much she will enjoy her next meal when she is hungry again; and hungry shoppers at a grocery store may buy more items than they need and have planned to buy, unless they are reminded of their grocery list. 5. Rule-based Choice Consumers may base their choices on factors other than predicted experience. One such factor is decision rules, which simplify decisions and sometimes lead to optimal consequences under certain circumstances. Once these rules are internalized, people over-apply them to circumstances where they do not lead to experientially-optimal choices. An example of a decision rule is don't pay for delays. Consumers may intuitively recognize the pleasant feeling of anticipation and predict greater happiness from a concert that will take place in a week than a similar concert that will take place tonight, yet they are not willing to pay more for the concert in a week, presumably because they want to adhere to the dont pay for delays rule. 6. Lay Rationalism Consumers have a general tendency to resist immediate affective inuence and base their choice on factors they consider rational. For example, people have a tendency to base decisions on hard (objective and quantitative) attributes rather than soft (subjective and hard-to-quantify) attributes even though the soft attributes have more impact on their happiness. 7. Impulsivity Consumers sometimes behave impulsively because they mispredict the consequences. For example, some people regularly eat fatty foods because they underpredict the negative consequences in the future. But more often than not, consumers commit impulsive behaviour even though they are keenly aware of its aversive consequences, but they cannot resist the temptation. Impulsive choosers fail to base their choice on what they predict will bring them the best overall experience i.e., the sum of immediate and future experiences. 8. Medium Maximization When people try to obtain a desired outcome, the immediate reward that they receive is usually not the outcome, but a medium an instrument that they can trade for the desired outcome. For example, points for consumer loyalty programs and mileage for frequent yer programs are both media. In decisions involving a medium, consumers may maximize the medium rather than their predicted experiences with the ultimate outcomes.
Consumers will be less happy with a decision if they closely consider the available options than if they do not.
direction and negative if the change is in the unwanted direction. Our momentary experience also depends on the velocity of change, in that we feel happier the faster a positive change comes about, and feel less unhappy the slower a negative change comes about.
The Role of Multiple Choice
choosing one feels like losing the others to which they already have some emotional attachment.
Cognitive Utilities
Many believe that having a choice is always better than having no choice, and that having more choices is always better than having fewer. In reality, neither is true. Research shows that if consumers have to experience one of several undesirable options, they will feel less unhappy if someone else makes the choice for them than if they have to make the choice themselves. For example, a consumer who is on a diet and can only eat meals that are unappealing to her will feel better if someone else chose the meal for her than if she has to make a choice herself, because making a choice among unappealing meals induces negative feelings. Furthermore, when people make a choice themselves, they will be less satised with that choice if they have many options to choose from than if they have only a few options to choose from. Too many options can be de-motivating because they are too complex and involve too many tradeoffs for consumers to manage. For example, shoppers would be less happy with the chocolate they chose if they had 30 trufes to choose from than if they had only six options. Having more than one option can reduce happiness, too. That is, if consumers are presented with one good option, they will be happy, but if they are presented with two good options, they will notice the disadvantages of each option relative to the other and will be less happy with either option. For example, if a consumer wins a free trip to Paris, she will be happy; if the consumer wins a free trip to Hawaii, she will also be happy. But if the consumer wins a free trip and has to choose between Paris and Hawaii, she may be less happy, because each option contains shortcomings compared with the other: Paris does not have Waikiki Beach, and Hawaii does not have the Louvre. Finally, research shows that consumers will be less happy with their decision if they closely consider the options available to them than if they do not. In most cases a consumer can choose only one of the available options and has to forego the other options. Close deliberations can prompt consumers to form an emotional attachment to all the options, including those they have to forego. Thus,
Imagine that a person participated in a sweepstakes a month ago, and was just informed that she had won a three-day vacation to Paris. What is the utility of this trip to her? Intuitively, one would say that the utility is the happiness she derives from the vacation, which can be referred to as consumption utility. But besides that, she experiences three other types of utility:
1. news utility the feeling she experiences upon hearing the news that she won the vacation 2. anticipation utility the feeling she experiences when anticipating the trip 3. memory utility the feeling she experiences when recalling the trip afterwards
We recently conducted a study in which students were prompted to report their momentary experiences ve times throughout the duration of a class. The rst time was about 15 minutes into the class (which established the baseline of happiness). The second time was immediately after the instructor announced that he would give each student a KitKat to eat later in the class; it measured news utility. The third time was about 10 minutes after the announcement of the news; it measured anticipation utility. The fourth time was right after the students had received the chocolate and were eating it; it measured consumption utility. The last time was some 10 minutes after the consumption; it measured memory utility. Compared with the baseline, the students reported the greatest happiness when they heard the news, followed by when they ate the chocolate, and lastly when they anticipated and recalled the consumption. This study indicates the possibility for news to generate even greater happiness than consumption. Memory of past events can inuence happiness in two ways. First, consumers may relive a positive (versus negative) experience from their past and derive positive (versus negative) utility when recalling the past (consumption effect). For example, a person can derive pleasure by recalling the details about her last trip to Paris. Second, past experience can create a contrast effect or an assimilation effect on ones current experience. Which effect will dominate
depends on the context. If the past event is similar to the current event (e.g., a fancy French dinner versus a mediocre French dinner), the past experience will create a contrast effect; if the past event is dissimilar to the present event (e.g., a fancy French dinner versus a mediocre movie), it will create an assimilation effect. Intuitively, the primary source of happiness that a desirable stimulus (e.g., a chocolate bar or a vacation) brings is the consumption of the stimulus, whereas news, anticipation and memory are all secondary. In reality, these cognition utilities may comprise a large portion of the happiness sometimes even larger than consumption. Consumption utility is like a light source, and cognition utility is like its halo: without the light source, there will be no halo. But with the light source, the halo may be brighter than the source itself.
In closing
topics can potentially increase consumer happiness without expending more nancial resources. In the end, to create a good wooden-block project, a child needs to accurately predict what a project will look like if he combines the blocks in a particular way, and combine the blocks based on his predictions. Likewise, to achieve happiness, consumers need to accurately predict the affective consequences of their options and make their choices based on these predictions.
Claire Tsai is an assistant professor of Marketing at the Rotman School of Management. Christopher Hsee is the Theodore O. Yntema Professor of
Hedonomics challenges two commonly-held assumptions in economics: that maximizing a desired external stimuli equals maximizing consumer happiness; and that what consumers choose reects what makes them happy. A better understanding of these
Behavioral Sciences and Marketing at the University of Chicagos Graduate School of Business.
This is an excerpt of a chapter that appears in the Handbook of Consumer Psychology (Routledge, 2008). For a copy of the full paper, e-mail christen@rotman.utoronto.ca
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TOM SAWYER AND THE CONSTRUCTION OF VALUE
by Dan Ariely, George Loewenstein and Drazen Prelec
Consumer valuations of goods and services are much more arbitrary than providers of products and services may think.
N A FAMOUS PASSAGE of Mark Twains novel Tom Sawyer, Tom is faced with the unenviable job of whitewashing his aunts fence in full view of his friends who will pass by shortly, and whose snickering promises to add insult to injury. When his friends do show up, Tom applies himself to the paintbrush with gusto, presenting the tedious chore as a rare opportunity. Toms friends wind up not only paying for the privilege of taking their turn at the fence, but deriving real pleasure from the task a win-win outcome if there ever was one. In Twains words, Tom had discovered a great law of human action, without knowing it namely, that in order to make a man covet a thing, it is only necessary to make the thing difcult to attain. There are no mysteries in what painting a fence entails. Hence, Toms Law challenges the intuition that whether a familiar activity or experience is pleasant or unpleasant is a self-evident matter, at least to the person participating in that activity. If true, Toms Law would pose a fundamental challenge to economics: in a world where people dont reliably know what they like, it cannot be assumed that voluntary trades will improve well-being or that markets will increase welfare. Recent research by psychologists and behavioural economists suggests that Twains notions about human nature may be on the mark, at least in some situations.
Testing Toms Law
In a set of experiments that document a phenomenon we have labeled coherent arbitrariness, we found that valuations of goods and experiences have a large arbitrary component; yet,
after one valuation has been made, subsequent valuations are scaled appropriately relative to the rst. In our rst study we sold consumer products ranging in value from $10 to $100 (computer equipment, wine bottles, boxes of chocolate, books) to MBA students. The students were presented with one product at a time and were asked whether they would buy it for a price obtained by converting the last two digits of their social security number (a random identication number) into a dollar gure, so that 34 became $34. After this yes/no response, which we intended to serve as an anchor for their later responses, we investigated their maximum willingness to pay for the product. Although students were reminded that the social security number is a random quantity, those who happened to have high social security numbers were willing to pay much more for the products. Students with social security numbers in the bottom 20 per cent of the social security number distribution priced on average a 1998 Ctes du Rhone wine at $8.64, while those with social security numbers in the top 20 per cent of the distribution priced on average the same bottle at $27.91. If consumers valuations of goods are so malleable, why does one observe stable demand curves in the marketplace? A second aspect of our study provides a clue. If one looks across the different goods that were sold, it is evident that while absolute values were surprisingly malleable, subjects did seem to have a sensible idea of the relative values of the different goods. After we made it clear to the students which wine was superior (according to Wine Advocate Magazine), all students priced the relatively-costly bottle of wine (a 96 Hermitage Jaboulet La Chapelle) higher than the average bottle
Individuals do not seem to have pre-existing dollar values for ordinary products and experiences.
(a 98 Ctes du Rhone). The students did not know how much they personally valued either bottle, as demonstrated by the impact of the arbitrary social security number, but they did know that the superior wine was worth more than the inferior wine, and they priced them accordingly. A researcher who looked at our data but did not know about the social security number manipulation would conclude that these consumers were behaving perfectly in line with economic theory: the more valuable products were indeed priced higher than the less valuable ones. But the impact of the social security number manipulation shows that valuations, in fact, incorporate a high degree of arbitrariness. Although the effect of the arbitrary social security number on valuations was dramatic, one could argue that the result crucially exploited subjects uncertainty about what these goods were worth, either to them or in the market (for resale perhaps). We recognized that a stronger test would require a good that could not be traded but that could be experienced, and hence fully understood, before the valuation task. Our next experiment elicited subjects willingness to accept compensation in exchange for listening to aversive sounds delivered to subjects through headphones. The benet of using sounds is that subjects can be given a sample that provides full information about the experience, while at the same time their responses cannot be tainted by the market prices for such experiences (since there is no market for annoying sounds). In one representative experiment, we told subjects that they were about to hear an unpleasant sound played over headphones and asked them to consider, hypothetically, whether they would be willing to listen to the sound for 300 seconds in exchange for an amount that they composed from the last three digits of their social security number (e.g., 287 = US$ 2.87). After hearing a sample of the sound and making this hypothetical choice, subjects then stated the smallest amount of money they would accept to actually
hear the sound for 100, 300 and 600 seconds. After each response, they endured the sound and received payment if their stated minimum fell below a randomly drawn price for that duration. Even in this setting, we found that valuations followed the coherently arbitrary pattern: subjects demanded about one-anda-half times as much to hear the 300-second sound as to hear the 100-second sound, and half again more to hear the 600-second sound. However, subjects with lower-ending social security numbers demanded much less compensation than those with higher numbers. These results showed that individuals did not seem to have a preexisting personal dollar value for ordinary products and experiences.
Good vs. Bad Valuations
Taking these ndings as a starting point, we set out to answer a more basic question: do people have a pre-existing sense of whether an experience will be good or bad? Toms Law suggests that they do not that the exact same experience can be desired or avoided, depending on context and presentation. Indeed, our research indicates that individuals can be made to classify experiences as either positive or negative depending on whether the preceding question asked them if they would pay or needed to be paid for the experience. The next experiment we conducted demonstrates the basic effect of Toms Law by testing whether there are experiences that individuals perceive as inherently positive or negative. The study comprised 146 students in an undergraduate Marketing class at the University of California at Berkeley. At the end of class, respondents were told that in a weeks time, their professor would be conducting a 15-minute poetry reading from Walt Whitmans Leaves of Grass. Half of the respondents were then asked whether they would be willing to pay $2 to listen to their professor recite poetry; the other half were asked whether they would accept $2 to
attend the recital. All respondents were then told that the poetry reading scheduled for next week was going to be free, and were asked to indicate if they wanted to be notied via e-mail about its location and time. The goal of this question was to test whether the initial hypothetical question affected whether respondents viewed the experience as positive (meaning that they would like to attend if it was free) or negative (meaning that they would prefer not to attend if it was free). The results showed that the poetry reading did not have great appeal: only three per cent of the respondents were willing to pay $2 to listen to their professor recite poetry. However, most (59 per cent) respondents were willing to endure the recital for $2. More important was the response to the second question: the percentage of respondents willing to attend the free recital was 35 per cent for those who had rst been asked to pay for the experience, but only eight per cent for those who had been offered cash to attend. Our second experiment examined consistency within an individual across responses, showing that after one arbitrary response is given, other responses follow in a seemingly coherent fashion. Half of the respondents in a large class at MIT were rst asked whether they would be willing to hypothetically pay $10 to listen to their professor recite poetry for 10 minutes, followed by a request to indicate their monetary valuations for one, three and six minutes of poetry reading. The other half were rst asked the same question, only in terms of being paid for the experience. After indicating their prices, respondents were asked similar questions about their willingness to participate in a different study on decision-making. Subjects who had been asked about their willingness to pay to listen to poetry were asked to accept $10 for participating in the new study for 10 minutes. Subjects who had been offered compensation to listen to poetry were asked about their hypothetical willingness to pay $10 for participating in the new study for 10 minutes. Subjects were then asked to indicate their monetary valuations for participating in the new study for one, three and six minutes. The evidence shows that valuations were strongly inuenced by the initial question. Individuals in the pay condition were, on average, willing to pay for the experience. Individuals in the acceptpayment condition, on the other hand, required compensation to undergo the same experience. Respondents consistently indicated higher sums of money for longer durations, whether it was a matter of paying for or being paid for the experience. These results show that respondents did not have a pre-existing sense whether the poetry reading (or participating in a decision-making experiment) was a good or bad experience, but they knew that either way, more of the experience warranted greater payment. Our next experiment demonstrates that Toms Law holds even when the random assignment of individuals to either the pay or be paid condition is made transparent, addressing the concern that
the subjects might have taken the initial question as a cue about the quality or value of the poetry reading event. In this study, before providing any response, subjects heard a one minute sample of poetry read by their professor. Direct exposure to a sample of the experience should diminish the signicance of any indirect cues. Second, the instructions made explicit that there were two different conditions, and that the assignment to one or the other condition was random. The experiment began with the professor announcing that in a few days he would be conducting a poetry reading from Leaves of Grass. He read some sample verses from the book, then stated that the full reading would last 15 minutes. On the instruction sheet, subjects were asked to write down the last digit of their social security number. If the number was odd, subjects were asked to insert the number into the sentence: Would you attend the poetry reading for a payment of $, and then answered it with either a YES or a NO. If their number was even, they were asked to insert the number into the sentence: Would you pay $ in order to attend the poetry reading, and then answered with a YES or a NO. Both subjects were then asked a series of further questions to ascertain how much they would be willing to be paid to attend the recital, or pay to attend, or whether they would prefer to attend for free. On the initial question, a majority of subjects (63 per cent) were willing to attend the recital if paid the dollar equivalent of their digit, but only 20 per cent were willing to pay that equivalent to attend. More importantly, the subsequent valuations of the reading were strongly inuenced by the initial question. Of those who initially considered whether they would attend if paid, only nine per cent were willing to attend for free, in contrast to the 49 per cent of those who had been asked to pay for the reading. Interestingly, in this study the actual digit of the social security number had no effect on valuations or on willingness to attend for free, after controlling for whether the digit was odd or even. It seems that the main impact of the anchoring question was to determine whether the subjects perceived the experience as positive or negative, not how positive or negative.
The Phenomenon of Coherent Arbitrariness
People make a myriad of choices every day, ranging from the trivial to the profound: we decide whether or not to purchase a Big Mac, to smoke, run a red light, take a vacation in Patagonia, listen to Wagner, work away at doctoral dissertations, marry, have children, live in the suburbs and so on. The apparent orderliness in these choices and their stability for a given individual encourages one to believe that such choices are rmly rooted in personal likes and dislikes, in fundamental values. We suggest, in contrast, that correct directional responses to changing incentives do not provide strong support for fundamental valuation, but can follow from the fact that people try to behave in
a sensible manner when it is obvious how to do so. If earlier choices are recalled, the next time a similar choice situation arises, decision makers will attempt to behave in a fashion that does not violate obvious rules of consistency. If one was willing to pay X$ for company Ys stock yesterday, then todays announcement of an unexpectedly protable quarter should make one willing to pay more than X$. Such a sensible decision-making heuristic, however, tells us nothing about whether yesterdays valuation was reasonable. The degree of coherence and arbitrariness in any set of choices is likely to depend on many factors. Arbitrariness is enhanced by ambiguity in a good or bad experience. We deliberately selected a somewhat ambiguous experience in the three experiments discussed above; clearly, some experiences are unambiguously good or bad. At the same time, many of the most important decisions that people make (about marriage, education, emigration, jobs and vacations) involve streams of heterogeneous experiences that are arguably even more difcult to assess and hence are even more vulnerable to arbitrary inuences and conventions than our simple poetry-reading proposition. Is a vacation that includes peaceful hours of reading on the beach, delicious meals, but also screaming children, money worries and stressful transportation a good thing or a bad thing, on balance? This is a difcult question to answer. In general, we should expect to see the greatest degree of coherence when an individual can look back on previous decisions, and make a choice that is consistent with preceding ones. These requirements are regularly satised in a narrow range of decisions, of which nancial transactions are perhaps the best example. Even in highly-rationalized nancial markets, however, we have no assurance that the absolute level of prices are sensible. A stocks value is supposed to reect individual investors estimates about that companys expected stream of future earnings, appropriately discounted, but estimates of future dividends are inherently uncertain and there is no agreed-upon discount rate. When we look at shortterm uctuations in prices, we do indeed see stock prices responding appropriately to good or bad news about individual companies or the economy as a whole. In the long-term, however, markets exhibit wide uctuations that are completely out of line with historical uctuations in valuations. Day by day, investors can see the coherence in short-term market responses, but nothing signals clearly whether the market is over- or under-priced as a whole.
In closing
equilibrium prices and production levels. However, this analysis falls apart if preferences are themselves inuenced by the very equilibrium states that they are presumed to create. Indeed, in the domain of economic decision-making, the most powerful anchors may well be the public parameters of the economy itself the relative prices and scarcities of different commodities. By posting a price for a new product, for instance, a rm invites consumers to consider whether they would purchase at that price, replicating the anchoring manipulation we conducted in our experiments. If prices and other economic parameters function as public anchors, then consumer tastes no longer exist independently of prices but are endogenous to the economy. In that case, the equilibrium price and production levels of the economy are no longer uniquely determined by its physical and human resources and characteristics. A certain price level may prevail because of collective anchoring, triggered by historical accidents or manipulations. The issues that arise from coherent arbitrariness begin at the level of the individual: if preferences have a large arbitrary component, then even strictly-personal consumption choices by fully-informed individuals need not maximize welfare. Moreover, when people are uncertain about the quality of consumption goods, initial choices can have big effects on market outcomes: if a small number of early diners arbitrarily choose new restaurant A over new restaurant B, A can end up packed and B empty. The scope for such effects is enlarged to the degree that people are uncertain about their own preferences. Our research suggests that the degree of uncertainty may be very substantial, even when consumers have relevant experience with the objects of choice.
Coherent arbitrariness violates some basic economic assumptions about how the general equilibrium of an economy comes into existence. Modern Economics assumes that consumer preferences interact with technologies and initial endowments to produce
Dan Ariely is the Alfred P. Sloan Professor of Behavioral Economics at MITs Sloan School of Management and a visiting professor of Marketing at Duke Universitys Fuqua School of Business. He is the author of Predictably Irrational: The Hidden Forces that Shape Our Decisions (HarperCollins, 2008). George Loewenstein is the Herbert A. Simon Professor of Economics and Psychology at Carnegie-Mellon University and a founding father of the eld of Neuro-Economics. Drazen Pralec is a professor of Management Science at MITs Sloan School of Management.
A longer version of this article originally appeared in the Journal of Economic Behavior & Organization (Vol.60), published by Elsevier.
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DESIGNING SUSTAINABLE RETAIL ENVIRONMENTS
by Steve Bishop and Dana Cho
Considering a shoppers context is the key to understanding their motivations and making green products and services relevant to them.
NOT THAT LONG AGO, the word consumption was used to describe an
infectious disease. Today, its a powerful economic force that drives our economy. Green used to be a colour, but it too has taken on new meaning, representing an increasing demand for a lifestyle that does not compromise our environment. While these two forces have traditionally been at odds, more and more consumers and retailers are showing that they can be aligned for the benet of all. We recently set out to explore the opportunities for environmental sustainability that exist at the very heart of any consumer society: the retail space. What we found was an unexpected disconnect between the retailers and consumers that are pursuing sustainability. Frustrated retailers claim, I want to sell green products, but my customers arent asking for them. Others have tried, failed, and concluded that it doesnt work. On the ip side, anxious shoppers are saying, I want to buy green, but there are too few options available. Evidence supports both claims: 87 per cent of people say they are seriously concerned about the environment, yet studies indicate that sustainability does not often factor in their purchasing decisions. With such strong intentions coming from both sides, why does this disconnect exist? What is missing from the equation is a focus on context. As a consumer, I may understand the effects of chemical cleaners on our water supply and resolve never to buy them again; but when Im at the store with both kids, 30 minutes before dinnertime, and I need clean clothes before my in-laws arrive tomorrow, my impact on the
water supply is the last thing on my mind. Surveys like the one referenced above provide valuable information on peoples opinions, but when those same people are placed in the context of their actual purchasing decisions, new motivations surface. If a brand is the relationship between a business and its customers, the retail space is its most visceral conversation. By better understanding what shoppers desire from green offerings and what matters in the context of their shopping experience i.e. time and convenience products and services can connect with people in a more relevant way. Some retailers have begun to address these issues. Wal-Mart, for instance, has made great strides by building a green dimension into its supply chain, and as a result, more green products are making it onto its shelves. Other retailers like REI have taken a lead-by-example approach, either by making their retail space itself green, or by educating shoppers as to whats available. Such examples indicate valuable supply-side accomplishments. The bulk of the untapped opportunities, however, lie in making sustainability desirable, on the demand-side i.e. in the realm of consumers. Following are four latent opportunities for retailers and some provocative ideas they can inspire.
1. Consider Shopping Modes
Not all shopping is equal. When people shop, they do so in one of ve different modes (see Figure 1). Needs and desires change with each mode, and the mode a shopper assumes depends entirely on
Shopping Modes
Figure 1
Mission Mode: These shoppers are looking for something specic, and basically want to get in, and get out. Anything that distracts from their mission is ignored. Time is valued above all else. Offering new information is met with impatience and shut down. Restock Mode: For these shoppers, the level of emotional involvement is incredibly low. Shopping is about replenishing the basics: it's a commodity experience. Shoppers are on autopilot and resort to habits rather than new ways of engaging. Background Mode: These shoppers use shopping to accomplish something more important. Shopping with friends is background to conversation the more valuable outcome. Purchases are incidental, yet these shoppers are open to new ideas. On-site coffee and food offerings enable this mode to ourish. Celebration Mode: Shopping is an event for these shoppers, who are out to treat themselves and feel they deserve it. For them, shopping is an opportunity for enrichment and exploration. This mode brings an openness to new ideas, and even new stores. Temporary store events and limited quantity items attract this mode. Beyond-the-Store Mode: Shopping is the physical activity, but the mind is elsewhere. The imagination is already making the leap to the occasion of use. Shopping for a specic event like a vacation or a formal party are examples. An immersive experience like the tting room makes space for this mode.
A local sticker on an avocado may inform that it is local, but is that enough to make someone want to buy it?
context. By considering shopping modes, retailers can begin to explore latent and overlooked possibilities for sustainability. For example, the Mission Mode whereby shoppers want to get in and get out quickly may not seem like a promising mode to start with; but once we recognize that time is valued above all else by this shopper, we can look at how sustainability might address that. For instance, could we eliminate the need to spend time and fuel driving to the store? Could green alternatives be placed in more convenient locations? For Background Shoppers, retailers may push the benets of sustainability rather than removing the barriers to it. What if shelves included cut-out sections featuring a green experience? Imagine a morning shower cutout that features organic soaps, a water-saving showerhead, and non-chlorine bleached cotton towels. Background shoppers open to new ideas might try one or all of them. Supporting shopping modes puts people back in the centre of the equation. It gets beyond survey results and into solutions that help people take action. Questions for further exploration: 1. What modes do my customers exhibit and how might sustainability support them? 2. How might we enable new modes that would inspire new positive behaviours?
3. Which mode is the most receptive to a green conversation?
How do we speak to that mode, and what do we say?

2. Design Moments
When asked to describe memorable experiences, people rarely describe a specic thing, or even a space: instead, they talk about complex, full-bodied moments that take into account things, time, people, and actions. During research for one of our retail projects, a woman described a moment during lunch with her daughter at a hotel: she talked about the time of day, the way the light was shining, the conversation, the music, and the service they received all contributing equally to a perfect, nuanced moment. Ritz-Carlton gets moments. At their hotel in Half Moon Bay, California, a bagpiper plays when the fog rolls in, turning cold weather into a memorable moment. Such moments inspire, and inspiration is important. Many retailers feel they need to educate shoppers about their green efforts in order to connect with them. True, there are new dimensions to green that need to be communicated, but without inspiration, those educational messages can get lost. A local sticker on an avocado may inform that it is local, but is that enough to make someone want to buy it? How might stores enable moments that inspire shoppers on the importance of buying local? Continued on p.60
The Sustainable Shopping Experience: Store Interior
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1.Shopper Recommendations: What if shoppers could recommend green products to each other right at the shelf? Handwritten messages at the moment of selection could provide both condence in shoppers decisions and feedback for retailers. 2. Third-Party Picks: What if retailers worked with third-party green certication labels to create a top picks shelf? Highlighting Fair Trade one month and USDA Organic the next would raise awareness of both the products and ways to evaluate choices. 3. Aisle Arrangements: What if aisles were organized by: Environmental Impact: Making green products easy to reach would make it easier for time-crunched shoppers to make more sustainable choices and more likely for supportive social interactions with like-minded shoppers. Location of the Source: Tying the actual distance a product has traveled to its placement in the store would give shoppers a more tangible idea of the benets of local products. Day-to-day Tasks: Mapping green products to a journey in the day-to-day lives of people would increase understanding of the con text of their use.
4. Editing Space: What if there was a dedicated area for editing your cart? In the same way online retailers make recommendations based on purchases, checkout could be a place to recommend green products and allow shoppers to swap their items for green alternatives. Shoppers might also put back what they dont truly need. 5. Impact Receipt: What if consumers could receive feedback on the environmental impact of purchase in printed on the back of their receipt? Figures might be compared with their last trip, the store average, or people in their zip code. Feedback inspires goals and competition Can we create a goal of impact that customers can strive for? 6. Showoff: What if you could broadcast your impact score? Bowling alleys often display high scores for their lanes. Imagine putting high positive impact scores above checkout aisles to celebrate green champions. 7. Green Lane: What if green champions were given access to an instant checkout lane? Rather than offer incentives to people with 16 items or less, offer them to shoppers with a proven record of buying green, bringing their own bags, or riding a bike to the store.
Other ideas: Back Story Access: What if you could dig deeper and nd the sustainability backstory for every product on the shelf? Instead of cluttering the aisle with vol umes of data, shoppers could access the green story as desired. Green Zone: What if prime shelf space were reserved for products with low carbon footprint? Suppliers would make their bids for prime placement by creating greener products. Fitting Room: What if you could try on all sustainable products in-store? Testing helps shoppers answer the rst question they often have about green products: Is it as good? Lose the Aisle: What if retailers presented only one of each product, which shoppers would scan and pick up at the door? The need for shopping carts, maintenance, and replacement would be negated and packaging could be minimized. Experience Moments: What if green was presented as an experience rather than hardto-understand instructions or specs? A how to wake up to a green world experience might feature coffee, exercise and other activities supported through sustainable products.
The Sustainable Shopping Experience: Store Exterior
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8. Microclimates: What if store environments were controlled by a dynamic biosphere rather than a conventional HVAC system? Temperatures controlled by plants, airow and sunlight connect the shoppers to natural systems that support them. 9. Parking Privileges: What if priority parking were offered to carpoolers or shoppers who were green in other ways? There's nothing better than rewarding green action with timesaving perks. 10. Village Model: What if the produce section were a community garden or greenhouse?
Providing fresh produce and composting waste celebrates local and provides shoppers with a sense of pride and ownership. 11. Staple Delivery: What if weekly staples were mailed to your door? Fitting regular items like eggs, laundry detergent, and toothpaste into a regular delivery stream might reduce trips to the store and make visits more engaging.
Other ideas: Status Flag: What if the storefront project ed its green status? Displaying gures on energy generated, CO2 saved, and local produce sold would communicate values people could connect with before they even enter the store. Learning Events: What if the store hosted workshops and events just outside of its doors? A composting workshop, for example, might inspire shoppers to buy more produce and adopt a healthier diet. Store v. Depot: What if the store was also a materials depot? Stores could double as central collection centers for recycled items.
What if aisles reected the number of miles the items traveled? Local avocados might be placed closer to cash registers, while those imported from Mexico are placed across the store. What if an outdoor environment celebrated local and seasonal foods? Great effort goes into fabricating unnatural and uniform experiences in the store; an entirely different section inspired by natural systems may in turn inspire shoppers and reconnect with the seasons and better understand the value of local. Creating possibilities for moments allows shoppers to learn for themselves. Sustainability is a concept that is still new to the retail space: engaging people on this topic will take moments of understanding for shoppers and retailers alike. Questions for further exploration: 1. How might we make small aisle sections dramatically stand out from the rest of the store, creating the possibility for moments?
2. How might that section inspire more sustainable
lifestyle decisions?
3. What kind of sensory experiences might reconnect shoppers
with the natural world?

3. Enable Community
Shopping is a social activity, even when we shop alone. In a connected world, opinions and last-minute requests are just a call or text message away. Having been marketed to constantly, todays savvy shoppers seek trusted advice: opinions from friends, or even strangers, are often what matters most in decision-making. To build trust, many retailers pursue transparency. By telling their stories and making data about sustainability available in the store, the hope is that shoppers will be better able to make informed decisions that match their values. The intent is good, but these efforts can often overwhelm, even cripple decision-making.
By making space to explore possibilities and seek relevance, retailers can help shoppers aspire to new positive behaviours.
Say Im buying a pair of jeans and deciding between one brand made from organic cotton and another made in the U.S. Literature on each product documents two compelling, yet complex stories. How do I know what is most relevant and decide which is the more sustainable choice? Its no wonder that a passer-by with an opinion can be more persuasive than all the information in the store. Elephant Pharmacy builds trust and community by going beyond data and offering workshops where shoppers can learn from experts and, more importantly, each other. Community provides safety in numbers, disrupts old habits and inspires bold new behaviors. Why not enlist the community to enable transparency and greener decision-making? Questions for further exploration: 1.How might we enable people to nd out more and share with others? 2.What benet does community offer local suppliers over chains? 3.How might we connect expert shoppers to novices?
4. Help Make it Mine
lifestyle would be like. By making space for shoppers to explore possibilities and seek relevance, retailers can help can shoppers aspire to new positive behaviours. Questions for further exploration: 1.What if we merchandised sustainability the way IKEA mer chandises furniture? 2.What does a sustainable lifestyle look like, and how do we express it? 3.How might we help shoppers imagine living more sustainably?
In closing
Shoppers are not always at the store: with a specic occasion in mind, they may physically be there, but mentally they are at the occasion itself. Assuming a Beyond-the-Store mode, shoppers frequently add a healthy dose of imagination and envision how their lives might be different with the potential purchase. Fitting rooms are one of the best expressions of this opportunity area. Yes, they help shoppers better evaluate t, but more importantly, they provide an opportunity to imagine stepping into the ofce or having brunch on the weekend in new clothes. Fitting rooms help personalize the product and better understand how it ts into our lives. IKEA brings the tting room to the showroom oor, illustrating how different products t in mom and dads ofce or in juniors room. Providing tting-room abilities for sustainability would go a along way in bridging the disconnect with shoppers. It is often difcult to imagine what a more sustainable
We have presented a new perspective on the retail space one that puts people rst and engages them in new ways. Building a relationship with shoppers based on values such as sustainability has impact beyond the storefront. Values go home with them: they are there when they read about climate change, and theyre there when they decide where to go shopping. Down the road, when a brand becomes known for the values it has dened for itself, the relationship evolves to ll an important role as a trusted advisor. When dealing with complex issues like sustainability, we need as many trusted advisors as we can nd.
Steve Bishop is a global lead for sustainability at
IDEO. In this role, he applies design thinking to the issues of sustainability for clients as well as IDEO itself. Dana Cho co-founded the Smart Space practice at IDEO. This practice creates user-centered experiences for retail, hospitality and health care clients. Before joining IDEO, Dana practiced as an architectural designer.
Drawing credits: Emi Fujita and Dana Cho
BLURRING THE LINES WHY ITS TIME TO RE-THINK MARKETING

The time has come to develop new mental models that reect the complex inter-linkages between modern consumers and business. by Yoram Wind
in the mid-1960s, the primary focus of marketing research was consumer marketing. Even then, however, most of my contemporaries recognized that the core principles of consumer marketing could be modied and applied to business-to-business interactions for goods and services, as well as to the sale of raw materials to industrial buyers. Despite some obvious parallels between them, in the early development of these elds it made sense for consumer and industrial marketing to advance independently. Unfortunately, my contemporaries and I were so successful in separating consumer and industrial marketing that we managed to create separate silos. The two elds have matured signicantly since then, and the environment has changed so dramatically that we cannot continue with this separation. The lines between consumer and industrial marketing are now blurring in ve important ways, which I will describe, along with their implications for rethinking our approach to Marketing.
1.The blurring of B2B and B2C
WHEN I BEGAN MY ACADEMIC CAREER
The lines between business-to-business (B2B) and business-toconsumer (B2C) marketing are blurring. In recent years, eBay has become one of the planets largest retailers, but without any stores or display shelves and without holding any actual inventory. Instead, it serves as a massive virtual ea market for buyers and sellers. These customers may start out small but then emerge as industrial sellers and buyers as their volumes increase. Large corporations such as Sun Microsystems, recognizing the perishable nature of their products, have begun to sell merchandise directly on eBays auction platform. There are multiple business partners involved in the sale process, such as companies involved in bill
payment, escrow and shipping, and customers lead the way in creating new services such as automotive sales, so that when a category reaches a critical mass of items, eBay then creates a new section in its virtual store. The ourishing of small businesses around the globe in recent years has further blurred the lines. The needs of small businesses overlap with those of individuals, a fact that is exploited by companies such as Staples or Home Depot, which cater to both markets, selling ofce supplies and building materials to students and homeowners as well as ofces and contractors. And while Costco is primarily viewed as a B2C operation, some 40 per cent of its members are actually small businesses.
2. The blurring of value chains
connecting the desire of producers to have an effective market for digital songs and the desire of consumers to have an easy way to purchase and share digital music les. At what point does industrial marketing occur in a continuously-recongured value chain, with consumers at its core?
3. The blurring of relationships with customers
Hong Kong-based Li & Fung manufactures apparel and other items through a exible, virtually-congurable network of suppliers across many different countries: a network of seven factories in ve countries that is created to deliver an order for 100,000 shirts on one day might be very different from the one used a week later. Relationships are congured on the y, with Li & Fung as the controlling hub of a dynamic network. Because the relationships between the rms involved are exible partnerships, there appears to be little traditional marketing involved: Li & Fung typically contracts for no more than 70 per cent of its partners capacity to ensure their independence and exposure to new ideas from other companies. This example is consistent with the new concept of marketing, which is moving toward managing strategic partnerships and positioning rms between vendors and customers in the value chain with the aim of delivering superior value to customers. A proliferation of such strategic alliances is blurring the boundaries between rms. When Apple set up its iTunes store, it brought together a set of recording companies with content and customers who wanted to download their 99-cent tunes. It was a stroke of genius in
With the emergence of online communities, opportunities for customers to collaborate with one another and directly with companies have increased enormously. Firms are nding ways to tap into customer insights, so that innovations that once owed through B2B channels now percolate out of communities that involve both customers and rms. MITs Eric von Hippel and his colleagues have found that the majority of signicant product innovations in many industries are initially sparked by lead users and later rened by companies. This means that while companies have traditionally looked to their own labs or to partners for ideas, an equally-important source of innovation can be their relationships with their own customers. Peer-to-peer networks are taking on increasing prominence in many areas. For example, high net-worth individuals, tired of the hard sell of wealth management rms, have created networks to share nancial advice and ways to manage their money with one another. They exchange ideas and offer advice, as well as making investments together or obtaining group discounts on services and products. Open source software and the Wikipedia online encyclopedia are other examples of how people have come together in grassroots networks to develop new products. In addition to trust building through marketing initiatives and the selling power of real performance, we also have peer-to-peer rating systems, whereby buyers rate sellers after each interaction (and sellers can also rate buyers), offering buyers a cumulative scorecard for assessing a specic seller. The importance of peer-to-
In contrast to the industrial-market focus on nding raw materials and turning them into nished products, the focus today is on adding value through knowledge.
peer interaction is also seen in referenceability: recent studies have found that a customers willingness to refer another consumer to a company, and to act as an advocate for that company, is the clearest sign of customer satisfaction. This creates a shift from a transactional focus to a focus on building relationships with customers.
4. The blurring of functions within the rm
actions in any eld. As the world around us changes, failure to challenge and rethink our models continuously will hold us back. At the same time, we must recognize that every new mental model we adapt can come with its own set of blinders. Following are nine important concerns that new marketing models must address.
1. Expand the focus from buyers to stakeholders
Through electronic data interchange, companies such as Procter & Gamble and Wal-Mart have transformed their relationships by connecting retail shelves and inventories directly to manufacturing. This has blurred the lines not only between rms but between operations, marketing, sales, IT, nance and other functions within the rm. These relationships would seem to bypass some marketing issues in a traditional sense, but they also raise new challenges for industrial marketing: How are these relationships developed in the rst place? How do new entrants break in? In a certain sense, this is a classic example of the straight rebuy that we talked about in the 1960s, with a direct computer link between the two companies. But these links have proven to be much more robust and interactive, bridging disciplinary silos.
5. A blurring of products, services, and customer experience
Since business decisions are affected not only by customers but by end consumers, distributors, suppliers, employees, shareholders and others who are all heterogeneous, marketing concepts and approaches should not be restricted to buyers but should apply to all stakeholders. With the increasing pressure for corporate social responsibility, it is clear that companies need to develop strategies including marketing strategies that address the needs of all stakeholders. Thus, industrial marketing decisions need to take into account the impacts on end consumers and other stakeholders. These cannot be considered in isolation if the company is to understand and manage the full impact of its strategic decisions.
2. Recognize new forms of relationships and empowered consumers
Businesses are increasingly based upon knowledge networks, which presents a very different set of challenges for companies. In contrast to the industrial-market focus on nding raw materials and turning them into nished products (i.e. adding value through manufacturing), the focus today is on adding value through knowledge. Where purchasing raw materials is a procurement and marketing challenge, nding knowledge is much more of a human resource challenge encompassing all the management disciplines.
Rethinking Our Mental Models
Mental models play a powerful role in shaping our perception and
Whether rms like it or not, new technologies have empowered consumers, leading to a shift in the relationship between companies and customers. Alvin Tofer has referred to this trend as the emergence of the prosumer a blend of producer and consumer. This empowered consumer, who is often involved in developing or customizing products and services, behaves more like an active buyer in an industrial market. Instead of buyers and sellers, we see models of co-producers, where the customer is not a passive recipient but an active collaborator. We have seen similar shifts in industrial relationships. In this environment, instead of merely providing marketing messages, rms must provide tools for customers to
create their own products and services. Dell, for example, allows consumers or industrial buyers to customize their products. Companies can use the Internet to provide buyers with search engines and tools that give them the comparative information, and decision aids that help them make optimal buying decisions. Customer relationship management (CRM) must be augmented with customer-managed relationships (CMR), whereby customers are recognized as being in the driver's seat. This is a very different relationship between buyer and seller, and entails a different role for Marketing. American Airlines used this approach in developing its Sabre reservation system, empowering agents with a platform to search and maintain relationships with many different airlines.
3. Re-examine the role of outsourcing and traditional makebuy decisions
markets and the expansion of multinational rms have also changed the practice of industrial marketing. It can no longer be assumed that marketing functions including research, new product and service development and even sales are best performed by the rm itself. Forward-thinking companies are moving to hybrid marketing systems that combine direct sales forces with diverse channels, deconstructing their vertically-integrated value chains and creating a value network based on strategic alliances ranging from outsourcing of various functions to cobranding, co-promotion and co-marketing.
4. Bridge disciplinary silos
One of the most signicant changes in the global business environment has been the rise of low-cost manufacturing in locations such as China and the emergence of business process outsourcing in places like India. The increased technological sophistication and size of these markets have fundamentally transformed the nature and scope of business relationships. For example, a company with a service centre in Bangalore might be interacting with a client rms end customers, so the partner carries part of the B2C relationship even though the outsourcing relationship would be characterized as a B2B interaction. The development of global
Vertically-integrated rms often deal with consumer marketing and industrial marketing in different parts of the organization. We need to bridge the walls between the marketing functions (such as customer service and sales) and marketing and other business functions (such as operations and nance). This is critical given that most marketing decisions are interrelated and, in turn, affect and are affected by the other functions. For example, is an electronic data interchange relationship the domain of marketing, operations or IT? The answer is, all three.
5. Recognize the importance of brand equity
Brand equity is an increasingly important driver of rm decisions. But building brands can be very expensive, so companies are looking
Build Your Brand But Dont Forget to Deliver an Experience

For most companies, branding is about positioning, advertising, packaging, and catchy logos and slogans. That is no longer enough. Branding in todays marketplace is about the total experience a customer has with your products or services. It is about enticing customers, gaining their trust, and making the experience so pleasant that they are proud of their choice and will tell others about it. Recently, I was in the market for a vehicle that would be safe and meet the needs of my busy wife and children. We narrowed the choice to two vehicles. I travel a great deal, so when one dealer promised that in the event of a breakdown he would pick up the vehicle immediately and take it in for servicing, my wife was sold. For the rst two months, my wife told everyone how much she enjoyed the vehicle and appreciated the security in the dealers guarantee. She was a walking brand builder for that manufacturer. But the rst time the vehicle needed service, the dealer failed to keep his promise. He didnt arrange for immediate pickup, nor did he schedule the service appointment promptly. With that single incident, the dealer decimated the positive feelings my wife had towards his brand. Todays consumers are not a happy lot and they wont tolerate much abuse. They are: Pressured for time: Only a few years ago, a half hour to prepare food at home was considered normal for fast-homecooked offerings. Today, if the food isnt on the table in ve minutes or less, its not fast enough. Starved for afnity relationships: When consumers are short on time they are short on relationships. Many new retail formats from coffee shops to destination restaurants play up the need to belong. Jaded and sceptical: Todays marketplace offers customers unprecedented choice. They know that in many categories of goods and services, they can buy lowercost but high-quality private-label brands
by George Stalk
that will meet their performance requirements. In the trade-off between cost and quality, the perceived status and condence associated with buying a name brand isnt enough to close the sale any more. Short of money: Pressures on income are increasing for most consumers. They have no extra money to be wasted by underperforming suppliers. Now more than ever, companies cannot afford to forget that the customers experience is an integral part of branding. We call this chain end-to-end learning because the customer is learning who and what we really are. Theyre learning about us based on what we do, not what we say. That empirical experience is indelible so wed better be sure that we know what were teaching them. The challenge of managing a customers experience comes from the fact that it happens out on the front lines of the company. >>
at ways to leverage brands across consumer and industrial markets. Companies such as Canon, Hewlett-Packard, Dell and IBM, as well as some pharmaceutical and nancial rms, have successfully built meaningful brands across B2B and B2C markets, nding that brand building in one market pays off in the other.
6. Unleash the power of technology
Web-based platforms for interaction are transforming relationships between buyers and sellers in both consumer and industrial markets. The rise of blogs, for instance, has changed the ow of communications to include B2C, C2B, B2B and C2C, and increased their informality, frequency and intensity. We are also seeing a convergence of communications across different channels. Google has become the ubiquitous search engine, replacing the push of marketing messages with the pull of searches for information, even as it creates a powerful, unconventional advertising platform for businesses. Given these changing channels, communications increasingly reach both B2C and B2B buyers.
6. Shift from a transactional focus to the total customer experience
pre-purchase to purchase to use to post-purchase disposal. This is shifting the dominant logic of Marketing from one based on economic models that were applied to manufacturing and tangible goods to a logic focused on intangible resources and the co-creation of value and relationships. This shift away from traditional industrial transactions leads to deeper and more complex relationships between companies, corporate customers and end users, as well as new revenue models.
7. Design business models for the developing world
Companies in both industrial and consumer markets are starting to focus on dimensions beyond product-feature functionality and price. Some are even bundling products with services and concentrating on shaping the total customer experience from
Eighty-six per cent of the worlds population is in developing countries and we need new approaches to reach them. C.K. Prahalad has shown that with new models, even low-income segments can be protable as companies discover a fortune at the bottom of the pyramid. But these markets require rethinking business and revenue models, product and service offerings, channels and relationships more than ever. For example, ITC created electronic hubs in small villages across India, providing information and trading platforms for rural farmers. This satellite-based network links the farmers to pricing information for agricultural products, markets and suppliers, transforming the process of rural farming while enriching the lives of the farmers (who are both business people and consumers). The opportunity to build a B2B market across India in this way could not have been recognized or achieved through the approaches used in developed countries. The emerging
Frequently, managers who are making major decisions on new investments or process redesign have little idea of the end-to-end impact those decisions will have on the customer experience. One client has created a series of videos demonstrating its target customer experience. These videos are shown not only to marketing managers, but also to the systems developers who are building the support infrastructure that will enable the experience. No written list of systems requirements can ever substitute for the visceral understanding that people develop when they see and hear the customers experience with the product. Brand relationships are not conned to consumer products. They exist with hospitals, taxi companies, cleaners, garages, airlines, restaurants, and more. The strength of a brand experience is inextricably linked to every aspect of buying and using a product, not just to the inherent performance of the product itself.
Before launching that next advertising campaign or promotion, ask yourself how your investment decisions affect the customer experience, and if everyone from senior executives to counter clerks is aware of how much the brand's value hinges on the quality of experience you deliver. Here are some questions to consider: 1. Can you describe the end-to-end experience (learn-buy-get-use-pay-service) that different customer segments experience? 2. Could you present it in a video for employees? 3. Do you have specic measures that track your ability to overcome the dissatisfactions (such as long waits for delivery and repairs or inaccuracies in orders and billings) customers encounter? 4. Can you map the ripple effects of problems from misleading marketing claims to
consumer distemper to service calls and product returns? Can you measure the economic implication of xing these problems? 5. What is the dollar value of delivering an experience that consistently produces brand boosters and eliminates brand blasters? Brand management is at a turning point. As the cacophony of the marketplace escalates, only those brands that deliver will succeed. Increased advertising investment alone wont move the sales needle: instead, refocus your brand management on the outcomes that matter most those that affect the lives of your customers.
George Stalk is senior partner and managing director of Boston Consulting Group of Canada Ltd. and an adjunct professor of Strategic Management at the Rotman School of Management.
Cross-cultural acquisitions, alliances and other relationships are required to succeed in developing markets, but they also pose distinctive challenges .
markets of Asia and other parts of the world present tremendous opportunities, but also challenges in forging relationships with companies with different cultures and business practices. Crosscultural acquisitions, alliances and other relationships are required to succeed in these markets, but they also pose distinctive challenges and present new risks. Have we changed our view of marketing to reect this global reality?
8. Rethink the role of market research
monitor marketing effectiveness of the rm toward its clients and prospects, but also track key indicators of the clients customers. You might, for example, need to track a companys share of wallet, account protability and growth with business customers and the corresponding measures of the effectiveness of the company with its end customers.
In closing
The increased complexity of the business environment requires more effective marketing research and modeling approaches, yet critical business decisions such as mergers and acquisitions are often made with no marketing input at all. Equally disturbing is the fact that many decisions are being made on non-projectable, nongeneralizable focus group interviews or convenience-based samples. It is critical to develop more effective data mining and other analytics as part of a decision support system as well as marketing research and modeling tools. We are seeing increased rigor and innovation in this area such as internet-based conjoint analysis studies and increased use of adaptive experimentation. To help managers make better decisions, companies are using a variety of tools such as simulations and game theory to allocate resources and prioritize marketing and business strategies.
9. Rethink metrics and dashboards
The breakthroughs made in business and industrial marketing over the past few decades have allowed companies to harness the power of new concepts and tools in their interactions with one another. It is now time to build on this foundation by employing broader thinking that embraces both consumer and industrial markets, as well as mental models that better reect the increasingly complex inter-linkages between consumers and business.
With increasing attention being paid to the ROI of marketing, we must rethink the measures we use to track and evaluate these investments. New-and-improved dashboards should not only
Yoram (Jerry) Wind is The Lauder Professor and professor of Marketing at the Wharton School of Business. The co-author of Competing in a Flat World: Building Enterprises for a Borderless World and The Power of Impossible Thinking: Transform the Business of Your Life and the Life of Your Business (Wharton School Publishing, 2007 and 2005), he is also the editor of Wharton School Publishing.
This is an excerpt from a paper that recently appeared in the Journal of Business & Industrial Marketing, published by Emerald.
Idea Exchange
Companies must become organizers of value creation, shifting their role from principal actor in the production system to co-producer of value.
Nicola Morelli, page 80
on the post-consumption consumer
Seth Godin
70 74 Barry Schwartz
on why less is more
77
on design thinking for social responsibility
Alex Steffen
on Worldchanging
Nicola Morrelli
80 83 Sridhar Moorthy
on advertising repetition and quality perceptions
on why food companies will never place health rst
Marion Nestle
85
on white-roofs in Toronto
88 Stuart Bowden Pankaj Aggarwal 91 David Lewis 94 97 Mathis Wackernagle

on anthropomorphosis on the New Consumers
on our collective environmental footprint
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Questions for:
Seth Godin
Q
&A
The marketing guru and best-selling author explains why average is punished in todays marketplace and how to effectively reach the post-consumption consumer.
You have written a lot about the post-consumption consumer. Please explain this term.
It is human nature to want to acquire as much as you can. What happened during the 1940s, 50s and 60s in North America is that as people acquired more and more wealth, they used it to acquire more stuff. In the last few years it has become apparent that we have way more stuff than we need, but not enough time to enjoy it. This is the quandary of the post-consumption consumer. She really doesnt need anything else: once you have 1,000 (or 10,000) songs on your iPod, another one isnt worth much to you, because youre never going to be able to listen to it anyway. So the problem is that we are now in a world where the best consumers not everyone, but the best consumers already have more than enough stuff. What they need is help getting more out of what theyve got.
The asset that can be built online is permission: the privilege of marketing to people who want to be marketed to.
In 2002 you declared that being a Purple Cow (i.e. being remarkable in your eld) was the new requirement for any successful company. Have enough products and services risen to the challenge?
How has the Internet changed modern marketing?
Im not sure it was a challenge as much as a statement of fact: if you want to grow, you have to do something that people are going to choose to talk about, because you cant buy attention any more. People will only give their attention to those who earn it. In many segments of our society weve seen organizations, non-prots and politicians take that advice to heart and build things that people choose to talk about. Weve seen evidence of how this works with Amazon, Starbucks and Jet Blue; and we also see it with that YouTube star of the moment who gets famous for 15 seconds and then goes away.
What is the best way to get the attention of todays jaded consumers? Does traditional advertising stand a chance?
I think rms need to go right to the edges and nd a small group of people that is desperately interested in what they have to sell; and they have to be producing something that overwhelms these consumers with its greatness, its functionality or its price. Secondly, treat people with respect which is always in short supply. In my experience, this combination leads to things that people choose to talk about. Clearly, the mass market is dead. Ive been saying that for seven years, but now even the mass media agrees with me. Were seeing it in the decline of newspapers, in the eventual death of general-audience magazines and the softening of the TV market. There isnt one brand not one launched in the last ten years that has become a hit because of television advertising. Commercials used to be a minute long, sometimes two. Now there are radio ads that are less than three seconds long. Its not an accident that things are moving faster and getting smaller: theres just too much to choose from. What youve got to do is sell to the people who are listening to you: create stories that spread, from the converted to the skeptical.
The single biggest change is also the easiest one to overlook, mostly because its so obvious: every organization now has the ability (and probably the responsibility) to deal directly with the world with customers, prospective customers and those impacted by their actions. No more middlemen. The president of a bank isnt used to hearing from a customer who is about to lose her house; a retailer in Tucson isnt used to hearing from a potential customer in Nebraska; this direct connection can be an asset or a risk, depending on how you look at it. The asset that can be built online is permission: the privilege of marketing to people who want to be marketed to. This asset is valuable enough to build an entire business around, and it upsets traditional power structures in just about every industry. More important, it leads to the idea of no insulation. When everyone was playing by the same rules, when all suppliers relied on insulation in order to maintain margins and keep throughput efcient, it was a terric system. But as soon as one player in the industry can use a direct connection to the end consumer, the rules change for everyone.
British rock band Radiohead recently bucked the system by going straight to its consumers (via the Web) and letting them determine what to pay for its latest record. In one week they sold 1.2 million albums for an average of $6 each. Will this bold approach take hold?
Radiohead used a tactic that got them lots of attention. After the fact, it seems that it was a bit of a manipulative ploy, but it was a tactic nonetheless that said, isnt it interesting that this platinum record group is going to let you, the consumer, pick your own price? That was remarkable in and of itself. The music itself wasnt remarkable; the way they were selling it was. I dont think this is a scalable, reliable way to grow your business, because the next time someone does it, no one is going to pay attention. People paid attention because it was novel.
The mistake that Radiohead made is, theyve now got over a million people who have said heres my e-mail address, Id love to hear from you; they had the opportunity to curate music for that group not to focus on bringing out entire albums, just releasing one song at a time for that group, and maybe nding other musicians that they could introduce to them. They could be guring out how to work with their consumers on their touring schedule so that, instead of being at the whim of promoters, their audience could gure out what venue they want to see them in. They could basically have turned the entire pyramid upside down. I have no doubt that this is what the musicians of the future will do.
Explain the importance of setting up your customers to be right and to feel right.
You have noted that in todays marketplace, average is punished, as evidenced by the fact that Google only identies the last inch of the reach the exceptional area where the [most] value is. What are the implications for rms and consumers?
If you only have a few SKUs or youre still doing mass marketing, you need to be average because youre trying to reach the average people with average stuff. The problem now if youre an average person is that average is in the middle, and no one is in the middle anymore: the people who are choosing to pay attention are on the edges. You cant grow by being average, because no one is seeking that out. If on the other hand you are trying to grow, you need to satisfy the unsatised: and they dont want average.
So even average consumers are no longer average consumers?
Customers do not want to admit when theyre wrong. They have the power and privilege of shopping anywhere they want, and they tell themselves a story about the wisdom of their choices. There are some customers who enjoy being humiliated who like having snobby stores ignore them and stuff like that but those people aside, everyone wants to tell themselves a story about being smart and right and insightful. Marketers who make it easy for people to tell themselves that story always do better.
You recently said that bundling was the glue that held together almost every business and organization, but that it is harder than ever to do because The world just got unbundled. Please explain.
Well, thats not true. There are plenty of people who buy Levis jeans because they dont want to spend any time thinking about whats the jean of the moment? Its just not worth their attention. So they buy the typical jean. The problem is, you cant grow by doing that. My point is not that average is going away, but that average cannot grow any further.
Worldviews are clumpy. Please discuss.
Take this magazine, for example: its a bundle of articles that you want to read and articles that you dont; of ads that you want to look at and ads that you dont; but because its all bundled together, you have to take in the whole thing. What Google and the Internet do is relentlessly unbundle everything, so that if you want to read just one article on, say my blog, you do a Google search to nd it, and thats all you read. You dont have to look at any ads; you dont have to read anything you dont want to read. The end result is that if you are dependent on bundling, you wont be able to do it for much longer.
If you present 1,000 people with a direct-mail offer or a speech from a candidate or a book cover, a bunch of them not just one, but a good number of them will take you up on it. That bunch all believes that carbs are bad or corporations are evil or the NDP should be in power. Before being exposed to marketing, they already have a biased set of beliefs or a worldview. The interesting thing about human beings is that very, very few people have a singular worldview all to themselves, because worldviews are clumpy. The people who belong to the National Rie Association are way more likely to own a pickup truck, for instance. Insights like this are useful because if youre a marketer, once you identify a popular worldview and you can see what ideas clump around it, you can bring your message to more than just one person at a time.
Great stories succeed because they are able to capture the imagination of large or important audiences. Make no mistake: if you fail to tell stories that spread, you will become irrelevant.
You believe that modern marketing is about helping consumers tell themselves lies. Please explain.
Marketers lie to consumers because consumers demand it. The lies or stories we tell ourselves make it far easier to live in a very complicated world. The goal for marketers is to focus on what people believe in and then work to tell them stories that add to their worldview. Stories are necessary to deal with the deluge of information we face every day. Consumers covet things that they believe will save them time or make them prettier or richer. Truly great stories succeed because they are able to capture the imagination of large or important audiences. Make no mistake: if you fail to tell stories that spread, you will become irrelevant.
What are some of the characteristics of a great consumer story?
stories agree with our worldview. The best stories dont teach people anything new: instead, they agree with what the audience already believes and make the audience feel smart and secure when reminded how right they were in the rst place. Lets say I pick up a can of Fancy Feast Gourmet Cat Food: its much more expensive than regular food, it smells bad, and the portion is tiny, but I buy it anyway, because my worldview as a cat owner is, I want to take good care of this little creature that depends on me. The can, the price, the smell of the food all support that story.
Can you tell us what a meatball sundae is?
First of all, a great story is true not because it is factual, but because it is consistent and authentic. Consumers are too good at snifng out inconsistencies for a marketer to get away with a story thats just slapped on. Next, great stories make a promise: they promise fun or money, safety or a shortcut. Either the promise is bold and exceptional, or its not worth listening to. Great stories are trusted: trust is the scarcest resource weve got left. No marketer succeeds in telling a story unless he has earned the credibility to tell it. Great stories are also subtle: the less a marketer spells out, the more powerful the story becomes. The best marketers understand that allowing the consumer to draw her own conclusions is far more effective than just announcing the punch line. Great stories dont appeal to logic, but they often appeal to our senses: the design of an Alessi teapot talks to consumers in a way that a fact sheet about boiling water never could. Great stories are rarely aimed at everyone. Average people are good at ignoring you they have too many different points of view about life and are by and large satised. If you need to water down your story to appeal to everyone, it will appeal to no one. Runaway hits like the LiveStrong fundraising bracelets take off because they match the worldview of a tiny audience and then that tiny audience spreads the story. Most of all, great
A meatball sundae is the unfortunate result of mixing two good ideas that dont go together. A meatball is a commodity, an average product for average people, like a mass market item made in a factory. We all need meatballs, and many of us make meatballs for a living. The sundae toppings, on the other hand the whipped cream, the hot fudge are all of those fancy tools that constitute the new marketing: Myspace, YouTube, Facebook and blogs. All of these toppings are really exciting, and they work really well for some people. But as a marketer, if you put them on your meatball, youve got trouble. The mistake that many people make is they rush onto the Internet; they say to their IT people and their marketing team, get me some of that new marketing stuff! Lets just put it right here on top of our brand of beer or books or charities. But it doesnt work, because theres a collision between what the new marketing demands and what meatballs can provide to consumers.
Seth Godin is the author of some of the best-selling marketing books of the
last decade, including Meatball Sundae (2007); Small is the New Big (2006), and All Marketers are Liars (2005), all published by Portfolio. His blog (sethgodin.typepad.com) was ranked the #1 Business Blog by AdAge in its ranking of the Worlds Top 150 Blogs. He holds an MBA from Stanford and was called The Ultimate Entrepreneur for the Information Age by BusinessWeek.
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Questions for:
Barry Schwartz
Q
&A
The author and professor explains why in many cases, less is more.
Interview by Stephen Watt
The title of your latest book is The Paradox of Choice. What does this mean?
Everything we have learned from economists and marketers tells us that the more options you give people, the better off they are. If people arent interested in the new options, they can ignore them; if they are interested, so much the better. Its what economists refer to as a Pareto improvement. The paradox is that it turns out not to be true. You can add options and have some really bad effects: you can paralyze people so that they dont choose anything; and you can induce people to make worse choices. In an effort to simplify a choice, they may base their decision on things like brand and price, which are not necessarily the most important things. And even if they manage to avoid paralysis and choose well, they are more likely to be dissatised with their selection if theyve chosen from a large set of options than from a smaller set.
How is it that our culture of abundance may actually be making us more passive and isolated as consumers?
As options get added cell phones, dishes at a restaurant, items in a supermarket many people nd the decisions simply overwhelming. They react by either retreating that is, choosing none or by becoming passive, treating life as a conveyor belt of offerings from which they pick without thinking very carefully about what theyre trying to achieve and what will satisfy them. It just becomes too hard a problem to solve. Here in the U.S., there was a study of 401(k) voluntary retirement plans that found that the more mutual fund options your plan provides to employees, the less likely they are to participate.
When people dont participate, often they are passing up signicant matching money from their employer, but its just too difcult to know which mutual fund to choose. Youll decide tomorrow; of course, tomorrow is no different from today, so you end up not choosing.
Despite the choice overload, why is it that so many people actually enjoy shopping?
People may enjoy shopping as a recreational activity. The question is, do they actually buy anything? And do they buy more when they are confronted with abundance than with limited options? If one day you put out a display of 24 jams in a fancy food store, and another day put out only six jams, youll nd that more people come to the display when there are 24 jams. All of that bounty is attractive: its what people like, its what they want; however, one tenth as many people will actually buy the jam when faced with 24 varieties. What this suggests to me is that if you were confronted with two stores, and one had everything and one didnt, youd go into the store that has everything, thinking that youre more likely to nd what you want and have a satisfactory experience but in fact, youd be more likely to walk out of the store empty-handed.
In other words, sometimes less is more.
the top and work your way down. As soon as you nd something you like, you pick it, and it doesnt matter that there are 800 that you havent even considered yet. The second thing you can do is just arbitrarily limit the number of options you investigate. For instance, visit two stores, no more; or four Web sites, no more; and then just pick. This is not an easy thing to do, particularly when it comes to shopping online. Its so easy to check out just one more Web site, and before you know it, youve blown an entire night looking for a $20 item. If you have an iron discipline and stick to the rule that you will only look at a certain number of candidates, you can avoid wasting a lot of time. The third thing you can do is to choose when to choose. Sometimes, let other people choose for you. Youre looking to buy a digital camera? Call a friend, ask her what she has and if she likes it, and if so, buy it. Even if your friend is not an expert, chances are that youll end up with a good-enough digital camera, and youll nd it in minutes instead of weeks.
Youve said that the equation of freedom with choice might be a culturally-specific concept. What is freedom, if not choice?
Most of the time, less is more. The only area in life where thats not true is in politics. In the U.S., people have too-few options when it comes to electing their political leaders. But in everything else, they have far too many options. It makes sense to me that there should be two kinds of dental oss and 40 political parties, instead of 40 kinds of dental oss and two political parties.
How can consumers avoid the paradox of choice?
One thing that is quite important is to learn to be satised with good enough. In my book I make a distinction between being a maximizer that is, always looking for the best and being a satiscer, which means looking for something that meets your standards. If you are a satiscer, theres a sense that all these other options become irrelevant, because youre looking at options one at a time, and as soon as you nd one that meets your standards, you choose it. When there are many options, youre more likely to nd one that meets your standards, but you dont feel compelled to do an exhaustive search. You can go to a restaurant with a thousand dishes, and you just start at
In our society, its almost impossible to imagine freedom meaning anything other than choice. And its true that you cant be free if you have no choice. Choice is necessary to be free, but it doesnt follow that the more choice you give people, the freer you make them. Its possible to have a view that freedom, rather than being dened by limitless choice, instead means living life the way you think it ought to be lived that is, being able to do the right thing, and acting according to a set of moral or religious standards. Being free to live as a good person is not the same as being free to self-actualize. The idea that you can and should nd your sense of self through your consumer decisions is a mistake. In fact, its a colossal waste of time and energy, and one that, at least some of the time, will be selfdefeating. If you look at enough alternatives, when you nally choose, you will end up dissatised, even when youve made the right choice. Everything suffers from comparison if you do enough comparing.
Many see the Internet as a blessing in making available an almost innite diversity of cultural products and niche markets for these products. Whats your opinion?
Prior to The Paradox of Choice, I wrote a number of books, none

Choice is necessary to be free, but it doesnt follow that the more choice you give people, the freer you make them.
of which sold particularly well. They were published and after six months, disappeared off bookshelves. But now, thanks to Amazon.com, theyre available again. Because of the Internet, books and other cultural offerings with modest or almost nonexistent followings can continue to have a life for months and years essentially indenitely. The companies that sell these products make money on selling products that, individually, are unpopular. This is a fantastic development from any angle: its good for the seller, good for the producer of culture, and good for the consumer who has unusual taste. The problem is that as the choice set gets larger and larger, people end up getting pushed to the peak of the distribution. There are just too many things out there to become informed about. You can niche-market, but then you are depending on some entity to serve as a lter. For example theres somebody somebody in the know whos telling us which avant garde music is worth listening to. The ltering mechanism works as long as you can trust the lters: those doing the recommending have a tremendously important role in dening contemporary culture, but they need integrity and to be genuinely interested in giving good advice, rather than just showing off the latest products.
The Internet has also opened the oodgates when it comes to news, information and opinions. Is this a triumph for egalitarianism or too much of a good thing?
watch FOX-TV, for example, and they become more and more rabid in their conservatism, until you can forget any hope in moving to a common policy that involves progress. A goal such as providing health insurance for Americans becomes harder to realize as people become more polarized in their views. This combination of polarization and inaccuracy strikes me as bad for democracy.
What measures could companies put in place to capitalize on your insights about consumer psychology?
It started out as a triumph for egalitarianism, but now I have grave doubts. There is no quality control when it comes to news and opinions, and I would hazard a guess that about 98 per cent of the content out there is false. Youre on your own in the jungle when trying to ascertain which stories are based on actual information and which are invented. Once that starts to happen, its no longer worth looking at alternative sources of news and opinion. Another consequence of the opening of the oodgates is that it makes it too easy for people to go through life never having to encounter an idea that they disagree with. This is an absolute disaster. Sometimes when you are forced to hear something you disagree with, it actually changes your mind, because you see that there is another side to the story. It doesnt happen a lot, but it happens. And its a way to get people with diverse views to forge some mode of co-existing, where progress can be made and compromises identied. As far as I can tell, those days are gone. People who are already conservative
If youre a Web-based retailer, the critical thing is to personalize what gets presented to each visitor. Take advantage of the users history with you; hide the 2.5 million products you actually have, and show the 20 that your user is actually likely to be interested in. Look at the success of Netix and Amazon: using user information to tailor choice sets for individual consumers has enormous potential, and ought to be doable without enormous heavy lifting. In brick-and-mortar environments, you have to pay a lot of attention to organizing what youve got so that people can go through a hierarchy of decisions. You provide the choice of a front-loading washing machine versus a top-loading washing machine, and so on, until you nally present three washing machines. Its possible to structure what you have available so that people can interrogate themselves to nd what they want. Make an effort to organize goods into categories so that the choice set is less overwhelming. A good tagline for a retailer would be, We dont have everything, we only have the things you need. This is the vision youre buying when you shop at a boutique store. The implication is this: we have saved you an enormous amount of time and trouble by doing the hard work, and now you can be sure that anything you see in this store is of good quality and is what you need. Y ou pay a premium, but some people are willing to pay that premium to spare themselves the time and torture of making complicated consumer decisions. The same idea holds in non-retail environments.
Barry Schwartz is the Dorwin Cartwright Professor of Social Theory and
Social Action at Swarthmore College. The author of several books including The Paradox of Choice: Why More is Less (Harper Perennial, 2005), his articles have appeared in The New York Times, USA Today and Scientic American.
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Questions for:
Alex Steffen
&A
The author and co-founder of worldchanging.com talks about innovation diffusion and the signicance of the year 2030.
The level of consumption that denes the North American lifestyle is both unsustainable and widely emulated. What hope is there in creating a prosperous planet without destroying the earth?
There are a few things that should give us hope. First of all, we know that its possible to produce the goods and services we want with much less energy. There are countries that use much less energy to produce the same number of goods as the U.S. and Canada, for instance, and they enjoy the same degree of economic growth. We also know that at least the theoretical limits of energy efciency are nowhere near in sight. Even doing things more or less the way we do them now, but more efciently, can greatly reduce the environmental and climate impacts of our lifestyles. When you look at our lifestyles as delivery mechanisms for certain kinds of happiness for feelings of security, wellbeing and good experiences, the ability to have strong relationships with others, and a certain amount of material satisfaction you nd theyre really inefcient delivery systems. Most people in North America are reporting that they know fewer people than they used to; depression rates are up, and more people are saying that they dont think their kids futures will be better than their own. There is evidence that a version of North American prosperity the upper middle class suburban lifestyle is bad for your health: it tends to make you overweight, it makes you spend more time in traffic, which drives up your stress levels and increases the chance that youre going to die in a car accident. For the rst time, even counting the increased pollution and slightlyincreased crime rates of cities, its now safer to live in a city than in the suburbs.
Many of us would like to spend less time in our cars, to be able to walk to shops or take our kids to school: these are things that are worth money.
In the next 20 years, as we start to completely rebuild our urban environment which is going to have to happen for demographic reasons we can decide to rebuild it on a compact development model, by creating walkable urban communities. Many of us would like to spend less time in our cars, to have more immediate community around us, to be able to walk to shops or take our kids to school: these are things that are worth money. There are also ways of changing delivery mechanisms to allow us to reach the same satisfaction levels with much less ecological overhead. Netflix, for example, is a movie rental company that delivers by mail, removing the need for a storefront and for customers to make repeated trips to the store. Another example is modern car-sharing. If you live in a dense urban area, you can locate a car nearby your home, reserve it by phone, use a swipe card and drive away within a matter of minutes. Like cars, power tools require vastly more energy to produce than they do to use: the average power drill gets used between six and 20 minutes in its entire lifetime. There are now rental services, clubs and libraries that allow people to share power tools. If were smart about it, we may figure out how to be more prosperous, healthy and happy than we are today, while having an ecologically-appropriate impact on the planet.
Youve stated that many of the tools and techniques for improving our environment already exist, and are simply in need of better publicity. How does your organization t into this?
We also have a trend-monitoring service. We look at some of the trends being reported in media stories and academic reports, and discuss how they might be applied in new ways to existing or emerging problems. The third thing we do is original research and thinking about how different packages of innovations might actually add up to different futures. In some ways, we are the worlds foremost green futurism outt.
Explain the signicance of the year 2030 as an ecological milestone.
At Worldchanging, we do not design products, develop land, build energy grids or actually make anything. What we do is report other peoples good work, work that is often not well known, and relay that information to our readership, via a staff network that is working on the cutting edge of a number of different elds. We think of it as innovation diffusion, rather than PR. People dont need to merely hear about these ecological innovations, they need to understand them why they are important and why they are helpful and valuable to the user.
Between now and 2030, we are going to have to replace most of our material civilization in North America. About half of all the built environment is going to be retrotted or built anew; most of the car eet will turn over; almost all home appliances will need to be changed; a great number of physical goods will head to the landll. We will have to address the infrastructure decits that both the U.S. and Canada have built up over time. An enormous amount of building, manufacturing and creating will be urgently required. If we want to meet the kinds of deadlines that scientists are telling us we have in terms of climate and other environmental issues by reducing our greenhouse gases by at least 80 per cent by 2050 for example, and diminishing our impact on the oceans and other ecosystems we need to have a working model, and be pretty far ahead in deploying that model of a much more sustainable life. The pressure to create a sustainable lifestyle is most urgent here in North America. When most of the world thinks about prosperity, it does not think of Italy: it thinks about North America, and the U.S. in particular. Even though the U.S. has recently gone through a rough patch, we still have a majority of the worlds researchers, many of the worlds nest academic and scientic institutions, and an enormous cultural belief in the value of innovation. We have many tools that are unique or at least uniquely concentrated that could allow us to make profound changes more quickly than elsewhere. At the same time, more than any nation on earth, the U.S. is responsible for the current greenhouse crisis. We have created about 30 per cent of carbon alone, directly. Add to that the goods and services
that are created elsewhere for U.S. consumption, and the way U.S. companies are responsible for manufacturing standards in other countries, and our inuence becomes profound. No developing nation is going to accept the idea that their people need to live in poverty perpetually because Americans messed up the environment. So its up to us to set the example. If we are serious about building a planetary movement to create a bright green sustainable society, a society of equity and sustainable prosperity, we need to be at the vanguard in achieving change. Fortunately, we have the motive, the means and the responsibility to lead and to create a whole new model of sustainable prosperity.
Those encountering Worldchanging for the rst time might be struck by your unusually positive tone: rather than blaming business for the current state of affairs, you view the environment as a growth opportunity. Please explain.
If its true that were going to have to replace much of our material civilization in the next few decades, then every single bit of work is going to have to be done by someone, and theyre going to want to make a prot while doing it. Some companies are not going to be good at doing this work, and they will cease to exist or at least suffer hard times. There will be huge opportunity in all sorts of elds. Not just clean energy and clean technology, where a lot of the money is going now, but also green buildings, new models of transportation, product-service systems such as car-sharing: there will be multiple avenues for people to make a prot by swapping the bad things were doing now for superior products, services and delivery mechanisms in the future. Beyond that, once weve achieved these advances, there is going to be another business opportunity in selling, licensing and promoting the new model to the rest of the world. If we create a model of sustainable prosperity, people will embrace it because it simply makes sense. If you had to make a choice between expensive, dirty prosperity, or efcient clean prosperity, any sensible person would pick the latter. There is tremendous potential in the direct opportunity to create sustainable prosperity, and in the opportunity to replicate that success globally; I would say unimaginable potential, in fact unlike anything weve seen since World War II.
What current trend or initiative has you most excited?
At Worldchanging we see so many amazing things, but perhaps what captivates me the most is the cultural shift toward knowing and telling your back story. This entails explaining everything that happens in the production and delivery of a good or service from when its made to after its discarded by the consumer, everything other than the actual use of the object. The reason why back story matters is this: its difcult to make informed decisions about the kind of goods and services you want to consume if you dont have all the information about them. In the last few years, weve seen an explosion of
citizen activism, as well as corporate leadership and legislative incentives, that have led to making the supply chain transparent. Some of the incidents of activism have had dramatic results for example, blood diamonds and sweatshop clothing. Others have been less dramatic, but nonetheless have had profound results. There are certication systems emerging around everything from sustainable wood and fair-trade coffee to ethical banking practices. This is just the tip of the iceberg, and the movement will grow exponentially as more people gain access to greater tools and information. Traditionally, corporate communications is supposed to be a one-way sales pitch. PR was designed to gloss over any imperfections a company might have; it was thought that a products origins were of no business to the consumers. Then came a few high prole publicity disasters, including those involving Kathie Lee Gifford on the one hand, and Nike, on the other, and companies started to say, Look at us. We intend to do better. Instead of the old one-way conversation, youre seeing more companies embrace their back story as a way to acknowledge where theyre imperfect, show how theyre trying to change, and at the same time educate the consumer about why their product is better than the competitions. Patagonia and Nau are two outdoor clothing and lifestyle companies that actively reveal how they make their clothing, what its made from, how its shipped, how its designed and why, and what aspects are not as ethical or green as they would like. In doing so, theyre winning even greater trust from the consumer. The shift toward transparency provides terric leverage to propel companies that are truly trying to do the right thing. Consumers arent looking for perfect but they are looking for a company they can rely on. The shift toward transparency also supports the work of people in your company who are accountable for your environmental and social action. Weve seen that as companies strive for superior design and efciency, they quickly become better at it: its a steep but rapid learning curve. In the next few decades, we are going to see tremendous market pressures based around energy, environmental and social issues. As awareness of these issues continues to grow, and higher standards of efciency and transparency become embedded in the economic structure, companies that are unable to keep up will nd themselves disadvantaged. Those that make the change early, on the other hand, will leap ahead of the competition.
An award-winning writer, editor and futurist, Alex Steffen is co-founder and executive editor of WorldChanging.com, a popular Website that serves as a clearinghouse of information and articles about environmental sustainability. He is also the editor of the companion book Worldchanging: A Users Guide for the 21st Century (foreword by Al Gore). He coined of the term bright green to describe innovative, future-focused sustainability work.
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Point of View:
Nicola Morelli
ACHIEVING SOCIALLYRESPONSIBLE SOLUTIONS VIA
DESIGN THINKING
MORE THAN 35 YEARS AGO, IN HIS SEMINAL BOOK
Design for the Real World, Victor Papanek stated the designers responsibility for creating sociallyand ecologically-responsible products, tools, and community infrastructures. It would be another 20 years before a study by the Dutch government suggested that a 90 per cent reduction of the global ecological impact would be needed by 2040 in order to preserve a sufcient amount of resources for the next generation. The Dutch report also issued a strong warning against expanding the western development model to developing countries. Despite this warning, to date the expansion of markets into new regions has been largely based on the expansion of western resource-intensive consumption patterns and lifestyles. From an environmental point of view, this implies catastrophic medium- and long-term consequences. Furthermore, a socio-economic perspective suggests the uninteresting scenario of a global society attened by western countries consumption models. Unfortunately, many corporations have preferred to pursue short-term and marketoriented strategies and continue to ignore such warnings. Rapid globalization has only added fuel to the re. In the last few years the rise of sleeping economic giants such as China and India has focused the debate about globalization onto more tangible questions, including the relocation of work activities and the emergence of evident social inequalities. Anti-globalization movements have emphasized the social
inequalities caused by the relocation of work, but such inequalities are not solely related to different geographical areas of the world; even within western countries, the high levels of unemployment caused by this phenomenon are causing the gulf between social classes to increase, generating new and serious social problems. The current situation demands solutions of high social and cultural value. It is time for designers, together with professionals from a variety of areas, to address these complex issues.
Revising Market-Driven Logic
The traditional market-driven approach is based on the idea of relieving people of the many tasks of everyday life. This idea, which shaped the idea of comfort and the social role of industrial production, has changed the most common private and public aspects of our lives: tasks that in the past we could handle by ourselves or within our social and family networks (our informal economy) are now performed by something (a product) or someone else (a service). This relieving logic has led to a progressive passivation of consumers: given a problem, a solution is offered for a price, thus relieving the customer of any physical work or responsibility. Customers, in this logic, represent problems expressed in the form of a set of needs. Often, their involvement is not required for the denition of a solution: very little participation is needed, and very few skills. This logic is very expensive, not only because it requires monetary transactions, but also
Companies must become organizers of value creation, shifting their role from principal actor in the production system to co-producer of value.
because it compromises the customers future capability of nding their own solutions to everyday problems. I would go so far as to say that this logic is disabling people, because it deprives them of the capability to solve problems. It can also undermine social relationships as it replaces personal links and social networks with technological products or services. Shifting to a more-enabling logic has wide implications, as it entails a new approach to social problems that empowers both social and individual capabilities. The revision of the traditional market-driven logic must, in other words, be carried out parallel to the revision of the idea of social quality. Social quality has been dened as the measure of citizens capability of participating in the social and economic life of their community in ways that improve both their individual wealth and the conditions of their community. This denition emphasizes two aspects of social quality: the rst concerns citizens capability to be an active part of a process of value production. Social quality increases when more citizens are able to participate and contribute to the creation of value related to the needs of the individual as well as the community. The second aspect concerns the citizens capability to be an active part of the community: social quality increases when more citizens are able to participate and contribute to the development of their own community. Hence, social quality implies the inclusion of those parts of the society (especially in developed countries) that are otherwise excluded by social life, and those communities (mainly in developing countries) whose consistency is undermined by poor socio-economic conditions, which limit the individuals range of possible actions to a mere ght for subsistence.
A New Role for Business
In other words, companies must become organizers of value creation, shifting their role from principal actor in the production system to co-producer of value. This contextual condition implies a new role for the designer: in these situations, designers will no longer be required to produce nite solutions, but rather scenarios, platforms and operative strategies to enable them to co-produce their own solution. Although the demand for new solutions is becoming more and more pressing, most of the actors involved have very little knowledge about designers skills. The image of the designer as a creative decorator remains the dominant reference, and rarely are designers considered as potential contributors to addressing the demands being made on our society. The public perception of design agency must be revised; and at the same time, industrial designers must learn a new language and acquire new operative tools in order to function in this context.
A New Design Agenda
All of these phenomena are signals of a change towards a different conception of the social role of business. The rst required shift is from the provision of products and services to the organization and support of local networks of stakeholders. The second shift is from the provision of nite solutions (products or services) which often relieve people of their own tasks and responsibilities to the provision of semi-nished platforms that include products and services and enable people to create value according to their individual needs.
Todays most evident social problems are characterized by a sense of urgency and a complex plot of critical conditions. They often emerge in areas that are not covered by marketdriven policies, and public intervention is often unable to provide valid solutions. In this context it seems quite difcult to talk about industrial design, especially when the design activity is framed in the traditional context. The industrial culture, however, has generated an operative paradigm to operate production and consumption processes within the traditional industrial production paradigm. This culture can provide several interesting insights regarding how to produce solid and sustainable solutions, i.e. solutions that not only address an individual need, but also empower individuals and other social actors (service providers, institutions) to generate new social quality. The solution to problems that cannot be addressed by global production must be solved by mobilizing individual knowledge and skills. Examples abound of innovative solutions produced by the creative attitudes of local communities. Although such solutions are intrinsically placed in their geographical and cultural context, the design discipline can help by proposing organizational structures, products and services that can be used in different contexts to solve similar patterns of needs.
We are currently facing an epochal shift that is similar to the shift from handicraft to industrial production. The craftsmans production was based on implicit knowledge, whereas industrial design made such knowledge explicit and clearly transmittable across time and space. Industrial manufacturers were therefore able to create economy of scale, optimization of resources and a clear subdivision of roles. A similar process of industrialization, applied to the complex system of interactions at the local level, could capture and transform part of the tacit knowledge at the local level in order to activate this knowledge in a platform that can support a set of systemic solutions that address individual needs. At this point, however, some critical differences emerge between the early industrialization process and the logic of co-produced solutions. These new solutions are based on people rather than machines: they are not processes that can be fully described or controlled through codified sequences of actions. They are based on social interactions and a systemic nature. Any prescriptive description of such complex solutions could be easily demolished by the arbitrary or unplanned interference of individual behaviour. Furthermore, people use different languages and cannot communicate by means of one transcendent and unequivocal language. Platforms must be built that support and organize modular structures in which the competencies and roles of different actors are specied. On the basis of such platforms, different combinations (architectures) will be possible, which allow each individual actor to generate an economy of scope. Designers are in a privileged position to work within this context because of their attitude towards planning interactions (objects, services, or events) and nding a balance between the technologically possible (an engineering approach) and the socially desirable (a user-oriented approach). It is time to embrace Design Orienting Scenarios (DOS).
Design Orienting Scenarios
with all the actors and some well dened evaluation criteria enables the stakeholders to generate a set of semi-finished solutions that can be further developed. Contemporary designers are very familiar with the concept of product platforms. Industrial production is often structured by platforms, which organize production systems around subsystems generating flexible configurations from which different products and families of products can be generated. When used in the new context and for generating new co-production systems, platform architectures can be observed from different perspectives. An overall view, for instance, may provide indications of the front and back ofce of a system (i.e. the parts of the system that are visible or invisible to the final customers) as well as describe flows of information, goods and money.
In closing
The aim of DOS is to generate visions of the future that will subsequently orient operative design decisions. DOS are quite different from the more commonly used term PolicyOrienting Scenarios (POS), which tend to characterize the effects of various political decisions on a plurality of individual choices by using one or more global visions of society. DOS tend to show the effects of single decisions by a group of actors on the focused system through one or more visions of this particular focused system. POS tends to be used by the public or private sector to assess and show possible effects of different policy alternatives, while DOS are used by single social actors or a small group of actors to orient their own future and build appropriate solutions. Design-Orienting Scenarios are aimed at generating a plurality of hypotheses, involving local actors, possible users and other stakeholders in the development of the scenarios. The use of a narrative structure supports communication between stakeholders with different cultural and technical backgrounds. A structured process based on brainstorming sessions
The recent radical shift in the social role of business has also changed the role of designers. Both companies and designers will no longer be proponents of a particular set of products or services to passive users, but rather facilitators in a system of value co-production. Consumers who were once passive receivers of services will become active co-producers and co-designers. The intrinsic characteristics of enabling solutions imply that actors are mobilizing hidden or sleeping skills, competencies and capabilities, which, once activated, can generate new solutions. The traditional disabling (and product-centred) approach offers very few opportunities to improve living conditions of underserved populations. In the traditional industrial context, designers worked on gaps or deficiencies in social groups. When the result of a designers work was a product, the efcacy of the solution depended on the products lifespan. In the new context, designers should instead work on customers capabilities and consider them as resources, rather than problems to be solved. In this sense, design becomes a facilitating tool for suggesting to people ways of satisfying their own needs. The challenges proposed by global issues demand radical changes in industrial production, as well as in public institutions and welfare systems. Todays consumers are no longer actors external to the value chain, but rather part of a valuecreation constellation. If the question of social sustainability is framed in this context, new opportunities will emerge that can propel us towards new territories to explore with a designoriented approach.
Nicola Morelli is an associate professor at the School of Architecture and Design at Aalborg University in Denmark. His blog can be found at nicomorelli.wordpress.com
A longer version of this article appeared in the Autumn 2007 edition of DesignIssues, a journal founded by the School of Art and Design of the University of Illinois at Chicago.
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Faculty Focus:
Sridhar Moorthy
ADVERTISING REPETITION AND QUALITY PERCEPTIONS

IN A SEMINAL PAPER WRITTEN nearly 30 years ago, SUNY Binghamton Professor Emeritus Philip Nelson proposed a distinction between two types of consumer goods and offered a theory of advertising based on this distinction: Search goods were dened as products whose quality consumers can ascertain before purchasing (e.g., clothing, furniture, jewelry), while experience goods were dened as products whose quality the consumer cannot determine until after buying and experiencing the product (e.g., foods, books, detergents). Nelson argued that advertising claims for experience goods are uninformative to the consumer because consumers cannot verify these claims before purchasing the product. Advertising spending for experience goods, however, is informative because consumers can rationally infer that products that advertise more are of higher quality than those that advertise less. By contrast, for search goods, Nelson argued that advertising claims are informative because consumers can verify these claims before purchasing the product and that no further information is needed from (or provided by) the advertising spending level. The essence of Nelsons theory is the idea that for experience goods, consumers should rationally infer that only high-quality products would spend signicantly on advertising, because only high-quality brands can count on obtaining a significant number of repeat purchases. Low-quality brands
pretending to be high quality will be discovered to be poor values after the rst purchase, will not generate repeat purchases, and so cannot justify matching the high-quality rms advertising expenditures. For search goods, on the other hand, advertising copy will be directly informative, and advertising spending has no signaling role to play. Despite its compelling logic, several questions may be raised about the applicability of Nelsons theory in the real world. First, consumers may not be able to assess advertising spending levels, especially comparatively, between brands. Advertising budgets are not printed on ads, so it is difcult for the average consumer to tell whether brand X is spending more or less than brand Y. Moreover, advertising invariably involves hidden costs e.g., the time devoted to developing and testing advertisements, about which consumers have very little information. Second, consumers may not be able to observe quality even after using a product. This difficulty arises not only because consumers are not expert at evaluating performance, but also because they typically consume one brand at a time, under noisy conditions unlike, say, a professional testing laboratory, which can compare several brands simultaneously under controlled conditions. Third, advertising spending in the real world is often tied to market size or share, rather than quality. For example, the brands rated highest in quality by Consumer Reports are often not the products with the highest market share. And nally, why should
rms use advertising spending to signal product quality when other, easier-to-read signaling instruments such as longevity, pricing, and money-back guarantees are at their disposal?
The Marketing View
Not surprisingly, marketing specialists view advertising in a different light. Whereas Nelson minimizes the importance of the ad itself, marketing practitioners place a great deal of importance on it. Much time and effort is spent on crafting memorable ads, and creativity is the currency on which ad agencies are evaluated. The industry works under the assumption that advertising claims and brand associations have signicant effects on product perceptions even for experience goods. In fact, if anything, advertising claims might be even more effective in shaping perceptions for experience goods because of the ambiguity of experience. In the marketing view of advertising, there are at least three ways in which advertising can shape consumers perceptions of product quality: by providing information about product quality by increasing the consumers familiarity with a given brand by associating the brand with positive imagery These three possibilities need not be mutually exclusive; indeed, it is not uncommon for a given advertising campaign to address all three simultaneously. In a recent study, my Rotman colleague Scott Hawkins and I set out to test Nelsons theory against the marketing view. We exposed Canadian consumers to ads from an Italian magazine for brands that they were not familiar with. Because the brands were not familiar, the consumers didnt come armed with any preconceptions about their qualities. They could, however, infer the products qualities from the ad campaigns themselves. We manipulated whether subjects had to a) spontaneously pick up advertising frequency by actual exposure to a campaign or b) whether advertising frequency information was provided to them. For Nelsons theory to have any external validity, of course, consumers ought to be able to infer advertising spending information spontaneously while an advertising campaign unfolds; but for Nelsons theory to have internal validity, it ought not to make a difference how the spending information is given to subjects. By contrast, the theories comprising the marketing view are explicitly theories about physical exposure to advertising. This is the basic tenet behind our study. We examined four product categories, two of which are classiable as search goods and the other two as experience goods. Nelson makes different predictions depending on whether a product is a search good or an experience good, but for the marketing view, this difference is less important.
What we found is that it does make a difference how advertising spending information is conveyed to subjects: when ad-spending information is embedded in the physical repetition of ads, perceived quality increases linearly with repetition; but when advertising spending information is embedded in statements of ad repetition, perceived quality has an inverted U relationship to repetition, with no linear trend. Moreover, we found similar effects of repetition in all product categories. Our research indicates that it matters how advertising spending information is communicated to subjects. Subjects respond more to advertising repetition in the sense of changing their perceived quality judgments when they are actually exposed to advertising than when advertising frequency information is provided to them as an abstract number. On the other hand, it doesnt seem to make much difference whether the product being advertised is a search good or an experience good. Our results suggest that the ad itself is a critical variable mediating the response to repetition. Subjects in our study liked an ad more after repeated exposure to it, and seemed to transfer this liking to the product being advertised, raising its quality rating. We also found evidence of mere exposure effects: increasing ad exposure led to increasing familiarity with the brand, which then led to increased perceived quality.
In closing
In the conventional view of advertising, as described in Marketing textbooks, the effectiveness of advertising is a function of its content (the message), execution (how the ad conveys the message), and frequency (how often a consumer sees the ad). The advertising-spending level enters the picture only in service of these three factors. Our ndings offer evidence in support of the marketing view. Nelsons theory offers a radically different view. It argues that how advertising works depends on whether the product is a search good or an experience good and that the marketing view applies only to search goods. For experience goods, the only thing that matters is the advertising spending level or, for that matter, any wasteful spending not content, execution, or frequency. Marketing professionals ought to be reassured by our ndings. As practiced in the real world, advertising claims cover both search and experience attributes. Ad agencies have existed for a long time, and every year firms channel billions of advertising dollars through them. These practices would be hard to explain if advertising did nothing more than signal the willingness to burn money.
Sridhar Moorthy is the Manny Rotman Professor of Marketing at the
Rotman School of Management.
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Questions for:
Marion Nestle
&A
The NYU professor and author on nutrition labels, dietary supplements, and why food companies will never place health rst.
You have noted that around 320,000 food and beverage products are currently available, and that an average supermarket carries 30,000 to 40,000 of them. Is it possible to be an informed consumer in such a crowded market?
Not without a lot of work, and that is precisely why I wrote What to Eat. I spent a year in supermarkets trying to answer every question I could think of to help people figure out how to make reasonable choices in what has become an impossible situation. The bottom line is this: you have to pick your issues. Supermarkets provide a vital public service, but they are not social service agencies. Their job is to sell as much food as possible. Every aspect of store design from shelf position to background music is based on market research. This research shows that the more products customers see, the more they buy, so a stores objective is to expose shoppers to the maximum number of products that they will tolerate viewing.
The nutrition labels on food products can be confusing; what should we be looking for?
I devote two chapters to this in my book one for nutrition facts, and one for ingredients. I believe the ingredients list actually tells you more about the real nutritional value of foods than the facts part. My rule, only somewhat facetious, is never to buy foods that have more than ve ingredients. The more processed a food is, the more ingredients it is likely to have and the lower its nutritional quality. Fresh and some frozen foods have only one ingredient: carrots, apples, broccoli, beans. The most important thing Id change on food labels is the calories. The FDA proposed ve years ago to require packages likely to be consumed by one person to display the
total number of calories on the front panel, rather than listing calories per serving, which makes the calories appear lower than they are. Unfortunately, this proposal has disappeared without a trace. The packaged food industry loathes the idea, as you can imagine.
If you want to get more of a specic nutrient, is it better to take a dietary supplement or to eat foods containing that nutrient?
Unless you have been diagnosed with a vitamin or mineral deciency and need to replenish that nutrient in a big hurry, it is always better to get nutrients from foods, the way nature intended. I can think of three benets of whole foods as compared to supplements: you get the variety of nutrients vitamins, minerals, antioxidants, ber, etc. in that food not just the one nutrient in the supplement; the amounts of the various nutrients are balanced so they dont interfere with each others digestion, absorption or metabolism; and there is no possibility of harm from taking nutrients from foods, whereas high doses of certain single nutrients can be toxic. High doses of single nutrients can actually make things worse, as has been shown in some clinical trials on the effects of beta-carotene, vitamin E and folic acid on heart disease and cancer.
You once said that the food and entertainment industries are responsible for the obesity epidemic: They turn people into consumers of aggressively-marketed foods that are low in nutritional value, and of cars, TV sets and computers that promote sedentary behaviour. Shouldnt people take responsibility for their individual health?
per capita in the national food supply (the amount of food produced by farmers, plus imports, minus exports) rose from 3,200 a day in 1980 to 3,900 a day two decades later. The early 80s also marked the advent of the shareholder value movement on Wall Street. Stockholder demands for higher short-term returns on investments forced food companies to do everything they could to expand sales in a marketplace that already contained excessive calories. Food companies gured out how to nd new sales and marketing opportunities. They encouraged formerly-shunned practices that eventually changed social norms, such as frequent between-meal snacking, eating in public places and serving much larger portions. The results speak for themselves.
Are you surprised by the current media backlash against unhealthy eating? Where do you think it will lead, if anywhere?
I wouldnt call it a backlash, but I do think its terric that more and more people are concerned about how food is produced, marketed, and consumed and want healthier options to be more readily and cheaply available.
In The Omnivores Dilemma, Michael Pollan says that if we are what we eat, then we are corn. What is your take on the cornication of our diets?
Of course they should, but how can they in an environment that is set up to encourage sedentary behaviour and overeating? We have so much research now that shows that even the most responsible people (me, for example) eat more calories than we need when presented with large portions of food, more often, in more places. We need to create a food environment that makes healthier eating the default instead of what we have now.
The obesity epidemic is about much more than individual willpower; what are some of the other factors? Americas obesity rates began to rise sharply in the early 1980s.
Unfortunately, it is congressional policy to make commodities like corn and soybeans as cheap as possible. These foods are ne when eaten unprocessed, but they are the basis of virtually all cheap junk foods. The corn issue may soon be moot, now that so much of it is being grown to feed cars, not people. What we put into our mouths affects not only our health but the environment, the economy and our future. Thats a lot of responsibility for the average consumer. Can we handle it? As I said earlier, people have to pick their issues. Solving all the worlds problems is a lot to ask of any one food. Choices of healthier, more environmentally sustainable foods will encourage more of such foods to be produced and made available. Those are important steps. It doesnt have to be all-or-none; sometimes what is possible and doable is good enough.
Recent advertisements by PETA and the Humane Society state that eating meat has a worse effect on climate change than cars do. Isnt that a bit extreme?
Sociologists often attribute the calories-in side of this trend to the demands of an overworked population for convenience foods prepared, packaged products and restaurant meals that usually contain more calories than home-cooked meals. But other social forces were also at work: the arrival of the Reagan administration in 1980 increased the pace of industry deregulation, removing controls on agricultural production and encouraging farmers to grow more food. Calories available
I have seen lots of calculations of the causes of global warming. Most are based on complicated mathematical models that Im not qualied to assess. One thing is certain: we have a lot more people, cows, and cars than we used to. Surely they all contribute.
Name a company in the food industry that you admire.
Anyone who lives in Manhattan has to be grateful for Whole
Prof. Nestles Weight-Loss Tips
Figure 1
Old Advice Still Holds True
Figure 2
To reduce your weight by a pound of fat a week, eat 500-fewer calories each day. Carbohydrates and proteins have about four calories per gram; food fats contain more than twice as much: nine calories per gram. A teaspoon holds about ve grams. Alcohol is metabolized in a way that promotes accumulation of fat in the liver, leading to the proverbial beer belly. An adult expends about 100 calories for every mile walked or run; it takes nearly three miles to burn off the calories in a 20-ounce soft drink.
In 1959 Ancel and Margaret Keys offered the following familiar and still-useful advice regarding nutrition and activity: Do not get fat; if you are fat, reduce. Restrict saturated fats: fats in beef, pork, lamb, sausage, margarine and solid shortenings; fats in dairy products. Prefer vegetable oils to solid fats, but keep total fats under 30 per cent of your calories Favour fresh fruits and vegetables and non-fat milk products. Avoid heavy use of salt and rened sugar. Good diets do not depend on drugs and fancy preparations. Get plenty of exercise and outdoor recreation.
Foods, because we didnt have any real supermarkets before these stores came in. But all food companies face the same dilemma: they have to increase sales every quarter in a food environment that provides twice as much food as the population needs. The job of food companies is to sell more food, not less. Whole Foods does it well. Wegmans does too, and it is privately held so it can do some things that Whole Foods cant. Food companies are not social service agencies. They are businesses, and their primary concern is to produce returns for investors.
In a recent paper called When the Chips are Down: The Relation between Stress, Social Support and Food Product Attitudes, researchers found that stress leads to unhealthy food choices. What is your advice for stressedout consumers?
What do you want us to do? What do you want them to do?
I want them to do the impossible: make money, but stop being so greedy about it. Make it easier for people to choose healthier products and to eat smaller portions. Things as simple as those might help a lot. Oh yes. And it would surely make my life more pleasant if they would stop making personal attacks on critics!
As a nutrition professor, you must be constantly asked for a simple formula for healthy living. Do you have one?
Teach your kids how to cook and sit down together and have a lovely dinner.
Youve had the opportunity to see rst-hand how food companies and food trade organizations attempt to inuence dietary advice. What has surprised you the most?
My advice is simple: eat less, move more, eat lots of fruits and vegetables and whole grains, and dont eat too much junk food. Eat less means consume fewer calories, which translates into eating smaller portions and steering clear of frequent betweenmeal snacks; move more refers to the need to balance calorie intake with physical activity; eating fruits, vegetables and whole grains provides nutrients that arent available from other foods; and avoiding junk food means to shun foods of minimal nutritional value highly-processed sweets and snacks laden with salt, sugars and articial additives. If you follow these precepts, other aspects of the diet matter much less. I love to eat and have a terric time following my own advice. Enjoy!
How single-minded and relentless food companies are about ghting anything that might adversely affect their bottom lines. Even if they wanted to, they could not place health rst. Their job is to sell as much food as possible. Consider this: eating less is very bad for business.
You often speak to corporate food executives, and you have said that these meetings usually end with them asking you;
Marion Nestle is the Paulette Goddard Professor of Nutrition, Food Studies and Public Health at New Y ork University. She is the author of What to Eat (North Point Press, 2006), Safe Food: Bacteria, Biotechnology, and Bioterrorism (University of California Press, 2003) and Food Politics: How the Food Industry Inuences Nutrition and Health (University of California Press, 2002). Read her blog at whattoeatbook.com.
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Questions for:
Stuart Bowden
Q
&A
SAS Canadas Senior VP of Operations and Finance talks about the whiteroofed green beacon his rm has built east of Yonge Street in downtown Toronto.
Fouryears ago, SAS Canada announced that it was committing $30 million to the development of an environmentally-friendly headquarters for its Canadian operations. Why did you decide to do this?
This is a journey that we set out on over ten years ago. Originally it was more of a commercial venture than anything: we were growing rapidly, and real estate leasing costs in downtown Toronto were continuing to increase, so we looked at buying a facility. We were surprised to nd that there was a hole in the Toronto market: we could actually own 123,000 square feet in downtown Toronto for the same price as renting one oor at our then-current location at King and Bay Streets. The only catch was that wed have to move east of Y onge Street. We chose a location at the intersection of King and Ontario Streets, and when we got to the design stage, we looked at ideas that made good common sense from the standpoint of conserving energy and controlling ongoing operating costs. We took a long term view a 10- to 15-year horizon. While the initial costs involved in constructing a green building are higher, we realized that if we did things a certain way, we could save money in the long run.
Describe some of your buildings green features.
The building was designed by Norr Limited Architects & Engineers to respect the neighborhood and pedestrian trafc. Its elevations were designed to be as transparent as possible to reduce visual mass, and the ground oor was recessed at the corner of King and Ontario to create a wider sidewalk and streetcar stop. Our top three oors have a central atrium and skylights that allow natural light to ow down the centre of the building, which places every workstation within four
Some people look at LEED certication as something altruistic, but there is actually a lot of common sense to it from a commercial standpoint.
metres of a source of natural light. Floor-to-ceiling windows on two sides of the building give all workstations at least one external view. The eight-oor cast-in-place concrete structure is made largely with post-consumer or post-industrial recycled material. Overall, we set out to use 30 to 50 per cent less energy than a building of comparable size.
Describe how your building recycles natural resources.
Our roof is the inverse of a traditional peaked roof, so that it captures rainwater. We duct the water into the basement, where we retain it in 10,000-gallon tanks that we use to ush toilets throughout the building. In an average year we harvest approximately one million litres of water, which allows us to put less strain on the citys infrastructure. It also puts less strain on the city in terms of accommodating storm water runoff; the city has actually put in guidelines subsequent to us building our headquarters that require new developers to prevent rain water from running off their properties. Its a very simple system, but it works really well. Last winter a city water main feeding our building burst during a deep freeze. Anecdotally, we would normally have had to shut the building down because it took a day and a half for the city to x it. But because we were harvesting rain water, our toilets were working during the entire period and we were able to bring bottled water in; so from a preparedness standpoint it allowed us to have a backup when the citys system failed.
Describe your journey to LEED certication.
the path of the LEED framework? Most of us had no idea what that was, but we all agreed that greener choices made good economic sense, so we looked into it and realized that if we invested a little bit more incrementally, we could become Torontos rst LEEDcertified commercial office building. The fact that we could marry our business objectives with environmental objectives made good business sense and started to spill over into our design process. For example, initially we looked at creating a white roof that would allow us to stand out on the Toronto skyline to our large customer base in the downtown towers. Later we realized that this would also make sense from an environmental standpoint: using a white roof to reflect heat and keep the building cool as well as reduce the heat island effect. The LEED process involves computer based modeling, and ours indicated that we could save up to 30 per cent overall on energy costs. To date, we have exceeded that target by as much as 10 per cent.
While you arent yet certied, your headquarters is the rst commercial ofce building in Toronto to be LEED registered. Please explain.
LEED is the Leadership in Energy and Environmental Design green building rating system. Its a rating system that is the accepted benchmark for green buildings in the U.S. LEED Canada is an adaptation of the U.S. system that is tailored specically for Canadian climates, construction practices and regulations. It is run by the Ottawa-based Canada Green Building Council. The SAS Building is registered under the U.S. LEED program simply because we registered for LEED well prior to LEED Canada being created. LEED helps companies measure usage of what they call commodities, including electricity, water and gas. It helps guide you in certain directions and provides a scorecard to track what youre doing in terms of the systems you put into a building and the potential savings you might realize. One day during the design process, one of our senior managers saw our plans and said to us, Do you realize that were heading along
LEED is a very long process, and we are on our way to being certied. For us it has become part of what we are bringing to the city of our commitment to the community and SAS culture. Some people look at LEED certication as being altruistic, but there is actually a lot of common sense to it from a commercial standpoint, and not only in terms of cost savings. If you step back and look at it from a landlords point of view and from the standpoint of value creation over the long run, there are some very compelling arguments that tie into a green building. For example, a portion of our building is leased to outside tenants. When we told the real estate experts that we were moving east of Yonge as opposed to west of Yonge, they told us, nobody will go east; youre only going to get X$ for your ofce space. As a new landlord, their reaction was concerning, but
Cost is important, of course, but you have to spend money to make money. If you do it correctly, you will build value.
we emphasized that we were bringing a new proposition to prospective tenants: a double A class green building east of Yonge Street, which had never been done in Toronto. Almost immediately out of the gate, we got twice the going rental rate, so there was 100 per cent premium to our tenants on the fact that we were green. We have just nished leasing the building and the actual net rents paid are in excess of three times what we were told we would get in the beginning, so the market obviously places a value on this type of facility. Its been a win-win-win situation from an environment standpoint, from a cultural standpoint and from a commercial standpoint.
You were SAS Canadas rst employee in 1986. From an employees perspective, how does your new building compare to your former location at King and Bay?
businesses, so our objective is to provide a positive inuence as we all move forward. We also work with some of the businesses on Queen Street East to raise money for various charitable activities. Weve held soccer tournaments, golf tournaments and marathon races to raise money. This drive and attitude of wanting to help is simply part of our corporate culture.
Its been said that when a company places an emphasis on thinking green, it rubs off on employees. Have you found this to be the case?
SAS has always had a very low turnover rate; we tend to retain people for many years. But we were quite concerned when we moved away from King and Bay, because it is ground zero as far as commuter transportation is concerned. We feared that wed lose people, so we spent a lot of time with our staff to understand what their needs were. As a result, when we moved we put in a shuttle bus between Union Station and our facility, which our tenants can use as well. Im pleased to say that we have not lost one staff member due to our change in location. On the contrary, because of what we have done and continue to do, there is a great sense of pride, because our employees helped put this place together. Each individual basically owns a piece of cultural equity in what we have accomplished.
In addition to setting an example with your building, SAS has made investments to improve the local community. Please describe this initiative.
Denitely. In addition to their involvement in the fundraising activities I mentioned, our employees have become much more engaged in wellness issues since we moved, and I believe this is due in part to the features weve put into the building. For instance, we offer indoor bicycle racks to encourage people to ride their bikes to work, and to accommodate this weve put in shower and changing facilities. We also have running teams that go running every day at lunchtime. This type of behaviour can be encouraged by ones physical surroundings.
What is the business case for going green?
Were an organization that likes to engage our stakeholders, so very early on in the building process we engaged the community and sought their feedback. The east end of Toronto has had a negative stigma attached to it. What we have done is to say, We may be big business, but were a little different; were interested in working with your community and supporting the people who live here. So far we have provided funding to the city to allow for new park benches, newlyplanted trees, an ice rink and soon, a new playground. Were in that community every day, and our staff supports the local
The key thing to recognize is that you will be adding costs in the beginning, but you are building long-term value. Too often when a business person looks at a project, they look at it solely on a cost basis. Cost is important, of course, but you have to spend money to make money; you must invest, and if you do it correctly, you will build value. The day we returned the keys to our former ofce and opened up our facility, we had a return of 375 per cent per square foot, which is huge. From a commercial leasing perspective, our return on rents is in excess of 20 per cent. Most business initiatives particularly new construction developments cannot boast these sorts of numbers.
Stuart Bowden is a director and senior vice president of Operations and
Finance at SAS (Canada), a subsidiary of North Carolina-based SAS, the worlds largest privately-held software company and the market leader in providing business intelligence software and services that create enterprise intelligence. SAS (Canada) recently celebrated 25th anniversaries with RBC, Bell Canada, CIBC and BMO.
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Faculty Focus:
Pankaj Aggarwal
IS THAT CAR SMILING AT ME?

people often see human elements in non-human forms and events. For instance, who hasnt looked at a cloud formation or the moon and seen a human face in it? This tendency to anthropomorphize pervades human judgment. People even sometimes attribute human goals, beliefs, and emotions to animals, for example, when they interpret the dynamics between two birds as reecting the loving attention of newlyweds. We see human characteristics not just in nature, but in artifacts as well: we may view our car as a loyal companion, going so far as to name it; and people often argue with and scold malfunctioning computers, engines or gadgets. Products are sometimes seen as having an underlying defining essence analogous to a genetic code, or features of their makers or owners that have been transferred during production or use. Several explanations have been offered for our tendency to anthropomorphize. One is that doing so comforts us by providing a form of relationship or companionship. This view sees anthropomorphism as following from wishful thinking: people who wish to have more relationships in their everyday lives may use products to ll that void. A second explanation is that people anthropomorphize to make better sense of the world around them that we use what we are familiar with (i.e. our knowledge of ourselves) and ascribe human-like characteristics to events or entities to better account for outcomes and things that we know less about.
IN THEIR DAILY LIVES,
The result of this tendency to anthropomorphize is that products that can be humanized are often seen as stronger candidates for long-term business success. Marketers encourage anthropomorphization by imbuing products with distinct personalities that can affect their perceived credibility and foster relationships. In some cases, they go so far as to design a fully-anthropomorphized representation of the brand for example, Mr. Peanut, Tony the Tiger, and the Michelin Man; in others, they present the product itself in human terms. For example, a recent television ad for Cadillac shows the car crashing and enlivening a staid party of other luxury cars bursting through the door, backing off its social competitors, which appear to cower, and strutting boldly about the room. Although the tendency to anthropomorphize is pervasive, people do not anthropomorphize all objects, nor are they able to anthropomorphize different objects with equal ease. The literature suggests that the ability to anthropomorphize may depend on the presence of specific features. For example, movement in an object can create the impression that it is alive, but the time-scale of the movement is important to the perception of humanity: things that dart about quickly may be seen less as human and more like insects, whereas things that move very slowly, such as clocks, may seem to lack humanity. The human-like pace with which iRobots Roomba vacuuming robot moves may be why some consumers dress it up in costumes and others have bought a second Roomba so that their rst one will not be lonely.
A schema is a stored framework of knowledge that represents information about a topic, a concept, or a particular stimulus.
Objects that are shaped somewhat like people are more likely to be anthropomorphized. For instance, the shape of a Coca-Cola bottle is more easily anthropomorphized than a can of Coke. Other features that signify humanness include facial features, sounds/voices, intentionality, imitation, and communication ability. Marketers also encourage consumers to think of products in human terms by referring to them with the personal pronouns he or she instead of it; by describing a product in the rst person instead of the third; and by referring to a product family instead of a product line. Accidental anthropomorphism, which involves seeing parts of the product as being human-like due to a chance conguration of components (as in seeing a face in the clouds) can raise the evaluation of a product merely because the feature is perceived as unique or appealing. The positive effect of these components might become even stronger if peoples attention is drawn to these surprising, human-like features. In contrast, calling attention to design features that lead to only partial anthropomorphism may undermine the positive evaluation by changing the evaluative schema from human qualities to those of an engineered object.
Schema-Congruity Theory
I recently conducted research with Ann McGill of the University of Chicago, focusing on the form of anthropomorphizing whereby efforts to anthropomorphize go beyond merely suggesting that a product is human to suggesting a particular type of person for example, a spokesperson, a friend, or an old ame. In such cases, we posited, the specic features of the product might affect the perceived t of the product with that social category. Our primary questions involved whether such presentations affect the evaluation of the product, and if so, how? Central to our study was the hypothesis that anthropomorphizing affects evaluations through schema-based processing. The term schema was first used to describe an active organization of past reactions, or of past experiences. More generally, a schema is a stored framework of cognitive knowledge that represents information about a topic, a concept, or a particular stimulus, including its attributes and the relations among the attributes. Past research suggests that evaluations of a new product may depend on the level of congruity between that products features and the category schema in which it is presented. The inuence of congruity has been attributed to the transfer of
affect (i.e. emotion) from the schema to the object and to cognitive experiences of satisfaction or frustration in perceiving the t between the object and the schema that carry over to the evaluation of the object. Although research also suggests a moderate incongruity effect (in which an item that is moderately incongruent with the schema is liked more than items that are highly congruent or highly incongruent with the schema), recent ndings suggest that such effects do not occur when consumers are knowledgeable. Our research tested a simple relationship between schema congruity and product evaluation. The prediction examined in our rst two studies was that greater congruity between features of a product and an activated human schema leads to more positive evaluations (in the absence of strong category affect to the contrary.) In a third study, we explored the role of category affect by examining the effect of the match of a stimulus with human schema associated with strong negative versus positive affect. In each of our studies, a human or an object schema was activated by encouraging participants to think of the product as being either a) like a particular type of person or b) like an object. Next, a new product was presented with a feature that was more or less congruent with that particular human schema. Our rst study used a car as the target product and manipulated the shape of the front grille to create a feature (a smile and a frown) that t either well or poorly with the activated human schema of a spokesperson. Since spokespersons are associated with smiles and not frowns, a smiling car would be congruent to the spokesperson schema while a frowning car would be incongruent. Our second study used a different product category, beverages, and relied on the sizing of four bottles to manipulate congruity with the activated human schema either differentsized bottles suggesting a human family or all same-size bottles suggesting a product line. Same-sized bottles presented as a family would be incongruent with the activated schema of the human family. In our third study we used the sizing of two bottles instead of four to manipulate congruity with the activated human schema of twins. Further, we use a positive (twins) and a negative (evil twins) version of this human schema to examine the role of category affect beyond congruity with the schema.
Our Findings
Our research supports Schema-Congruity Theory as the underlying theoretical basis for explaining consumers evaluations of anthropomorphized products. Although the schema-
Anthropomorphizing a product leads to more-positive evaluations only when the type of person brought to mind is associated with positive feelings.
a. Lexus with a smile.
b. Lexus with a frown.
congruity model was rst proposed by researchers in the early 1980s to offer insight into the match between products and their categories, we found an application for the model in a totally new context: as a mechanism for understanding the complex phenomenon of product anthropomorphism. Our studies revealed that the ease with which products can be anthropomorphized by consumers depends on the schema in which products are presented and the presence or absence of product features that are human-like. This ability on behalf of consumers to see a product as human in turn affects their evaluation of that product. Products that are presented as human but which lack human features are evaluated less positively than products that are presented as human and which have human-like features. Our third study provided an additional nuance to our understanding by showing the two different ways in which schema-based processing inuences consumers evaluations of a product: participants in this study were more likely to anthropomorphize the product when its features were congruent with an activated human schema. When marketers encourage consumers
to anthropomorphize a product, consumers bring to mind their schema for the type of person suggested, and the product is evaluated in part by how well its features t with that schema. For example, participants evaluated a product that was anthropomorphized as evil twins less favorably compared to the product anthropomorphized simply as twins. Consumers commonly evaluate marketing stimuli by comparison to categories instead of proceeding in a piecemeal attribute-by-attribute fashion. Efforts by marketers to anthropomorphize products may be viewed as shifting the category of evaluation from product to human and, more specically, to particular human categories such as friends, helpers, families, or spokespeople. Perceived congruity with an activated human schema due to the application of the affect stored for that schema may therefore affect the evaluation of products. Schema congruity can be used as a theoretical basis for examining the effectiveness of marketers efforts to anthropomorphize their products. Our ndings indicate that the overall evaluation of a product is inuenced both by the degree of satisfaction from seeing the fit between the product feature and the activated human schema as well as by the affective tag associated with that schema. This reinforces the cautionary point that anthropomorphizing a product leads to more-positive evaluations only when the type of person brought to mind is associated with positive feelings. The frequency with which marketers rely on presentational devices to humanize their products suggests a general belief that such efforts are useful, leading not just to more salient representations but to more appealing ones as well. What we found, however, is that humanizing a product does not always lead to more positive evaluations, and it can actually lead to less-positive evaluations.
Pankaj Aggarwal is an associate professor of Marketing at the Rotman
School of Management. His paper, Is That Car Smiling at Me? Schema Congruity as a Basis for Evaluating Anthropomorphized Products, cowritten with University of Chicago Graduate School of Business Professor Ann McGill, appeared in the December 2007 issue of the Journal of Consumer Research.
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Questions for:
David Lewis
Q
&A
The author and neuromarketer on how to target the New Consumer.
Who are the New Consumers, and what do they want?
New Consumers are people who are cash rich but time poor. In The Soul of the New Consumer, my co-author and I identify the three shortages of the New Consumer as time, attention and trust. People have very little time to spend on making shopping decisions; their attention span is quite short, simply because they have so little time; and quite often they are quite distrustful of advertisers, journalists, government, or any authority you can name. Accordingly, one of the great demands from the New Consumer is a measure of authenticity. They like products to be unique and original, to help them stand out as individuals. Sigmund Freud spoke of the narcissism of small differences, and we nd that phenomenon in the kinds of items that are consumed by this group. They advertise their taste and wealth in subtle ways; the man in the street might not recognize these subtle signs, but the New Consumers dont care about the man on the street. They care about their peers who will recognize, for example, that their BMW is badged in a certain way, that the suit theyre wearing has lapels with unusual stitching, that the watch on their wrist is a Patek Philippe, or that their pen is a Mont Blanc rather than a Bic. They see these items as a badge of membership.
What factors have led to the rise of the New Consumers and given them such inuence over the marketplace?
One factor has been the rise in disposable income, or at least
In developed countries, people seek sanctuary in their wealth, and believe that it will protect them from most ills.
access to easy credit. These days you can live your dream even if you cant afford your dream. Rising house prices make people feel richer, as do reductions in the price of many items due to imports from the Far East. The spread of the Internet has made it possible to do comparison shopping, to roam the world from the security of your own home and get the best possible price. The rise of consumerism is a driving force in our society and is becoming a central role in our being. The belief now is that you can shop yourself out of trouble: global warming will disappear if we all go out and buy energy-saving light bulbs, or our health will be perfect if we buy organic food. While such measures may make a slight difference, the main phenomenon here is that consumerism itself has become the ultimate goal.
How can retailers, service-providers and advertisers turn knowledge of the New Consumer into commercial advantage?
very distrustful. If you have a brand that is trusted, you must develop every conceivable process to ensure that trust is maintained. Once customers start to mistrust you, it is much harder to win back their faith than it was to earn it in the rst place.
Youve written that the purchase of products and services has largely replaced religious faith as a source of inspiration and solace. Please explain.
There are two kinds of shopping: doing the shopping and going shopping. Doing the shopping means buying household items and other products that you have to buy but generally gain no pleasure from doing so. Thats core shopping, in which the consumer is largely driven by an attempt to nd the best possible price. The growth area lies in going shopping, which started as far back as the Victorian era, when the great department stores in the big cities opened up. They were palaces of pleasure, with libraries, gymnasiums and swimming pools. In that era and ever since, people have treated shopping as a leisure activity, in much the same way as they might go to the movie theatre. In that sense, shopkeepers are in the entertainment business, and they should make their shops as entertaining as possible. Entertaining consumers means paying attention to everything from the aroma used in the shop, to the lighting and the width of the aisles. Its a science of trying to turn a shopping mall or store into a theatre. And just as the staff at Disneyworld are seen as the cast, so should retail staff think of themselves as the cast in a Hollywood lm. When it comes to targeting New Consumers in particular, retailers and producers of consumer goods should bear in mind the mantra of time, attention and trust. This group is
The U.S. is still a religious nation, particularly in the southern states, but in most developed countries, including the U.S., people seek sanctuary in their wealth, and believe that it will protect them from most ills. They believe they can buy themselves out of trouble, and to some degree, its true: you can buy a house in a fairly quiet, low-crime suburban neighbourhood which may protect you from some of the crime faced by people in inner cities. Im not the rst writer to suggest that a lot of modern malls are cathedrals to consumerism, where people worship at the altar of the newest thing. Were seeing a big decline in church attendance here in the UK, as well as a big decline in charitable giving. People nd it more interesting to go out and buy things for themselves, and shopping therapy is a major source of consolation.
What is neuromarketing and how has it contributed to your ideas about New Consumers?
Neuromarketing is essentially a scientic attempt to nd out whats going on in the brain in response to advertising or buying decisions. Its the adaption of techniques that were developed for medical studies, which looked at the way the brain reacts to various external stimuli. Two methods are used: fMRI, which draws a picture of the brain based on where the blood is owing, and QEEG, which draws a picture of the brain based on what electrical activity is going on at the time. This is a new discipline; the term itself is only a few years old. Before Neuromarketing, you probed your consumers through surveys and focus groups, in which people are asked to comment on a product or advertisement. These techniques are quite good, but they have three major drawbacks. First, people often dont really know how they feel about something.
Second, they may lack a vocabulary to turn their thoughts and feelings about something into words. Third, they will often lie to avoid seeming foolish or expressing an opinion which is counter to the rest of the group. What they say is not necessarily what they mean. With Neuromarketing techniques, your subjects dont have to say a word, and you can still tell whether they like something or not, and how much attention theyre paying. Its not a reconstruction of their thoughts and feelings; its what their brain is actually doing at that time. So it gives you a deep insight into how people respond in different situations.
How does Neuromarketing actually work?
In the U.S., the most popular method of Neuromarketing is fMRI Functional Magnetic Resonance Imaging. In this technique, people are exposed to a stimulus an advertisement, for example while lying in an fMRI scanner, which then measures changes in the blood ow system to look at those areas of the brain which are most active. So if the area of the brain associated with short-term memory was active, you might assume that whats being seen or heard was being consolidated into a working memory. This technique has drawbacks: its very noisy and requires you to lie very still as the image is built up by a computer. Its very much a laboratory or clinicbound technology. You cant have people walking through a shopping mall while inside an fMRI scanner. The other main technique is Quantified Electro Encephelography (QEEG), which has been around since 1928 and allows you to read electrical activity in the brain. You attach sensors to the side of the head, and then compare electrodes to see what kind of electrical activity is occurring roughly in that region of the brain. You can see, for example, whether the left or the right side of the brain is more active, or the power or amplitude being generated by the brain, and the frequency of the brain activity. The advantage of QEEG is that the equipment can be the size of a paperback book, and can store data up to 30 hours. You can wire your subjects and send them into pretty much any situation: the world is your laboratory. The downside is that its not spatially very accurate. What youre reading in a particular part of the brain could be ve or six centimetres away from the electrode. So while the reading is very accurate in terms of time, it is not accurate in terms of space. However, the software to interpret the electrical data is becoming rapidly more sophisticated.
Is it really possible to eavesdrop on the mind of the consumer? And if so, isnt this cause for concern?
In ten years time, we may start to worry about eavesdropping on the mind of the consumer: while it may always be impossible to read minds, it may become increasingly possible to control peoples minds. As it stands, you cant read peoples minds, or discover a buy button, but you can tell things in very broad terms. With QEEG, which is the technology Im most familiar with, you can detect levels of attention quite well, such as whether or not someone is attending to what theyre seeing, hearing or doing, and you can tell in a broad sense whether theyre approaching or withdrawing from the experience. Its a useful tool and it will become increasingly useful, but its not at the moment a Rosetta Stone that will translate the thoughts of a consumer into concrete statements about their responses. You have to be careful about going beyond the insights that the data can reliably provide.
Financial decisions, especially judgments about of economic reward, were once thought to be the domain of rational thought. Now it seems that the emotions play an important role. Please explain.
All the research weve conducted suggests very strongly that most consumerism is based on an emotional response, not an intellectual one. The intellectual response is an after-the-fact justication for a decision that was made below the level of conscious awareness. Branding and advertising that appeals strongly to the imagination is likely to be more successful, because we buy on impulse. The conscious regions of the brain are like a public relations ofcer, trying to explain the behaviour of the company on the basis of misinformation or too little information. We act from an emotional response and then explain it to ourselves or other people by creating an intellectually-reasonable narrative. Theres a saying that the stock market is motivated by either fear or greed. Weve seen evidence of that emotionalism in the recent sub-prime difculties. People respond very emotionally to money, however much they would like to think theyre making logical and informed decisions. Very often it comes down to making guesses based on a gut feeling. Most investors are making decisions based on emotions and are swayed by the latest headline or remarks by a media pundit. Obviously some people are sharper than others. Warren Buffett is an example of someone who has been extremely fortunate in his nancial decisions. He does use a lot of reason and doesnt allow himself to be swayed by emotions. But he is an exception.
Many of the claims made for and against Neuromarketing have been over-hyped. The brain is a vastly complicated organ which we really dont understand. The increasing amount of light being shed on the brain merely serves to emphasize the amount of darkness that still remains. What you can currently tell about the brains workings is limited; however, the current state of knowledge is expanding at a huge rate. In my discipline, there are something like 40,000 papers published each year on the topic.
British author and broadcaster David Lewis is director of research and development at the Mind Lab International Ltd., a neuroscience research establishment based outside Brighton, England. His books include The Soul of the New Consumer (Nicholas Brealey Publishing, 2001). He is a chartered member of the British Psychological Society and a fellow of the Institute of Directors.
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Questions for:
Mathis Wackernagel
&A
The co-inventor of the term Ecological Footprint on the dangers of running an ecological decit.
While still a graduate student at the University of British Columbia, you created the concept of the Ecological Footprint with Professor William Rees. Please dene it.
An Ecological Footprint is the equivalent of an ecological services account: in much the same way that your bank account indicates how much you spend and earn, ecological footprints indicate how much land and resources are taken up by your consumption of food, bre and energy. Think of it as ecological accounting. If you believe in the need for sustainable development, you are likely an advocate of the Ecological Footprint. The notion of sustainable development is based on the recognition of global limits; if there were no limits, we should have accelerated development. Implementing sustainable development depends on understanding how much of the planet is occupied by people. This is what the Footprint measures: how much of the regenerative capacity of the biosphere is being used by people? Are we using nature faster than it can renew? Of course, some people prefer to believe that the Earths resources are not nite, and they do not seem to mind burning through resources and have a merry time doing so. People who deny the existence of resource constraints should spend some of their vacation time in Haiti to test their assumptions. Perhaps they will be able to put their belief to rest that human innovation will always generate resources faster than people can use them up.
The ecosystem is notoriously complex and difcult to reduce to simple mathematical equations. How is it possible to reliably measure a person, product or organizations ecological impact?
Any model is always a simplication. Its like checking a sick person with a thermometer: if we measure a temperature of 39 degrees Celsius, we dont know exactly whats going on, but do
When our government ofcials start to sweat as much about ecological decits as they do now about unemployment or balance of trade, genuine action will emerge.
know that something is wrong. In the same way, the Ecological Footprint doesnt measure exactly how ecosystems work and all the impacts, it just indicates that overall, if we take more than what nature can regenerate, we have a problem. We can measure how much wood is growing compared to how much we harvest, or how many sh are replenishing compared to the number that are caught, or how much carbon dioxide is being emitted compared to how much nature can sequester. We may not be able to perfectly know all the intricacies, but overall, we can measure some trends quite well. There are those who claim that the world is just too complex, and they use this as an excuse for inaction. In reality, we know more about future trends than we want to know. The problem is not uncertainty, but that we are not even willing to act adequately on issues where we have certainty. For example, we know that humanitys CO2 emission is growing faster than even the worst-case scenario of the Intergovernmental Panel on Climate Change. What more than that do we need to know?
In the past few years we have seen environmental concerns move from the ideological fringe to the mainstream, and nowadays even big business appears to be getting in on the action. What has inspired this change?
Changing attitudes about sustainability is one thing. Changing behaviours is another. What steps are being taken by your organization to inuence public policy and business practices?
In recent years, ecological constraints have become more visible and measurable, and climate change has become a lively topic, not least because of shrinking glaciers, shifting weather patterns, and the melting of the North Pole. The collapse of the sheries, especially in Canada, is another prominent example of the genuine costs of transgressing ecological limits. Unlike the sheries or cities, most businesses can move around to avoid being hurt by an environmental collapse. Its becoming clear, however, that ecological limits are no longer just theoretical and far away, but are real and imminent. When the sustainable development concept entered the world stage with the 1987 Brundtland Report, it still made sense to link such development with the concern for future generations. But we have lost 20 years since then, and we are starting to realize that sustainability is about present generations, here and now.
Our intermediate goal is to have ten countries adopt Ecological Footprint regulations within the next three years. Regulations alone will not immediately change behaviour, but once our government ofcials start to sweat as much about ecological decits as they do now about unemployment or balance of trade, genuine action will emerge. We have the prototypes for the needed solutions: we know how to build lowenergy housing and green cities, we know how to turn around demographic growth we just dont yet understand that its in our best interest to aggressively accelerate sustainability. As businesses, we can either wait for governments to put regulations in place, or we can anticipate these changes from a business perspective. The pioneer businesses will gain in competitiveness, while dinosaur companies that miss out on preparing themselves will lose out. In the past, business and ecological concerns were seen as conicting or even antithetical to business interests, while these days its generally understood that its good business to be environmentally-friendly, if only for the sake of saving on your energy bills and reducing costly waste. The new reality will hit us one way or another, whether through higher prices or disruptions, or aggressive policy shifts. As we introduce higher resource taxes or energy prices and increasingly run into ecological constraints, pioneer companies with an effective sustainability strategy will win out against the dinosaurs and thrive in a resource-constrained world. An interesting example is Wal-Mart, which has recently announced a number of green initiatives, at least on a trial basis. The companys business model is essentially married to an incredibly resource-intensive lifestyle: its primary market is the suburbanite who likes to shop and drive a lot. Further, the company as a whole has an incredibly long supply chain, reaching into areas like China, which themselves are running into severe resource shortages. Wal-Mart is starting to recognize that its business model is utterly dependent on a way of
life that can no longer be sustained. Oil price increases, for example, cascade very quickly down the Wal-Mart food chain. Hence, its an absolute necessity for it to be on the leading edge of resource efciency if it wants to prevail. Wal-Mart has also told its suppliers it wants to switch entirely to MSC (Marine Stewardship Council) sh within a couple of years. These are fish that come from certified, sustainable sheries. Such environmental initiatives go beyond mere public relations: they help the companys bottom line. Wal-Mart has recognized its vulnerability to resource depletion; most other companies cannot yet make the same claim.
When do you think our society will hit a turning point where we start to signicantly reduce our impact on the biosphere?
allow us to live within the means of our planet within a reasonable time, but huge investments are also needed in such areas as family planning and a much more compact urban infrastructure. The question is, how long will it take to change our thinking to recognize that the environment is not just a nice green eld that you drive your car through, but the physical capital upon which we all depend? Theres still a huge knowledge deficit, even amongst economists. Most rst-year Economics courses still celebrate the virtue of expanding economies and accelerating resource consumption rather than focusing on how we can live within the limited means of natures resources. The biggest decit we have is this knowledge and cultural decit, and we continue to teach many of the wrong messages.
How do you maintain or even shrink the worlds environmental impact as the middle class continues to grow and levels of consumption rise in developing countries?
The problem of over-consumption is linked to the enormous externalities we are allowing, and even encouraging, as a society. To cite just one example, a recent study examined the economic value of bird conservation and found that $100 of economic value was generated for every dollar invested in conserving bird species and habitat. You might then wonder why were not running with all our money to invest in bird conservation, since theres such a huge return. The reason is that the returns are shared by everybody, not just the person who invests. Its the same problem with climate change. The costs of emitting carbon dioxide are barely borne by the emitter, but are spread widely among the population. This is whats known as the Tragedy of the Commons. Worse, we still have enormous and perverse subsidies allowing people to defer costs onto third parties, and governments are reluctant to internalize these externalities. In terms of a turning point, there are various scenarios, depending on the level of scarcity we as a society can tolerate. Do you want to put off action until you hit the hard limits that nature imposes, or do you want to make life a little more comfortable by choosing your limitations now, yourself? It depends on the wisdom of countries, and the extent to which theyre willing to recognize ecological constraints and deal with them, or just let nature take its brutal course. We can take great courage and hope from how quickly the climate debate has spread through our society. There has been a huge swing in public opinion in the past two years: even magazines like The Economist, which had been ardent critics of the climate change debate for decades, are suddenly acting as if they had been on the side of the environment all along. The next U.S. administration will be better at addressing environmental concerns than any in the past. Every candidate on both the Republican and Democratic sides has a fairly aggressive climate change policy. You could say these are just empty words compared to the actions that are needed on the ground; however, changes start with words and end in deeds.
Is this change coming quickly enough to turn things around?
In poor countries, ecological constraints tend to be felt more keenly, since resources are less available. Ecological constraints have forced such countries to have smaller footprints. Thats the least-favourable path to be forced into resource conservation. The better path is one that is chosen proactively and guided by fair- and widely-supported policy. As an individual, my big Ecological Footprint doesnt hurt me at all; its easier to be rich and use all the resources in the world than it is to conserve. Of course, such wanton consumption of resources is not possible to replicate globally. We have a collective, worldwide problem. If all people around the world consumed at the level of Americans, we would require ve planet Earths to sustain us. Over time, nations will start to realize that running an ecological decit will create a severe handicap for them, especially as more and more people around the world ght to use our existing resources. Nations and cities hurt themselves by using more than whats available, and its in their interest to be keenly aware of how much natural resources they have and how much they use. The era of sustainable development is here whether we like it or not: the question is how quickly we will adapt, at what pain and at what cost? The earlier we embrace sustainability, the earlier we turn things around, the cheaper it will be to achieve the transformation, and the more suffering can be avoided.
Its hard to know. There are still huge opportunities that would
Mathis Wackernagel is executive director of the Global Footprint Network and co-inventor of the concept of the Ecological Footprint, He has contributed to works on sustainability including Our Ecological Footprint: Reducing Human Impact on the Earth, and WWF Internationals Living Planet Report. In February 2008, he participated in a Statistics Canada colloquium where he lobbied for Canada to become one of the ten pioneering Footprint countries.
News Briefs
SPRING 2008
New Rotman Family Gift Supports Prosperity Research

A NEW GIFT BY THE LEAD BENEFACTORS of the Rotman School of Management will contribute signicantly to the study of jurisdictional advantage and prosperity in a newly-established research centre. The donation of $18-million by Sandra and Joseph Rotman was announced in December at a dinner celebrating the naming of the Lloyd and Delphine Martin Prosperity Institute in honour of the parents of Dean Roger Martin. The Institute was established earlier this year by a landmark $50-million grant to the Rotman School by the Province of Ontario. As previously announced, renowned urban theorist Richard Florida is the inaugural academic director of the Institute. Prof. Florida, who joined the Rotman School last July as a professor of business and creativity, is well known for his work on competitiveness, demographic trends, and cultural and technological innovation. The Rotman family was visionary in its initial support of the School and we are delighted that they are reinvesting to help us develop a world-class Institute to compliment the internationally-recognized research and teaching taking place here, says the Dean. Under Roger Martins leadership, in nine short years the Rotman School has emerged as a global innovator in business education, says Joseph Rotman. To demonstrate our immense respect for Rogers ongoing contribution and impact, Sandra and I decided to pay tribute to his family by naming the Institute after his parents. The research conducted at the Lloyd and Delphine Martin Prosperity Institute will enable business leaders and policy makers to implement the strategies needed to ensure Canadas future prosperity. Sandra and I are thrilled to be involved in an initiative that will benet the collective prosperity of Canadians and contribute to the Schools global reputation for thought
Joseph and Sandra Rotman with Dean Roger Martin.
leadership, he adds. The naming of this Institute expresses our gratitude for an individual who has displayed the rare ability to transform business education with his vision. Roger has been, and continues to be, the key driver in making many of our dreams come true. Ten million dollars of the new Rotman gift will go towards the activities of the Institute, which will be housed in a newlyconstructed expansion of the Rotman School. The expansion which has become necessary to accommodate the Schools continued growth is expected to open in 2011, and will also be the home to other Rotman research centres and programs. The remaining $8 million will support various projects including the University of Torontos undergraduate Commerce program, offered jointly by the Faculty of Arts and Science and the Rotman School; the Schools award-winning magazine; the new building fund; and ongoing academic research activities at the School. In 1993, Sandra and Joseph Rotman made a gift of $3 million towards the construction of a new home for the U of Ts business school, which opened in 1996. In 1997, they made an additional gift of $15 million, and the School was aptly re-named in Joseph Rotmans honour. Since the initial gift, the Schools reputation for innovation and excellence has grown steadily. KEN MCGUFFIN
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News Briefs
Desautels Provides Further Support for Integrative Thinking
one of Canadas leading supporters of business education donated $10 million to the Rotman School of Management. The gift by Marcel Desautels, president and CEO of the Canadian Credit Management Foundation, will support the ongoing initiatives of the Desautels Centre for Integrative Thinking, bringing his total gifts to the Rotman School to a remarkable $31 million. His earlier donations founded the Desautels Centre and supported student scholarships. The new gift will help the School further develop the Desautels Centre by hiring additional faculty and staff, pursuing curriculum development in the Rotman Schools undergraduate, graduate and executive programs, and supporting research projects and conferences. It will also support the construction of a new building for the Rotman School. The project, which received $50 million in funding from the Province of Ontario, is scheduled to open in 2011 and will house the Desautels Centre for Integrative Thinking. We are honoured that Marcel has continued to support our vision for the future of business education, says Dean Roger Martin. From our rst meeting, Marcel understood the ideas and concepts of Integrative Thinking and, as an astute entrepreneur, he saw how Integrative Thinking can benet business. Since its launch in 2002, the Desautels Centre has quickly gained an international reputation through its work on understanding and teaching Integrative Thinking. Integrative thinkers build models rather than choose between them. Their
THIS PAST NOVEMBER,
Dean Roger Martin with Marcel Desautels
models include consideration of numerous variables and capture the complicated, multi-faceted causal relationships between the key variables in any problem. Integrative thinkers are able to creatively resolve tensions without making costly trade-offs, turning challenges into opportunities. The world of business education has been fundamentally changed for the better by the emergence of Integrative Thinking, says Desautels. I am delighted with the progress that the Rotman School has made under the leadership of Roger Martin and Desautels Centre Director Mihnea Moldoveanu. Since the initial Desautels gift in 2000, the Rotman School has redeveloped the curriculum for its MBA programs, adding both required and elective courses. Integrative Thinking modules have also been added to the Executive MBA and Omnium Global Executive MBA programs and to the Schools executive programs. Additional details are available online at rotman.utoronto.ca/integrativethinking BY KEN MCGUFFIN
Tilting the Balance in Favour of Greener Electricity

DISCUSSIONS OF THE ENVIRONMENT
Tom Heintzman
usually focus on such large-scale solutions as a carbon tax for industrial emitters of air pollution, or a cap-and-trade system for exchanging CO2 credits. Yet such regulatory systems are difcult to apply to end users like residences and small businesses, who in Canada make up 70 per cent of the market for electrical power. For such consumers, vol-
untary action is a more realistic and promising path, according to Tom Heintzman, president and co-founder of Bullfrog Power. In a January 16 presentation at the Rotman School, Heintzman discussed the The Importance of Voluntary Action in Addressing Climate Change as part of the Rotman Business of Green Speaker Series. According to gures provided by the Inter Governmental Panel on Climate Change, Canada needs to achieve nearly a 100 per cent reduction in CO2 emissions if it is to do its part in keeping the worlds temperature from rising over two degrees Centigrade in the next few decades (the general consensus is that any greater temperature rise would cause ecological catastrophe). Unfortunately, Canada does not have a strong track record of achieving its targets through voluntary action, says Heintzman. Since the Mulroney era, we have made a series of commitments to reducing CO2 and none have worked. Our levels of carbon dioxide have actually continued to rise.
Rotman Grad Takes Loblaw into the Future

CANADAS LARGEST RETAILER, Loblaw Companies Ltd. has experienced growing pains over the past year as it seeks to centralize its management and streamline its operations. On Jan. 15, Mark Foote (MBA 91), president and chief merchandising ofcer of Loblaw, spoke to Rotman Professor Mark Foote of Operations Management Philipp Afeche about the companys transformational operating strategy in a session of the Rotman Operations Strategy Speaker Series. With 1,690 supermarkets and 130,000 owners and employees, and operating under a variety of regional banners, Foote says that Loblaws greatest strength is the diversity of its retail offerings, which allows it to nd a niche in any market, from discount to upscale. Our decentralized structure also means that our various stores have been allowed to operate fairly independently, and with the ability to respond exibly to market demands, he says. In recent times, however, Loblaws sheer size and complexity have prevented it from keeping up with newer competitors, such as Wal-Mart, that are more adept at achieving supplychain efficiencies. We have answered the challenge by
reorganizing and consolidating our operations: buying and pricing are now done centrally, for instance and by moving from a storage model to a flow model, so that inventory arrives at stores on a just-in-time basis. By bypassing a distribution centre and shipping products directly from suppliers, the company aims for lower prices, fresher products, and hopefully, a better customer experience, he says. To smooth the transition, better channels of communication have been established with member stores, allowing owners and managers to report back on the pace of change and to alert the centre when problems arise. We make expectations clear, we plan from the perspective of what a store can actually do, and we recognize that God gave us two ears and one mouth for a reason, he says. The company has also drawn on its information technology capabilities to introduce new inventory systems that better track the price and sales of its products. Theres a saying that you cant x what you cant measure, and what you measure xes itself, he says. By four oclock on a Friday afternoon, we know our price competitiveness in every banner, every region and every single department, against everybody we compete against. Throughout its transformation, Loblaw has maintained its focus on product development, an area where its strengths are unrivalled witness the success of the No Name and Presidents Choice brands and maintained its traditional product categories of food, house and home. According to Foote, while the companys operations and management structure has changed, its core strategy remains the same. What is different is not what we do, but how we do it, he says. The things that made this company successful in the past will make it successful in the future. BY STEPHEN WATT
The carbon tax and cap-and-trade system have been devised to prevent such backsliding by adding an element of legislative muscle to countries conservation efforts. Yet because of the complexity of administering such regimes, they tend to be applied only to the nal emitters of carbon such as heavy industry. According to Heintzman, the vast majority of energy users residential consumers, people using personal transport, freight companies, services and so on will not be regulated under any conceivable system. General awareness of climate change has grown exponentially in the past few years, he notes, creating a strong appetite for smaller-scale environmental solutions. People interested in shrinking their individual carbon footprint have embraced such measures as reducing waste and buying greener products: higher performance standards for cars, lighting and appliances have also made it easier to square personal consumption with conservation. Hindering efforts to shrink the national carbon footprint,
however, are the subsidies used by the provinces to keep the cost of electricity well below its actual cost of production. As well as serving as a drain on the public purse, these subsidies promote the wasteful use of energy and undermine attempts to develop greener, more capital-intensive sources of electricity such as wind and solar power, says Heintzman. Bullfrog Power aims to tilt the balance in favour of greener electricity by requiring its customers to pay for electricity at its true cost, and using the price difference to re-invest in renewable energy sources like wind power and low-impact water power. As Heintzman sees it, his company is just part of a wave of innovative rms that are springing up to answer the public demand for greener choices. I dont think Canadians want to be the second-highest per capita emitters of CO2 on the planet, he says. With investment in renewable resources, Canada can be a leader once again in environmental issues, for our own pride and our place in the world. BY STEPHEN WATT
Haskayne on Northern Tigers

FOLLOWING THE SALE of natural resource giants Inco, Alcan and Falconbridge, and amidst growing concerns about the hollowing-out of corporate Canada, Richard Haskayne has become a vocal proponent of the need for Northern Richard Haskayne Tigers Canadian corporate champions that can compete on the world stage. The former chairman and CEO of Home Oil, TransCanada Pipelines, MacMillan Bloedel, and Fording Inc. shared his insights from the front lines of corporate leadership in an October 29 presentation at the Rotman School. According to Haskayne, recent anxieties about Canada selling out to foreign masters are not entirely unwarranted. Do you think Vancouver is the same without MacMillan Bloedel? Haskayne asked of the Canadian forestry company sold to U.S.-based Weyerhaeuser in 1999. When the head office goes, its support network goes with it, and the community as a whole suffers. By his own admission, Haskayne has been involved in more high prole corporate transactions than perhaps any other business leader in Canada. His book Northern Tigers: Building Ethical Canadian Corporate Champions calls upon Canadas corporate leaders to build more home-grown giants to replace those that have been acquired or absorbed. Haskayne denes a Northern
Tiger as a company that is headquartered in Canada and competitive on a worldwide basis, and does not need the support of the government for its existence. He points to EnCana, one of the largest natural gas producers in North America, as a successful example of a Canadian public company that has equalled or outscaled its rivals. Just as important as achieving scale is the need for Northern Tigers to cultivate a particularly Canadian model of governance by avoiding some of the excesses that have plagued corporations south of the border. He points to failed giants WorldCom and Enron as examples of what can go wrong when business ethics are in short supply. Theres an innate greed in the corporate world and we may have fed it by pushing the whole pay for performance mandate, regardless of the actual numbers. The whole free enterprise system is based on good ethics and good principles. Once corporate ethics begin to break down, the system starts to fail. He worries that the trend toward skyrocketing executive compensation may be making its way across the border. In earlier times, there was a rule of thumb that the average CEO made something like 40 times the salary of the average employee. Now its closer to 300 times, he says. Haskayne takes his role in corporate governance seriously, and thinks others in his position should as well. Its a lot more work than just going to four to six meetings a year. Y ou need integrity and the ability to express an independent opinion: you need the guts to stand up to the CEO, he says. If you dont do your homework and keep your ear to the ground, youre not going to be an asset to the business. BY STEPHEN WATT
Alumnus Creates Lasting Legacy for International Students

LAST SEPTEMBER, nine international students at the Rotman School received signicant nancial support for their MBA studies thanks to a generous alumnus who has chosen to remain anonymous. Through planned giving, this donor and his estate have changed the lives of students for generations to come, with a $1.4 million endowed gift to create the International Student Fellowship at the Rotman School of Management. The donor was the son of a barber who emigrated to Canada. Growing up, he wanted to follow in his fathers foot104 / Rotman Magazine Spring 2008
steps, but his father insisted on his sons education. He earned an Engineering degree and built a stellar career with the work ethic he learned from his father. Years later, he returned to the University of Toronto as an adult student to pursue a Master of Commerce (the precursor to the Rotman MBA). He eventually became president and later chairman of one of Canadas best-known corporations, living to the age of 90. For generations to come, the Rotman School will say congratulations and good luck, on his behalf through the International Student Fellowship. At the Rotman School, planned giving plays an important role in building scholarships and opportunities in teaching and research. Gifts at any level can make a difference and there are a number of ways you can choose to give. If you would like to receive more information on planning a gift to the Rotman School, please contact Michelle Osborne, director of gift planning, at 416.978.3811 (toll-free: 1-800-463-6048), michelle.osborne@utoronto.ca, or visit www.giving.utoronto.ca/plangiving. BY CATHERINE RIDDELL
Mobilizing Capital for the Environmental Economy

is actually a design problem with our economy, says Andrew Heintzman, president of Investeco, the rst investment rm in Canada to be devoted exclusively to environmental companies and sectors. We Andrew Heintzman need a redesigned economy that encourages people to behave better environmentally. On November 21, Heintzman and his colleague Greg Payne visited the Rotman School to share their vision as part of the Rotman Business of Green Speaker Series. The growing climate change crisis is Greg Payne due in part to the failure of our economic system, which encourages short term consumption over long term investment, says Heintzman. Our environment is subsidizing our lifestyle and our economy. We are drawing-down resources that took millions of years to create in order to supplement current consumption. Short term thinking is rewarded both in politics where governments often plan no further than the next election and in business, where corporate leaders are encouraged to achieve results on a quarterly or even monthly basis. While no silver bullet exists to avert an environmental crisis, many tools and technologies can help to reverse or signicantly diminish climate change. Pollution reduction through the use of scrubbers on coal plants, industrial emissions cleaning and waste water treatment is already big business,
THE PROBLEM WITH THE ENVIRONMENT
worth around $200 billion a year. Now that the era of cheap oil is over, renewable energy sources such as solar and wind power are becoming increasingly attractive. Finally, techniques of energy efciency and conservation are probably the most economically-viable solution to the climate crisis, says Payne. The environmental industry is expected to grow to $2.5 trillion by 2030, up from $300 billion today. The cost of building an eco-friendly global infrastructure by that time is estimated at ve per cent of current global GDP, or 25 per cent of current global investments. As any economist will tell you, investment on this scale means massive savings, says Payne. But weve been heading in the opposite direction in the past few years. The idea of foregoing consumption for the sake of savings and investment has been lost in our consumer culture. As the boom-and-bust cycle of the past century has demonstrated, however, the economy is more than capable of shifting gears and reinventing itself to develop new priorities. We think the current volatility in the credit markets is a sign that the current cycle is getting long in the tooth, and were looking forward to seeing what the next cycle will be, says Payne. Where is capital going to be needed in the future? Were pretty sure it will be in the environmental sectors. The push for change will ultimately come from the grassroots, from voters electing environmentally-friendly governments and from consumers having their say in the check-out lines. The cash register is the daily voting booth in democratic capitalism, Heintzman points out. The good news is that our current level of afuence has put the green revolution within reach. We are relatively rich, our political system is stable, and our health and social security systems are at least functional, he says. Its important that we dont squander this opportunity. BY STEPHEN WATT
Martin Ossip Scholarship Established

IN JUNE 2007, a first-of-its-kind scholarship was established at the Rotman School through a $1 million gift to The Martin Ossip Endowment Fund: The Martin Ossip Scholarship at the Jewish Foundation of Greater Toronto will be awarded to one or more Rotman MBA students each year who demonstrate outstanding contributions to the Jewish community and/or who exemplies ethics and values consistent with traditional Jewish faith.
The Martin Ossip Scholarship is one of the largest scholarships available at the School, says Dean Roger Martin. It will grant deserving students the freedom to complete their MBA without carrying the nancial burden of student loans and will help the School attract even more of the brightest students from around the world. The award was established by David Ossip, founder and past-president and CEO of Workbrain and his brother Alon Ossip, executive vice president at Magna International, in honour of their father Martin. The rst scholarship will be granted in 2008 by an awards committee headed by the Rotman School. The Rotman School is one of the worlds nest business Schools, says David Ossip. We couldnt think of a better place to honour our father and help support the next generation of business leaders. BY CATHERINE RIDDELL
Schulich Shares Life Lessons

ENTREPRENEUR AND SELF-MADE
billionaire Seymour Schulich has made a second career out of supporting post-secondary education, and is often placed in a mentorship role by students eager to share in his business wisdom. Inspired by them, the co-founder of Franco-Nevada Mining Corporation and chair of Newmont Capital has writSeymour Schulich ten a book called Get Smarter: Life and Business Lessons that captures his decision-making approach toward everything from marriage to closing a deal. On November 2, he visited the Rotman School to discuss the book and the insights hes gained over his 42-year career. Looking back to his early years, Schulich recognizes he was not quite as smart or accomplished as he believed at the time: At 20, I knew that I knew nothing; at 30, I knew nothing but thought I knew something, which was dangerous, he says. Any experience, whether marked by success or failure, becomes positive if it can be used to add to our base of knowledge. One of the best pieces of advice that Schulich received was from his father, who told him, Never assume that people
arent watching you at work. The truth of the warning returned to haunt him when, during a summer job at a pharmaceutical company, he was red for putting his feet up on the desk over the lunch hour. Another setback came when he failed university, ending his ambition of becoming a chemist. However, both failures turned out to be blessings in disguise, as they led to a promising position as an oil analyst at a small brokerage rm at age 25. In 1968, Schulich joined the newly-formed Beutel, Goodman and Co., a Toronto-based investment-counseling firm, as an oil analyst. He is still vice-president emeritus of the company, now one of the largest pension fund management firms in Canada. He and an office-mate, Pierre Lassonde , also teamed up to form Franco-Nevada and Euro-Nevada, public companies that bought royalty interests in junior gold exploration companies in the Nevada area. In 2002, Franco-Nevada merged with Normandy Mining Limited of Australia and Newmont Mining Corporation, creating the largest gold mining company in the world. Despite his success, Schulich says his needs remain relatively simple. He drives an 11-year-old car, lives in a 30-year-old house, and manages to nd the time to read one book a week (2,500 to date). Schulich credits much of his success to his wife, who raised the family, he says and his business partners, whose honesty has saved him from making a number of bad investment decisions. The most valuable thing an emperor can have is someone to tell you when you have no clothes. BY STEPHEN WATT
Excellence in Research and Teaching Rewarded at Rotman
FOUR PROFESSORS shared the 2007 Roger Martin and Nancy Lang
From left, Profs. Hejazi, McCurdy, Rindisbacher and Baron
Awards for Excellence in Research and Teaching, which were announced in January: Opher Baron and Marcel Rindisbacher were co-winners of the Award for Excellence in Research while Profs. Walid Hejazi and Tom McCurdy shared the Award for Excellence in Teaching. Opher Baron is an assistant professor of Operations Management who received his BSc and MBA degrees from the TECHNION, Israel Institute of Technology and his PhD from MITs Sloan School of Management. His main research interests are queuing models and their applications and facility location models. He has been published in Operations Research, European Journal of Operations Research and Manufacturing and Service Operations Management, amongst others. Marcel Rindisbacher is an associate professor of Finance who holds a PhD from the University of Montral and an MSc from the London School of Economics. His research interests include optimal portfolio policies, stochastic volatility models
PHOTO: KEN MCGUFFIN
MBA Creativity on Display at LENS 2008

ROTMAN MBA STUDENTS once again displayed their creativity during the third annual LENS Photography Competition and Exhibition. The winners were announced on March 24th during a wine and cheese reception and silent auction held at the Rotman School. The reception launched a month-long exhibition of student photography at the School and featured photos taken by students enrolled in the two and three-year MBA programs. This year, 264 entries from 54 students were submitted for consideration, from which ten winners were selected (including the top three, pictured here). This years winners were Matthew Murphy (MBA 08) in rst place; Andres Bernal (MBA 08) in second; and Jonah Peranson (MBA 08) in third. Rounding out the top ten, in no particular order, were Signy Franklin (MBA 08), Mike Graham (MBA 08), Sasi Shanmugarajah (MBA 10), Reza Motaghedi (MBA 08), Dominika Wrona (MBA 09), Kim Ly (MBA 08) and Ehsan Shayegan (MBA 09). Judges, drawn from the arts and photography communities, said they were particularly impressed with the calibre of photos submitted this year and had a difcult time selecting the winners. Serving as judges were Lisa Binnie from Toronto Image Works, Nancy Lang, artist and publisher; and Adjunct Professor of Marketing David Dunne. LENS 2008 was generously supported this year by MJ Braide Corporate Development, GE Profile, Toronto Image Works, Digipix (operated by MBA 09 Gavin Reiff), Rotman Designworks, MBA Program Services and Associate Dean, MBA Programs, Richard Powers. BY KATHY SKELTON (MBA 08)
Matthew Murphys Election Time, Marrakech, Morocco placed rst.
Andres Bernals Golden Years placed second.
Jona Peransons Fabric of Mogador, Morocco, placed third.
and market games with differential information. His work has been published in the Journal of Financial Economics, Journal of Banking and Finance, Management Science and The Journal of Finance. Walid Hejazi is a professor of International Business who teaches in virtually all of the Rotman Schools programs and is regularly lauded by his students for his teaching abilities. Prof. Hejazis research interests focus on the interaction between globalization and economic growth and he advises the governments of several developing countries on the formulation of optimal scal policies. Tom McCurdy holds the Bonham Chair in International Finance and is a professor of Finance at the Rotman School. He is the founding academic director of the Rotman Financial Research and Trading Lab a state-of-the-art facility that enhances the Schools teaching and training by providing students with access to the global nancial community and its resources in a real-time setting. Using the Labs resources, Prof. McCurdy has led development of specialized curricula
for the Rotman MBA and Master of Finance programs. He has also been an academic advisor for student trading competitions, including the annual Rotman International Trading Competition, which attracts teams of student traders from around the world. The Martin and Lang Awards were established in 1999 by a generous donation to the Rotman School by Dean Roger Martin and his wife, Nancy Lang. Their purpose is to recognize and encourage excellence in the research and teaching activities of Rotman faculty members. In addition to these awards, 74 Rotman professors were honoured with Rotman Excellence in Teaching Awards for the 2006-2007 academic year. This Award is based on student evaluations of instructors performance in the Schools MBA, Executive MBA, OMNIUM Global Executive MBA and BCom programs. Students rank instructors on a scale of one through seven. The criteria to receive this Award is to be rated six or higher. BY KEN MCGUFFIN
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Alumni Proles
Annette Sullivan (MBA 01-GEMBA)
Vice-President, Marketing The Shopping Channel

What is The Shopping Channels mission?
First of all, Im proud to say that we are celebrating our 20th anniversary this year. The Shopping channel is Canadas only nationally-televised, 24-hour shop-athome service, available on a variety of cable channels across the country. We have the pleasure of servicing hundreds of thousands of Canadians each year by providing a wide product selection at competitive prices; we carry both brand-name items and unique new to the market items that cant be found anywhere else. Our products range from fashions to household items to Canadas largest selection of jewellery. Our mission is to provide customers with high-quality, exceptional value and convenience and we aim to do the same with our online offering, theshoppingchannel.com.
Is there anything the Shopping Channel will not sell?
the experience. We are continually rening these aspects. Also, because we are broadcasters, many of the day-to-day challenges are on-air challenges things going wrong or not working. And our big-picture challenge is the same as with any modern company: its all about getting really good people and retaining them.
How can people get their products onto The Shopping Channel?
We hold open houses a couple of times per year, where people can come in and make a pitch to our buyers. The products that do best on our Channel share similar characteristics: they are unique; they are in limited distribution (often exclusive to us); their features can be demonstrated on TV; and they offer exceptional value the retail price plus shipping charges must provide value to consumers compared to competitive products in the retail category.
What would you say youre most proud of to date?
Yes, there are several things, including genuine furs, rearms, liquor and tobacco.
Describe your audience.
We reach over seven million households in English Canada and are watched by almost two million viewers weekly. Our viewing audience is approximately 50-50 male and female, but our customers are predominantly female. They range in age from 25 to 55+ and live in both urban and suburban households. Our customers are sophisticated shoppers; they do extensive research and price comparisons before making a purchase.
What is your fondest memory of your Rotman MBA experience?
Thats easy: my people. In my career Ive had a lot of associate staff that have really risen within the ranks, either within this company or elsewhere, in jobs they have branched out to. I have mentored quite a few of them, and its extremely fullling to watch them grow. Im really proud of my staff, both present and past.
Would you say The Shopping Channel has been affected yet by the move towards the more green products and services?
I had some very interesting professors at Rotman, whom I remember fondly. I completed my MBA on a part-time basis, so my memories are of being at class in the evenings, studying alongside a crowd of accomplished professionals. I remember showing up at class at the end of a work day, feeling tired and lethargic, and then nding myself rejuvenated by the rigour of my studies, and by professors who challenged us to really strive for our academic achievements. If you wanted to achieve something great, you had to work hard for it.
What are your greatest challenges at the moment?
In terms of the products we sell, not yet. But we are very conscious of the packaging we use in our shipping process, which we try to minimize; and internally we are always looking at ways to cut back in terms of lighting, garbage, those sorts of things.
As a consumer, what are you proud to consume, and what is your guilty pleasure?
I consume everything I am a real shopper. For me, its entertainment; I just love going to stores to relax. My guilty pleasures would have to be chocolate and red wine.
What do you do for fun?
Our greatest challenge is developing that elusive entity, customer loyalty. Like in any business, this entails making sure that our customers are satised and really wowing them with
I travel a lot with my husband. Most recently we went to Bora Bora and Easter Island. Were not really into fun in the sun trips; we like to go off the beaten path. Next on our list is South Africa.
Daniel Almenara (MBA 92)

Chief Credit Ofcer, World Markets American Express

Describe your responsibilities as Chief Credit Officer, World Markets, for American Express.
good customers to spend and give them a great customer experience (for example, by not declining their charges.)
What are you most proud of to date in your career?
Im responsible for credit policy and credit decisions for 15 markets around the World: Argentina, Puerto Rico, France, Spain, Netherlands, Sweden, Finland, Germany, Austria, Hong Kong, Taiwan, Singapore, Thailand, India and the International Dollar Card market. My daily decisions involve approving individuals for credit cards, determining what level of credit the customer should have, at what price we should sell products given the risk level, which accounts should be reviewed and what steps should be taken with them (i.e. increase credit, reduce credit, cancel the card etc.) All of these decisions are made using complex econometric models, decision science and business rules based on past experience. My larger role is to ensure that all of these decisions contribute to protability for the company and an outstanding customer experience. In addition, I am responsible for monitoring the economic, industry and competitive environments so that at all times we are prepared for and well protected against economic downturns or changes in regulations. I manage the net loss provision line in the P&L (Prot and Loss) statement. This is the money we put aside to ensure we are well covered for credit losses. These are an expected expense of doing business for us, but I need to make sure that we maintain the right balance between having losses as low as possible while growing the business as much as we can.
What are the greatest challenges of your position?
I built a team from scratch in India to do risk management for American Express worldwide, from one employee to over 300 in a span of three years. I hired, trained and developed people that are now deployed in our ofces worldwide. I was in India at the very beginning of the Business Process Off-shoring (BPO) fever and was a precursor of the high-end BPO analytics that is now being copied by many multinational corporations.
At one point you were responsible for Japan and the Asian markets. How are Asian consumers different from those in North America?
Service quality is part of their DNA. It is hard to nd someone that doesn't smile or want to make sure you are OK and well served. I live in Singapore now, and the national pastime here is shopping. We call it retail therapy. We have some of the best malls in the world; some are specialized, for example electronics, kids, sports, entertainment. Like most of todays consumers, Asian consumers are very brand conscious. Ive never seen so many people buying designer watches and clothing.
In terms of your own consumption, what is something you are proud to consume, and what is a guilty pleasure?
Managing growth and protability are both major challenges. Our business grows by issuing more cards and allowing more spending and borrowing by our customers. The trick is to make sure that the people that we lend money to are able to pay us back, so that we can earn money in interest and fees. This requires a lot of data mining and building great prediction models and risk management systems. Every once in a while we get into an economic downturn cycle, and this is always challenging because all the paradigms change and all the prior years' history are not representative of what the future will be. Shareholders still want to know what the credit-net-loss provision is going be; and without a crystal ball to see the future, risk management has to come up with an accurate answer. It is important to apply controls to prevent unnecessary credit losses, while allowing
I am a gadget man. I buy as many high-end electronics as my beautiful wife allows me to (though in reality, most of the time I dont ask for permission). For some reason I feel pleasure when I buy another iPod (I already own ve and will probably buy the next model when it comes out) or when I get a new software package or XBox 360 game. And I always like a nice new suit or a custom tailored shirt. Sorry, no guilt here.
What do you do for fun?
Im a private pilot, so I love renting a plane and ying around every time I come to the U.S. (Singapore has a very small airspace!) I also like photography and enjoy editing video and photos on my Apple G5 computer. I recently built my own family website and try to keep it up to date with pictures and news (danielalmenarafamily.com).
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Alumni Capsules
Compiled by Stephen W att
Laura Manes (MBA 06) Consultant, Bain & Company Lives and works in: Toronto
BEST THING ABOUT MY JOB: The diversity of projects. Every few months I get to sink my teeth into a new industry, so there is always a lot to learn. MY BIGGEST CHALLENGE: Given that a lot of our clients are spread out across North America, there is often a lot of travelling required, which can be stressful. MOST IMPORTANT SKILLS FOR MY JOB: Learning quickly and bigpicture thinking. PROUDEST MOMENT: At the end of one of my recent projects, the client threw me a going away party and told me how much they would miss my contributions. It made me realize that even in a short time, I was able to make an impact and effect change within a huge organization. THE WORD THAT BEST DESCRIBES ME: Joiner: I participate in every committee and event that comes my way. THE MOST INNOVATIVE THING I'VE EVER DONE IS: On one of my projects, we were asked to give an update to the CEO. Instead of delivering the presentation ourselves, I invited some of the companys frontline employees to speak at the meeting. The CEO really appreciated hearing from them directly, and it motivated those employees to really commit to the project. By removing the consultants from the process, it opened up new communication lines at the company and got everyone more engaged. HOW I RELAX: Since Im away a lot, I love coming home and being very domestic: I cook a big meal and invite a pile of friends and family over. That way I get to see everyone all at once. MOST IMPORTANT THING MY MBA TAUGHT ME: Time management. WORDS OF WISDOM: Sometimes good enough is good enough. For all the perfectionists out there, its tough to accept that not everything can meet your high expectations all the time. But if you can learn to be happy with just okay sometimes, you will save yourself from a lot of frustration and disappointment. THE PRODUCT I AM MOST PROUD TO CONSUME: News, editorials and non-ction books about current events. (Can anyone really be proud of their consumption?) MY 'GUILTY PLEASURE: My wardrobe though most of it consists of work clothes!
Marcello Populo (MBA 03) Business consultant, Rara Avis Consulting Lives and works in: Rio de Janeiro, Brazil
BEST THING ABOUT MY JOB: It is unpredictable and challenging. MY BIGGEST CHALLENGE: Thinking out of the box. MOST IMPORTANT SKILLS FOR MY JOB:
Integrative Thinking. PROUDEST MOMENT: Closing a consulting project. Intense. for triathlons. MOST IMPORTANT THING MY MBA TAUGHT ME: Sunk cost and Cash is king. WORDS OF WISDOM: There is no nish line. THE PRODUCT I AM MOST PROUD TO CONSUME: Wine. MY GUILTY PLEASURE: Pizza and beer.
THE WORD THAT BEST DESCRIBES ME: HOW I RELAX: Training
Brian Ingham (MBA 74) Product Line Manager, Tundra Semiconductor Lives and works in: Ottawa, Ontario
Exerting a strong inuence on the success and direction of the business. MY BIGGEST CHALLENGE: One of our former solution partners is now an archcompetitor, trying to take over our space! MOST IMPORTANT SKILLS FOR MY JOB: A deep knowledge base along with good business judgment. PROUDEST MOMENT: I just started the new job, so havent had one here yet. In prior positions, it was the tremendous fun and success rate I enjoyed while working as a sales manager for IBM with an outstanding team. THE WORD THAT BEST DESCRIBES ME: Thoughtful. THE MOST INNOVATIVE THING IVE EVER DONE IS: Create a deep and broad partnership with a (former) competitor. HOW I RELAX: Teamwork, and how to effectively guide a team from various backgrounds and different skill sets towards a common goal. MOST IMPORTANT THING MY MBA TAUGHT ME: Pay attention. WORDS OF WISDOM: Appreciate every day, your blessings and the people who care about you.
BEST THING ABOUT MY JOB:
Alicia Damley (MBA 90) Portfolio Analyst, Harding Loevner Management Lives and works in: New York City
BEST THING ABOUT MY JOB: The breadth of perspectives required, complexity of analysis and adapting to a continually changing market environment. MY BIGGEST CHALLENGE: Anticipating changes in the market. MOST IMPORTANT SKILLS FOR MY JOB:
Sifting through details and multi-tasking. PROUDEST MOMENT: The birth of my daughter. THE WORDS THAT BEST DESCRIBE ME: Intellectually engaged. HOW I RELAX: Reading (mostly non-ction) and travel. MOST IMPORTANT THING MY MBA TAUGHT ME: The devil is in the details! Dont underestimate the importance of both breadth and depth of analysis. WORDS OF WISDOM: Sreyaamsi Bahuvighnaani (Sanskrit). Translation: Success must overcome many obstacles.
HOW I RELAX: I am a low-key person, so hanging out with friends and family is always great. But I do look forward to playing Xbox 360 after a long week of work. MOST IMPORTANT TAKE-AWAY FROM MY MBA EXPERIENCE: Without a doubt, the network of people Rotman is connected to. A large portion of our revenue is derived from connections to our Rotman network. In turn, we have hired several Rotman graduates and will continue to provide employment opportunities for alumni. WORDS OF WISDOM: You have to earn your stripes. An MBA is just a set of keys to open doors: it does not guarantee anything. MY 'GUILTY PLEASURE: Xbox Live.
Niraj Hansoti (MBA 05) Consultant, AT Kearney Lives in: London, England Works in: Europe
Malcolm Jussawalla (MBA 04) Partner, Accelteon Partners Inc. Lives and works in: Richmond Hill, ON
BEST THING ABOUT MY JOB: As a partner in
our rm, every action I take has a direct impact on how we perform as a company. I truly enjoy being responsible for driving growth for the entire organization. MY BIGGEST CHALLENGE: It is understood in the consulting world that when you stop learning you will quickly be irrelevant. We need to not only be aware of all the latest in business and strategy trends, but ensure our entire organization can effectively apply the lessons to all our engagements. MOST IMPORTANT SKILLS FOR MY JOB: Communicating your thought process. It is usually straightforward to come up with the right answer, but it takes skill to convince your client it is the right answer. PROUDEST MOMENT: We were quite proud when we got our rst repeat customer. It was at that moment that we knew we could build a successful rm. THE WORD THAT BEST DESCRIBES ME: Dependable. If I say I am going to do something, it will be done.
There is little routine in consulting as each project is unique. MY BIGGEST CHALLENGE: Living out of a suitcase. The novelty of living in different cities for extended periods of time is short-lived. Also, convincing others that change is benecial. MOST IMPORTANT SKILLS FOR MY JOB: The ability to develop and communicate a powerful story that inspires action to deliver results. Ability to work in a team: most projects involve working with other consultants and numerous client groups, and without their support and cooperation you cannot progress. PROUDEST MOMENT: Recipient of Chief Information Ofcer 100 award for work done in the health services sector. This international award, issued by CIO Magazine, is given each year to 100 initiatives/companies worldwide that demonstrate excellence and achievement in business technology. THE WORD THAT BEST DESCRIBES ME: Innovative. HOW I RELAX: Scuba diving in the Great Barrier Reef, touring glaciers in Iceland, sand duning in the Dubai desert, golng in Ireland and watching Australian Rules Football. WORDS OF WISDOM: Andy Warhol best encapsulates my view towards life: They always say time changes things, but you actually have to change them yourself. MY 'GUILTY PLEASURE': Nintendo Wii.
BEST THING ABOUT MY JOB:
////
Alumni Network News

Compiled by Michelle Perotta
Rotman Alumni Network on Tour
Recently, Rotman alumni in cities around the world have gathered to meet with each other and touring students. In October, Rotman hosted What is Really Happening in Private Equity? for alumni and members of the banking community in London at the Savoy Hotel. Afterwards, alumni and visiting students were treated to dinner, conversation and an update on the School from Vice-Dean Jim Fisher. Current Rotman students were delighted with their reception from alumni abroad during three study tours in China (Hong Kong, Shanghai and Beijing), India and South Africa. As well, Dean Roger Martin and travelling Rotman professors hosted events with alumni throughout the winter and spring.
As alumni, youll be contacted about any upcoming events in your region. If you want a sense of whats going around the world, visit rotman.utoronto.ca/alumni/services.htm
Quick updates
Join your classmates and other alumni at the Inaugural Rotman Reunion Gala on Thursday May 29th. This special celebration, at Torontos Four Seasons Hotel, is open to all Rotman alumni and will include dinner, dancing, and live entertainment. To register, or for more information, please visit rotman.utoronto.ca/ alumni/reunion. Please also consider making a special gift to the Rotman Reunion Challenge by visiting rotman.utoronto. ca/alumni/invest. Dust off your bafes and mashieniblicks and join in the fun at the Rotman Alumni and Friends Golf Day, August 19 at Kings Riding Golf Club in King City. This all-day event will include two sumptuous meals, full use of the practice facilities, entertainment on and off the course, and prizes galore. Many class groups have already reserved a spot why not join them? Or bring along your favourite clients. Sponsorship opportunities at all levels are also available. Details and registration are available online at rotman.utoronto.ca/events/
Jim Fisher and Rotman alumni and students in London
Rotman Regional Events 2007-08
London, October 9 Calgary, November 27 Cape Town, South Africa, December 28 Hong Kong, January 8
Shanghai, January 11 Beijing, January 18 New York, January 28 Portland, Oregon, March 7
London, March 25 Boston, April 30 Chicago, May 22
Keep an eye on our Web site for upcoming regional events: rotman.utoronto.ca/events
Class Notes: The All-Consuming Issue

Editor Jack Thompson
Its nally spring, which means this years new Reunion Gala is almost upon us. Reunion takes place May 29, followed the next day by our annual Life-Long Learning day. These events provide a wonderful opportunity to catch up with your former classmates, as does every issue of Class Notes so now is the time to start writing your Class Notes submission for the next issue. The fall edition, titled The Capital Issue, will hit your mailbox in September. Your deadline for new submissions will be in mid-June. Dont be left out! Keep them coming! Jack
MBA / MCOM / DBA Full & Part-Time

1965
MBA Class Champion: Cam Fellman
Cam.Fellman65@rotman.utoronto.ca
1966
MBA Class Champion Gary Halpenny
Gary.Halpenny66@rotman.utoronto.ca
1967
MBA Class Champion: Len Brooks
Len.Brooks@rotman.utoronto.ca
In Memoriam
Jerry Dermer M.B.A., Ph.D., P. Eng.
Dec. 26, 1941 Jan. 23, 2008 After a long and courageous battle with lymphoma, Jerry passed away at Scarborough General Hospital with his family at his bedside. Predeceased by his parents Simon and Molly Dermer of Ottawa, he was the beloved husband and best friend of Anita (ne Lamberti), the cherished father and mentor of Simon and Benjamin, and the dear brother of Bob Dermer. He will be greatly missed by many cousins in Canada and the U.S., as well as by the whole Lamberti family. For more than 25 years Jerry was a well-respected professor at the Schulich School of Business at York University, and previously taught at the University of Illinois, University of Toronto and MIT. He also taught thousands of students both in Canada and abroad in executive seminars and government training programs.
Business School, Lawrence Lederman joined the Canadian Foreign Service, where he promoted trade on behalf of Canadian industry abroad. He later worked for the Department of Foreign Affairs in the areas of human resources, diplomacy and trade. His diplomatic career included posts at the Canadian embassies in Brussels, Bern, Caracas and Munich, and he served as the Consul General in Cleveland from 1987 to 1992. In 1992, he was appointed the first Canadian diplomat to an OSCE (Organization for Security and Cooperation in Europe) Monitor Mission in Macedonia, for which he was awarded the Canadian Peacekeeping Medal in 2002. He then became the longest-serving Canadian chief of protocol, working under three prime ministers and two governors general. From 1997 to 2000, he served as the Canadian ambassador to Chile. Since retiring from the foreign service in 2001, Lawrence has worked as a consultant in the domestic and international sectors. In 2006, he was named distinguished senior fellow at the Norman Paterson School of International Affairs at Carleton University in Ottawa.
1973
MBA Class Champion: George Parker
George.Parker73@rotman.utoronto.ca Gabe Forray is a project manager with PeopleSoft in Plano, Texas.
1974
MBA Class Champion: Hank Bulmash
Hank.Bulmash74@rotman.utoronto.ca
1975
MBA Co-Class Champions: Susan Frank
Susan.Frank75@rotman.utoronto.ca
Robert Johnston
Robert.Johnston75@rotman.utoronto.ca
1976
MBA Class Champion: Jane Gertner
1970
MBA Class Champion: Charles Johnston
Charles.Johnston70@rotman.utoronto.ca
1971
MBA Class Champion: Chris Ward
1968
MBA Class Champion: George Hayhurst
George.Hayhurst68@rotman.utoronto.ca After earning his MBA in 1968 from the U of T
Chris.Ward71@rotman.utoronto.ca One of Michael Youngers abiding interests has been what he sees as the abuse of the money supply by Western democratic governments and the debasement of value of at money. He writes, Bernanke is set to shower the world with dollars and [current MBA students] would do well to study the phenomenon we are about to endure!
Jane.Gertner76@rotman.utoronto.ca Robert Lawton is vice president, energy and environment for Energy Advantage Inc., in Burlington. Rajiv Manucha is president and CEO of MSR eCustoms, a trade compliance rm with capabilities in both technology and services. With nearly 1,000 clients worldwide, MSR eCustoms is one of the leading companies in its industry, and is currently expanding further into the US and abroad. As part of the companys ongoing community endeavors, he has spearheaded efforts to provide technology solutions to several post-secondary institutions for the education of customs professionals. Rajiv lives in Toronto with his wife and four young sons.
1977
MBA Class Champion Judy McCreery
Judy.McCreery77@rotman.utoronto.ca
Class Notes / MBA/Mcom Full- and Part-Time
1979
MBA Class Champion Lorn Kutner
Lorn.Kutner79@rotman.utoronto.ca Lynn Jolliffe is senior vice president, global human resources (CHRO) for Ingram Micro Inc., a Fortune 100 company and the worlds largest technology distributor. Lynn and her husband Howard recently moved to Newport Beach, California from Brussels, Belgium where she was vice president of human resources and services for Ingram Micro Europe. Their sons graduated from the International School of Brussels and now attend York University and Western. She and her husband are enjoying being empty-nesters and having their boys return for visits. As part of her job, Lynn gets to also fulll her love of traveling through trips to Asia and Latin America.
ning and leading health and cultural buildings. The book contains a unique 12-step process to help people keep promises and design future goals. Karim is also an accomplished mountain hiker, having climbed Kilimanjaro and the Andes near Machu Picchu with his daughter Aliya. They have set their sights on base camp Everest. Eli Javier is director, system delivery and control at Dundee Bank, Scotiabank Group in Toronto.
MBA Part-Time Class Champion: John Harris
John.Harris89@rotman.utoronto.ca Suzanne Etherington is a consultant and coach with Leadership Insight in Toronto. Vince Tong is audit manager at CIBC in Toronto.
1990
MBA Part-Time Class Champion: Steve Rosen
1984
Jane McCormick Christensen writes to the Class of
1980
MBA Full-Time Class Champion: Frank Hall
84, Our 25th reunion is coming up next year in 2009 and so is my 50th birthday. I would like to begin my mid-life crisis in style catching up with you guys. Id love to learn what you did with your degree and your life so I can decide what to do for my next career. Hope to see you there.
Steve.Rosen90@rotman.utoronto.ca Katie Armstrong has joined LEVEL5 Strategic Brand Advisors, where her client work is supported by her experience in nancial services, operations and consulting. Katie also completed a MA in counseling psychology, which adds an interesting perspective to her change management work.
1991
MBA Full-Time Class Champion: David Littlejohn
Frank.Hall80@rotman.utoronto.ca Hubert Lum is research director with EVH Research in Toronto.
1985
David.Littlejohn91@rotman.utoronto.ca
MBA Part-Time Class Champion: Pamela Kanter
MBA Full-Time Class Champion: Gerald Legrove
1981
Gerald.Legrove85@rotman.utoronto.ca
MBA Part-Time Class Champion: Daniel Eng
MBA Full-Time Class Champion: William Molson
William.Molson81@rotman.utoronto.ca
Daniel.Eng85@rotman.utoronto.ca
1982
1986
MBA Full-Time Class Champion: Danny Chau
MBA Class Champion: Roy Turunen
Danny.Chau82@rotman.utoronto.ca
MBA Part-Time Class Champion: Michael Hale
Michael.Hale82@rotman.utoronto.ca Vincenza Sera has been appointed chair of the board at the Ontario Pension Board. An OPB director since 2004, Vincenza is an accomplished investment banker with extensive experience in the Canadian nancial services industry. Her career highlights include many years as managing director with National Bank Financial (NBF), as co-head of the Financial Institutions Group practice at Putnam Lovell (an NBF subsidiary), and as a director on corporate, industry association and not-for-prot boards and advisory committees. Louise Sommers enjoys putting her MBA theory into action with a career in fashion retail: she owns two lingerie stores in Toronto, Tryst Lingerie. Louise and her husband, David, have three grown children: Shana co-owns Tryst Lingerie; Joe works for the Ontario Health Ministry and lives with Anita and a growing family; and Devon is in her last year of residency at St. Michaels Hospital and lives with her partner Bill.
Karim H. Ismail recently published Keep ANY! Promise: blueprint for designing and living your future, drawing on his 20 year experience plan114 / Rotman Magazine Spring 2008
Roy.Turunen86@rotman.utoronto.ca Lesley Poole is director, financial planning and advisory services for CIBC Wood Gundy in Toronto. After many years in the Canadian banking and leasing industries, Steve Sands recently established Element Financial Corporation, an independent equipment leasing company focused on assisting small-to medium-sized businesses with their capital asset acquisitions. Kenneth Smith is chair at SECOR Consulting in Toronto.
1988
MBA Class Champion: Grace Cheung
Grace.Cheung88@rotman.utoronto.ca Ramona Cheng is vice president at Ernst & Young Orenda Corporate Finance in Toronto. Yoram Shalmon co-founded AskKinjo in May 2006. AskKinjo delivers location-relevant advertising and free-of-charge content to mobile phone users. Yoram writes, Our current objective is to demonstrate traction and scale in Toronto. The following round is a launch across Canada and the United States. Yoram recently returned from a trip to Peru and Bolivia, where he enjoyed trekking in the Andes.
1989
1983
MBA Full-Time Co-Class Champions: David Pyper
David.Pyper89@rotman.utoronto.ca
Maria Milanetti
Maria.Milanetti89@rotman.utoronto.ca
Pamela.Kanter91@rotman.utoronto.ca Jacqueline Baptist returned to Toronto after living in Chicago and Paris for the last 12 years. Coming with her and excited about becoming a Canadian boy is her son Kyle, who just turned two. In March, Jacqueline joined the Toronto office of the French advertising agency Publicis, leading the Rogers Communications account. She thanks all her classmates, including the Bigger Fools, who helped with her job search and have been a great incentive to come back to Toronto. Scott Colbourne is vice president and director at TD Asset Management in Toronto. Bill Gottlieb is enjoying life in the US with his wife and daughter, and making the most of the Great American Real Estate Giveaway. He says, I submitted a business plan to my bank to buy foreclosures: banks are dumping houses for nothing. He hopes to visit Canada once the US dollar recovers. Raphael Mpofu is a director of the School of Management Sciences at the University of South Africa (UNISA), one of the nations top learning institutions, focused on distance learning. He is also an associate professor in Finance since joining Unisa in 1997. Raphael recently hosted a delegation of Rotman MBA students led by Professor Ann Armstrong and Laura Wood in Pretoria, South Africa on January 7 and 8, 2008. Marni Wieshofer recently left Lionsgate Entertainment where she was the EVP of corporate development to accept a position as the senior vice president of corporate development and M&A at Media Rights Capital (MRC). MRC is the largest independent producer of highprole motion pictures and television programming, and is one of the largest creators of broadband Internet content.
MBA/Mcom Full- and Part-Time / Class Notes
1992
MBA Class Champion: Blair Kingsland
Blair.Kingsland92@rotman.utoronto.ca Diane Gorsky moved to Halifax, Nova Scotia in 2001. Starting out as an independent consultant, she led the organizational start-up of a multi-institutional neurological/stem cell research collaboration, and later acted as the executive director of the Nova Scotia Life Sciences Development Association. Dianes current focus is government relations for the pharmaceutical industry in her role as senior advisor, Atlantic for Canadas Research-Based Pharmaceutical Companies. Diane, who enjoys living on the ocean and is a yoga enthusiast, plans to attend this years Thinking about Thinking conference, where she hopes to see many of her former classmates. Eds note: Join Diane and many of your classmates at Thinking About Thinking: How Much of Yours is High Quality?, the 10th Annual Rotman Life-Long Learning Conference for Business Leaders on May 30, 2008.
Darlene.Varaleau95@rotman.utoronto.ca Ed Ra is a director with Scotia Capital in Toronto. Barry Richards is a tech analyst at Paradigm Capital, a brokerage rm serving the Canadian institutional investment community, as well as small-and medium-sized Canadian companies. The Richards family welcomed their child, Jensen, a brother for Calli Anna and Grifn.
Caroline Bachand is senior manager, treasury risk Jennifer Black (Shaw-Devos) is senior business
management at Nortel in Toronto.
1996
MBA Full-Time Co-Class Champions: Christine Wong
Christine.Wong96@rotman.utoronto.ca
Suzanne Wilcox
Suzanne.Wilcox96@rotman.utoronto.ca
MBA Part-Time Class Champion: Daisy Azer
analyst, operations for Transamerica Reinsurance in Charlotte, NC. Phillip Lund is still with Schneider Electric, where he is responsible for services training programs and for developing and delivering training courses for the selling of services and solutions. He lives in Paris with his wife Danielle Constantin, who recently published Masques et mirages. Gense du roman chez Cortzar, Perec et Villemaire (New Y ork: Peter Lang, 2008). Khalid Rashid is a director at Xceed Mortgage Corp in Toronto.
Daisy.Azer96@rotman.utoronto.ca
2000
1997
MBA Class Champion: Mitchell Radowitz
MBA Full-Time Class Champion: Burke Malin
Burke.Malin97@rotman.utoronto.ca
MBA Part-Time Class Champion: Nancy Crump
1993
MBA Full-Time Class Champion: Daniel Lin
Daniel.Lin93@rotman.utoronto.ca Jens Bremermann is manager, product planning, Europe, for Bose Automotive Germany in Baden Wurttemberg. Randall Craig has just recently released his second book (and now bestseller) Personal Balance Sheet: A Practical Career Planning Guide, which is designed to help successful professionals get to the next level of their career without giving up their work-life balance. Maureen O'Brien is senior director, talent programs at Loblaw Companies Ltd.
Nancy.Crump97@rotman.utoronto.ca Alexander Steiner is COO, Region Central Europe, and managing director for Skandia Group in Berlin.
1998
MBA Class Champion: Mari Iromoto
1994
MBA Full-Time Class Champion: Glenn Asano
Glenn.Asano94@rotman.utoronto.ca Stephanie Brun de Pontet has recently transitioned from full-time doctoral student to family business advisor. She combines her academic skills with the business knowledge she gained while running her own retail business and working in small business lending. Stephanie and her family moved to Atlanta, Georgia a few years ago, but is a regular visitor to Canada. She would love to reconnect with classmates from the class of 94. Sumitra Seshan is the COO of Fifth Generation Technologies India Ltd. 5G is a boutique outsourced software product development company headquartered in Chennai, India with a branch ofce in Toronto. Sumitra would love to hear from anyone planning on visiting India.
Mari.Iromoto98@rotman.utoronto.ca Shane Barker recently graduated as a doctor in the UK, and is working as a houseman in South West London. He is getting married in March, 2008. Jack Crane is a principal in the Corporate Strategy and Development group of PG&E, one of the largest US utilities. Before 2006, he was director of strategic planning at EMCOR, a large engineering services rm. He lives in idyllic Marin County, between San Francisco and Napa, with his wife Meg, baby daughter Mirielle and Border collie Mei-Mei. He keeps a well-stocked wine cellar and goes hiking whenever he can. Amy Freedman is the COO, investment banking at Thomas Weisel in Toronto. Scott Gavura recently accepted a position as director, provincial drug reimbursement programs at Cancer Care Ontario. He is responsible for the management of the New Drug Funding Program, which provides access to high-cost cancer drugs to Ontario residents. Scott, his wife Lillian and their son Lucas also welcomed a daughter, Samantha, to their family in June, 2007. Darren McLennan is a manager in the customer and market strategy practice at Deloitte Consulting in Toronto. He recently moved into a character loft (run down building) in Parkdale.
Mitchell.Radowitz00@rotman.utoronto.ca Doug Baxter assumed responsibility for all Canadian after-sales operations for Jaguar Land Rover (JLR) Canada. He notes that this will be a transition year at Jaguar, as the Ford Motor company works to complete the sale of the Jaguar and Land Rover business. Doug sends best wishes to the Part-Time MBA class he started with, and the Full-Time class he nished with. Rob Pankratz is AVP portfolio and risk analytics in the Derivatives Middle Ofce of the Investments Division of Manulife Financial. In July 2007 Rob was promoted to AVP in market risk management and subsequently moved to the Middle Ofce in a December re-organization. Rob and Elaine are busy raising three boys in Oakville, and recently adopted a new child-friendly cat for the boys. Manoj Srivastava has joined the Ministry of Education as senior technical manager. He has also moved to his new house in Vaughan.
2001
MBA Part-Time Co-Class Champions: Lisa Sansom
Lisa.Sansom01@rotman.utoronto.ca
Walter Sophia
1995
MBA Full-Time Class Champion: Nick Strube
1999
MBA Full-Time Co-Class Champions: Lenore Macadam
Nick.Strube95@rotman.utoronto.ca
MBA Part-Time Class Champion: Darlene Varaleau
Lenore.Macadam99@rotman.utoronto.ca
Aran Hamilton
Aran.Hamilton99@rotman.utoronto.ca
Walter.Sophia01@rotman.utoronto.ca Pierre-Luc Bisaillon recently joined Dell as a global program manager to run a joint initiative with Microsoft, all from his home ofce in St. Johns, NL. He says that his family is happy and growing up fast: with our new Honda snow blower, theres no more reason to fear the Newfoundland winters. We love to welcome Rotman alumni to the Rock (for a visit or permanently). To book your trip contact pierre-luc_bisaillon@dell.com. Michael Brodie-Brown moved to Tokyo with wife Yukiko in early 2006 and accepted a position with Lehman Bros., producing custom Japanese equity research. Michael and Yukiko are enjoying the local culture (particularly the cuisine) and have taken scuba diving trips to the Philippines, Okinawa, Taiwan and Guam. He writes, Hope all is well with the class of 01 and if anybody nds themselves in Tokyo be sure to get
Class Notes / MBA/Mcom Full- and Part-Time
in contact! michael.brodie-brown@lehman.com. Stephen Crozier is legal counsel for Barrick Gold Corporation in Toronto. Al Nagaraj is doing business development for OTC Derivatives in Toronto. Jennifer Shelton and her husband Marcos Santiago Mondragon have bought a house in Maple, Ontario. In November 2007, they were blessed with the arrival of their rst child, a baby girl named Paloma. Jennifer is currently on parental leave from her position at Microsoft Canada, and plans to return in Autumn 2008. Manny Singh is sales manager for New World Distributors in Surrey, BC. Young Soo Son is director of nance for Jolera Inc. in Toronto.
Jennifer Chan
Jennifer.Chan03@rotman.utoronto.ca
Rajesh Dixit
2002
Rajesh.Dixit03@rotman.utoronto.ca Veronica Carson is an account director for CPC Healthcare Communications in Toronto. Becky (MacKinnon) and DArcy Finley are very happy to announce the arrival of their daughter Amelia on June 27, 2007. Becky is currently on maternity leave from Boston Consulting Group, and DArcy works at Rogers Communications Inc. They can be reached through finley.becky@rogers.com or dnley@rogers.com. Robert Pare is an equity analyst with CIBC World Markets in Toronto. Amir Sperling is an associate with Tishman Speyer Properties in New York.
MBA Full-Time Class Champion: Rizwan Suleiman
2004
Rizwan.Suleiman02@rotman.utoronto.ca
MBA Part-Time Class Champion: Jay Nicholson
MBA Full-Time Class Champion: Maya Lange
Maya.Lange04@rotman.utoronto.ca
MBA Part-Time Class Champion: Steven Lane
Jay.Nicholson02@rotman.utoronto.ca David Giuffrida lives in Toronto with his wife Laura Hopkins, and is the founder of Adavius Inc., offering strategic IT services to professionals. David is also a lawyer and recently completed a three-year term as a part-time legal member of the Ontario Review Board. He has no life-changing events to report, having reluctantly conceded that acquiring a new gadget does not count as one in the minds of most. He looks forward to seeing his classmates at the reunion next summer, to learn who has wed, bred or risen in the corporate world since we last met. He writes,Best wishes, all! Marice Hart and her husband Benjamin were thrilled to welcome their daughter Orly in September 2007. Besides late night feedings and singing Itsy Bitsy Spider, Marice is in the second year of the Masters in Social Work program at Carleton University. Michael Kuan is a partner, international equities at Picton Mahoney Asset Management in Toronto. Sheldon Szeto has joined the merchant bank the Rose Corporation as director of nancial analysis. He and Flora Chen (2001) are expecting their third child. This past December, Tom O. Varesh was promoted to the position of equity research analyst at Canaccord Adams, providing research coverage for transportation and transportation-related industrial companies. On a personal front, Tom has legally added Ohanessian as his middle name in recognition of his Armenian roots.(This would have been Toms last name had his great grandfather not changed it to Varesh at the turn of the last century.)
Steven.Lane04@rotman.utoronto.ca J. P. Beaudoin is a senior consultant for ZSA-X Financial Recruitment in Toronto. Billy Chung is an executive director of Culturecom, a company listed on the Hong Kong Stock Exchange. He notes, Its a company going through changes, so keep an eye out for a brand new Culturecom. Rachel Doll sends greetings from the Pena Doll Family, where her daughter Sophie has reached the ripe old age of ten months (as of the time of writing). Says Rachel, she has grown so much since Christmas (weighs 25 pounds now), crawls at the speed of light, and climbs into and over everything. Nelson Kim is a sales representative for Right at Home Realty and a budding real estate developer, having recently nished his rst real estate development project by building semidetached bungalows (pictured). Feel free to contact him at nelson.kim04@rotman.utoronto.ca for more information. Jason Krause is director at Sierra Wireless Inc., in Vancouver. Michael Pietrocarlo is marketing manager for Visa Canada in Toronto. Steven Richards is director, enterprise risk management for Manulife Financial in Toronto. George Tolomiczenko is executive director of research and scientific liaison at Crohns and Colitis Foundation of Canada in Toronto.
Bob.Kapur05@rotman.utoronto.ca Louis Cho is senior manager at Wunderman Canada in Toronto. Vineet Gupta is vice president of American Home Mortgage in New York. Shelly Puri has returned to work at Merrill Lynch where she is responsible for trading credit and structured products. Her husband Sacha is at McKinsey and Co. On August 4, 2007, the couple was proud to welcome a son, Jai K. Ghai, into the world. She comments, Simply put, he has redened our reason for living. Eran Schweiger is a human resources ofcer for the United Nations, stationed in Bangkok. Richard Son is project coordinator at Sophis UK Ltd. in London. Giovanni Strazzullo is a consultant in the power and renewable energy team of the London, UK ofce of Investec Bank. Until recently, he was an assistant vice president in the Project Finance team at PwC in Toronto. Ekaterina Sutugina is a project manager, mergers and acquisitions with UC RUSAL in Moscow. Shiming Tan is a director at UBS AG in Hong Kong. Gabriel Villegas is now a senior nancial engineer at Algorithmics in Toronto. Kai Wang is working in investment banking with NM Rothschild & Sons (Hong Kong) Limited.
2006
MBA Full-Time Co-Class Champions: Bill Fox
Bill.Fox06@rotman.utoronto.ca
Paul Nagpal
Paul.Nagpal06@rotman.utoronto.ca
Paul Forma
Paul.Forma06@rotman.utoronto.ca
Shruti Owerie
Shruti.Owerie06@rotman.utoronto.ca
MBA Part-Time Class Champion: Ushnish Sengupta
2005
2003
MBA Full-Time Co-Class Champions: Fiona Cunningham
Fiona. Cunningham05@rotman.utoronto.ca
Tanbir Grover
MBA Full-Time Class Champion: Pamela Beigel
Pamela.Beigel03@rotman.utoronto.ca
MBA Part-Time Co-Class Champions:
Tanbir.Grover05@rotman.utoronto.ca
MBA Part-Time Class Champion: Bob Kapur
U.Sengupta06@rotman.utoronto.ca Gord Bennett lives in Toronto and manages the forecasting department of TELUS, the second largest telecommunications company in Canada. In his spare time, he supports the charitable organization Room to Read as director of nance of the Toronto chapter. The Bennett family is pleased to announce the birth of their rst child, Alexander James (AJ) and is looking forward to introducing him to Whistler this ski season. Gord hopes to see everyone in 2008. Kate and Geoffrey Cambridge welcomed their first child, Benjamin Michael, into the world on December 4, 2007, weighing seven pounds, 13 ounces. Brian Carey is vice president and controller for MCAP in Toronto. Marcelo Cesario is a senior consultant at IBM Business Consulting Services, with a focus on the telecom industry. Marcelo and his wife Simone welcomed their daughter
MBA/Mcom Full- and Part-Time / Class Notes
Giovanna on January 14, 2008. The entire family sends best wishes and success to the class of 2006. Bob Deol is an associate director with Scotia Capitals Corporate Banking Global Mining group in Toronto. Robert Dias is now a vice president with Goldman Sachs in New York. Jared Green is corporate counsel for Cedara Software Corp in Toronto. Tahir Janmohamed spent the winter holidays on the island of Zanzibar and touring the grasslands of East Africa. He returned to 40 centimeters of snow and two exciting new strategy projects in the nancial services and mining industries. Tahir hopes that everyone enjoys their summer break! Kalpesh Lad is the nance manager for Duracell, Pringles and Folgers Canada at Procter & Gamble. He and his wife recently returned from a fantastic vacation throughout South East Asia during the holiday season. Ryan Lavallee is immersed in the world of rates derivatives products at the London offices of JPMorgan Chase. He remarks that he is befuddled by the fact that among the people in England, he is the one of the few lacking an accent. As always, Ryan sends his best regards to his friends at Rotman. Al Leong went on a sabbatical with his two dogs, Buddy and Sarah. Their camping trip included stops in Minnesota (four days before the bridge collapse), South Dakota, Wyoming, Vancouver, Portland, the Bay area, the Mojave Desert, the Grand Canyon, Malibu, Calgary, Regina, Winnipeg, Chicago, Detroit and Toronto. Al is starting to build his business, and plans to acquire land and build a small cottage where his dogs can run free. Khurram Afgan Malik is an analyst at Jacob & Company Securities in Toronto. Linda Mackay is VP and special assistant to the CEO at TD Bank Financial Group in Toronto. Rishi Marwah is a consultant with DPWN Business Consulting (Asia Pacic) in Singapore. Natasha Parekh is living in London and is an associate at Goldman Sachs. Preety Ranchod is manager of strategic marketing for Bell Canada in Toronto. Rodrigo Rodrigues is general manager for Glasart in Sao Paulo, Brazil. Jason Rose is director of sourcing and stakeholder relations at CarbonZero Offsets in Toronto. Adam Rubin is an experience strategist for Idea Couture Inc. in Toronto. A.J. Silber is an associate with law rm Ropes & Gray LLP in New York. Ryan Starkman works at TD Commercial Banking in Toronto. Most non-work time is spent in marathon training and looking after his son Jake (although wife Rebecca would defer to comment at this point). Jake had his rst Skittle the other day and hasnt stopped since. Ryan can be contacted directly at ryan.starkman@td.com Crystal Wong is manager of business development at SOTI Inc. in Mississauga.
2007
Gave Lindo is an associate with Fasken Martineau Yanyan Liu is a business analyst for Finansia in Peter Lizon is a nancial analyst at Edenbrook Hill
MBA Full-Time Co-Class Champions: Francois Cartier
in Toronto.
Francois.Cartier07@rotman.utoronto.ca
Chokks Natarajan
Toronto.
Chokks.Natarajan07@rotman.utoronto.ca
Nobu Soda
Nobu.Soda07@rotman.utoronto.ca
Patrice Bansa
Patrice.Bansa07@rotman.utoronto.ca
MBA Part-Time Co-Class Champions: Kate Armstrong
K.Armstrong07@rotman.utoronto.ca
Zhen Xiang
Zhen.Xiang07@rotman.utoronto.ca Parul Agarwal is a consultant with the Campbell Alliance Group in Chicago. Sumit Arora is a securities analyst for First Global Securities in Navi Mumbai, India. Charanpal Brar is a business manager with Capital One in Toronto. Araba Carson is manager, banking operations for BMO Financial Group in Toronto. Robert Chen is a program buyer for Magna Closures in Concord, ON. Lawrence Chinsam is director of services at Openwave Systems Inc, in Whitby. Ivan Chow is a manager for Alwa Design & Associates in Hong Kong. Krupa Desai is a research analyst with Lusight Research in Toronto. Craig Geoffrey is a director with Montrose Hammond Inc. in Toronto. Kanishk Gupta is a nancial analyst with CIBC's prestigious Financial Management Development Program (FMDP). Prior to his Rotman MBA, he was working with a leading nancial institution (ICICI Prudential) in Mumbai as a financial underwriter. He sends his best wishes to the Class of 07. Jordan Hague is a generalist for RBC Capital Markets in Toronto. Eric Hedges is a business analyst for Vancouverbased Communicate.com. Henry Jing is a data marketing analyst at Rogers Wireless. His younger son, Ryan, started junior kindergarten this year and together with his older brother, Tyler, goes to school every morning. Henry sends best wishes to all the Class of 07 and their families! David Jube is an associate with Desjardins Securities in Toronto. Zakiah Kassam is a business development manager (Technical) at Plasco Energy Group Inc., in Kanata. Mansur Khan is equity research associate for Dundee Securities in Toronto. Yoko Kobayashi is manager of emergency response and public relations for World Vision Canada in Mississauga. Adriane Lau is an associate at OANDA Corporation in Toronto. Gina Lavarello is FMDP nancial analyst for CIBC in Toronto. Steven Leung is a manager at Deloitte in Hong Kong. Patrick Tao Liang is a senior consultant for Deloitte in Toronto.
Capital in Mississauga. Sabrina Machel is in the leadership rotation at GlaxoSmithKline in Mississauga. Naveed Masood has over 10 years of experience working across different industries with an emphasis in healthcare and life sciences. His experience spans different functional areas including business strategy, process design, drug marketing and most recently regenerative medicine using cellular therapies. He completed his MBA at Rotman specializing in Healthcare and Biotechnology. Rik Muilwijk is legal counsel at Navis Capital Partners on Kuala Lumpur. Eric Nie is an accountant with KPMG in Toronto.
Mehrnaz Ravel is in the leadership rotation at GlaxoSmithKline in Mississauga. Abhijit Rawal is a senior consultant with Deloitte in Toronto. Katherine Rivington is an associate with EdgeStone Capital Partners in Toronto. Ali Rizvi has more than six years of experience in corporate and investment banking. Currently he is working in CIBC as manager of credit and lending audit on Bay Street. Azadeh Sabour is a research analyst with Jantzi Research Inc., an independent social investment research rm based in Toronto (formed in 1992). The firm evaluates and monitors the environmental, social, and governance (ESG) performance of global securities. Jantzis clients include mutual funds, pension funds, money managers, investment advisors, and others who integrate ESG criteria into the investment decision-making process. Jantzi Research is the dominant Canadian provider of socially responsible investment (SRI) products, services and research tools. See www.jantziresearch.com for more details. Azadeh is recently engaged and plans to marry her anc Chris, who is currently enrolled in the MBA program at Rotman (class of 09), in August '08. She sends her best wishes for success to the Class of 07 Stay healthy, Stay t! Sean Samieian is in management consulting with Infosys Consulting Inc. (ICI) based out of Seattle, Washington. ICI is a wholly owned subsidiary of Infosys Technologies. Best wishes to the entire class. Carlos Sanchez is an associate analyst for Moodys Investors Service in Toronto. Diana Sen is an analyst at Accenture in Mississauga. Blendian Stefani is an associate with SmartCentres in Vaughan. Kimberly Tack and her husband David welcomed their rst child, Andrew Harrison on October 11,
Class Notes / MBA/Mcom Full- and Part-Time / Executive MBA
2007. We feel so blessed to have this little guy in our lives. He has brought us so much joy.
Asad Tahir is a PM consultant at TELUS in
1994
Class Champion: Andrew Stewart
Andrew.Stewart94@rotman.utoronto.ca
Scarborough. Liang Tang is a senior analyst with BMO Financial in Toronto. Kevin Taylor is senior consultant for Deloitte in Toronto. Roger Thompson is a manager, strategy and operations of FirstService, a diversied property services company with more than US$1.7 billion in annualized revenues and 17,000 employees worldwide. He was recently married in July 2007 to his soulmate Chiara and honeymooned in Las Vegas and Western Canada. Jack Trimmer is senior project manager at Cisco Systems in Toronto. Ip Tsui is a research associate with Tristone Capital in London, England. Ameet Uchil is a director with DataVision Software Solutions in Pune, India. Akif Unal is a senior business analyst with Capital One Canada in Toronto. Bijan Vakili is a software developer for OANDA Corporation in Toronto. Kathleen Wheelihan is an associate with CIBC World Markets in Toronto. Valerie Whitt is special projects coordinator for the Humber River Regional Hospital in Toronto. Xiaolin Yu is a senior nancial analyst at DBRS Limited in Toronto.
1995
Referring to his Jim Fisher Leadership notes daily, he is looking forward to the next Rotman Lifelong Learning session to pick up a few more tricks to keep him on track. Anyone wishing to contact Gary Ryan can do so atGary.Ryan01@ rotman.utoronto.ca.
Class Champion: John Ramdeen
John.Ramdeen95@rotman.utoronto.ca
2002
1996
Class Champion: Cheryl Paradowski
Cheryl.Paradowski02@rotman.utoronto.ca
Co-Class Champions: Jon Waisberg
Jon.Waisberg96@rotman.utoronto.ca
Carmine Domanico
2003 (EMBA19)
Class Champion: Jennifer Figueira
Carmine.Domanico96@rotman.utoronto.ca
1997
Jennifer.Figueira03@rotman.utoronto.ca
Class Champion: Jennifer Hill
Jennifer.Hill97@rotman.utoronto.ca Jason Yee is head of finance at BNP Paribas Private Bank in Hong Kong.
2003 (EMBA 20)

Co-Class Champions: Rob Carver Cindy Smith
Robert.Carver03@rotman.utoronto.ca Cindy.Smith03@rotman.utoronto.ca
1998
Class Champion: Ashok Sharma
EXECUTIVE MBA
1985
Class Champion: Bob White
Ashok.Sharma98@rotman.utoronto.ca Doug Wright and family moved to Charlotte, NC in 2004. Seems like such a short time ago we were in Toronto, working on case studies and trying to beat the pants off the other groups! Both kids are now in college, so lots of time for golf, travel, and the odd bit of work. I am working for Curtiss-Wright Controls as vice president, engineered systems. Two of my businesses are in Toronto, so I get up there every month or so. I haven't done a good job staying in touch, but if anyone is passing through Charlotte and would like to golf or catch up, give me a call or e-mail.
2004 (EMBA 21)

Co-Class Champions: Fariba Anderson Paul McKernan
Fariba.Anderson04@rotman.utoronto.ca Paul.McKernan04@rotman.utoronto.ca David Danylewich has left Youth Challenge International, where he was executive director for four years, to join the executive team at Right To Play an athlete-driven humanitarian organization that uses the power of sport and play to improve the lives of children in the worlds most disadvantaged countries. A global leader in sport for development, Right To Play enjoys the support of some of the worlds greatest athletes and Olympians. David will be leading eld operations in over 20 countries, with a staff of 300. When he is not traveling or working on behalf of the children in Right To Plays programs, he and his wife Hilary can be found playing with their own children, Heath and Celeste, who are now four and two. Marc Finkelstein is Canadian IT planning and management lead for Capgemini in Toronto.
Bob.White85@rotman.utoronto.ca
1987 Class Champion: Vitor Fonseca
1999
Co-Class Champions: Steve Doede
Steve.Doede99@rotman.utoronto.ca
Desmond Preudhomme
Vitor.Fonseca87@rotman.utoronto.ca Peggy Simons has moved with her husband, Frank, from Calgary to Fernie, BC, where she is very much enjoying an active lifestyle in her retirement.
Desmond.Preudhomme99@rotman.utoronto.ca Alan Chan is director of marketing for Medicis Aesthetics Canada in Toronto.
2000
1989
Co-Class Champions: Jennifer McGill-Canu
Co-Class Champions: Peter Murphy
Jennifer.McGill00@rotman.utoronto.ca
Bruce Lawson
Peter.Murphy89@rotman.utoronto.ca
Bill Brown
Bruce.Lawson00@rotman.utoronto.ca
2005 (EMBA22)
Class Champion: Michele Henry
Bill.Brown89@rotman.utoronto.ca
2001
1990
Co-Class Champions: Ken Hagerman
Class Champion: Jeffrey Wayne
Ken.Hagerman01@rotman.utoronto.ca
Gary Ryan
Jeffrey.Wayne90@rotman.utoronto.ca
1993
Class Champion: Andy Hofmann
Andy.Hofmann93@rotman.utoronto.ca
Gary Ryan has been experiencing the challenges of running a small rural hospital as he took on the interim CEO duties at Stevenson Memorial Hospital in Alliston in September of 2007 in addition to his existing duties as VP of acute services at Southlake Regional Health Centre.
Michele.Henry04@rotman.utoronto.ca Lee Anne Downey has started a new business importing luxury bed linens from Egypt. Luxe Brands International has been granted distribution rights for North America: www.luxebrands.com Tai Hong Yuen is chief operations ofcer at Tsun Tay Toy Company Ltd in Hong Kong.
Executive MBA / OMNIUM/GEMBA / Class Notes
2005 (EMBA23)
Co-Class Champions: Karen Sparks Joyce Rankin
Karen.Sparks05@rotman.utoronto.ca Joyce.Rankin05@rotman.utoronto.ca
2006 (EMBA24)
Co-Class Champions: Elizabeth Duffy-MacLean
E.DuffyMaclean05@rotman.utoronto.ca
Linda Jussaume
Linda.Jussaume05@rotman.utoronto.ca David Kelly is regional vice president and market leader for TD Waterhouse in Toronto.
Lan.Nguyen98@rotman.utoronto.ca Kevin Dougherty was recently appointed president of Sun Life Global Investments, a unique group of high performance afliated companies and third-party asset manager relationships, supporting mutual funds, institutional funds and high net worth channels. Kevin is responsible for Sun Lifes North American asset management business, and accelerating the companys growth in the expanding wealth market around the world. He joined Sun Life Financial in 1994, and most recently led Sun Life Financial Canada as president for the past three years. Kevin is also chairman of the national Quality Institutes Board of Governors.
approach. Besides that, but even more important: The Family, composed of husband EVI, daughters Victoria 18, Franziska 8 and of course Gemba Baby 2001 Flora are all fine and doing well. I am glad to enclose a recent picture of the girls as well as one from myself giving my warmest regards to the UofT Rotman GEMBA Team and all pals and peers from GEMBA 2002 Program. Best regards from Austria.
2003
Co-Class Champions: Michal Berman
Michal.Berman03@rotman.utoronto.ca
Susanne Justen
1999
2006 (EMBA25)
Class Champion: Rob Ljubisic
Class Champion: Jim Coutts
Jim.Coutts99@rotman.utoronto.ca
Susanne.Justen03@rotman.utoronto.ca Dieter Burki is head of internal audit & risk management at Precious Woods Holding in Zurich.
Rob.Ljubisic06@rotman.utoronto.ca Abdul Syed sent this along: This is the prole of a person who had been taking risks and initiative throughout the course of his life and had been pretty successful so far; however, the decision to migrate to Canada literally changed his entire perspective on life. His list of life highlights initially only included his marriage with the one he loved, Darakhshanda, but now that list also includes his EMBA experience from Rotman. The exceptionally humble and considerate faculty, outstanding colleagues and the world class experience certainly makes Rotman the best in class. The exposure at Rotman enabled Abdul to integrate his past experience with the new Rotman learning and carved a place for him to contribute in Canadian retail development. Abdul started his career in Canada with Kraft as a category advisor and within a year moved to Smuckers Food as trade marketing manager for Ontario and West Region. Within a total timeframe of three years in Canada, a lot has happened for Abdul and his family and he hopes that this positive development process will continue in years to come.
2000
2004
Class Champion: Nancy Dudgeon
Co-Class Champions: Ralf Martinelli
Nancy.Dudgeon00@rotman.utoronto.ca Christoph Schmitz, CFO of Pergo Inc., Raleigh, NC and Uniboard Canada Inc., Montreal, QC has been appointed vice chairman of the German Canadian Chamber of Commerce in Toronto.
2001
Co-Class Champions: Margaret Evered
Margaret.Evered01@rotman.utoronto.ca
Renald Hennig
Renald.Hennig01@rotman.utoronto.ca
2002
Ralf.Martinelli04@rotman.utoronto.ca Class Champ Ralf Martinelli reports in: Oktoberfest 2007 seemed a place worthy of a reunion of GEMBAs 2004. Indeed, nearly all GEMBAs 2004 located in Europe appeared and had a great time observing Bavarian habits. Due to their belief think global, act local, it was just a question of time until the participants adapted to the local habits. Their cheers went to all other GEMBAs 2004 all over the world; they are very much expected to meet at Oktoberfest 2008.
Brent Furneaux
Co-Class Champions: Manfred Koo
Manfred.Koo02@rotman.utoronto.ca
Petra Cerhan
Brent.Furneaux04@rotman.utoronto.ca Nicola Browne is senior consultant with CIBC in Toronto.
2007 (EMBA 26)

Class Champion: Serge Messerlian
Serge.Messerlian07@rotman.utoronto.ca Dave Jones is AVP market development for Sun Life Financial in Toronto. Steve Strong is in checkout risk operations at Google, located in Mountain View, California.
OMNIUM / GEMBA (GLOBAL EXECUTIVE MBA)

1998
Class Champion: Lan Nguyen
Petra.Cerhan02@rotman.utoronto.ca Bernhard Kreutzer writes: It is a pleasure to announce that I was recently promoted to the position of vice president at the Spitz Group, responsible for purchasing and procurement for the entire group. Reporting about 230M CAN$ of purchasing value, my responsibility has significantly risen since leading the bakery division representing only 65 mil. CAN$. This promotion fits quite nicely in my CV after 10 years of technical experience in the eld of bakery and confectionery, followed by over 12 years in the responsibility for sales and marketing within the bakery industry. While the moment to change was not at all the best (as many raw materials as well as some services have increased their prices substantially since last summer), there was and still is a lot to learn for me and the small team of buying directors I work with perfectly matching with the idea of life-long-learning, even if it is this time the non-academic, more practical
2006
Class Champion: Cecilia Mueller-Chen
C.MuellerChen06@rotman.utoronto.ca Christian Senninger remembers during our MBA time people were asking me what phone I was developing, but I couldnt disclose anything. Now, after two years I have dened, developed and publicly-launched three mobile handsets. My latest phone is: www.nokia.co.uk/5310, available in some selected markets and soon worldwide. I can tell you launching your own phone, which you have specied and developed with your team, is an exciting moment, since this is the first time when journalists and normal consumers approach it. Fortunately my three products have been well adopted by consumers and are very successful. Almost every working day reminds me of our MBA classes and experiences. I remember when we went to Shanghai's countert market in order to further develop and deepen our negotiation skills. I was amazed by the surprisingly good quality of fake watches. But now, discovering fake models of my own phone one week in advance to the factory ramp up suddenly didnt amaze me anymore. Besides the fact that we
Class Notes / OMNIUM/GEMBA / MBA (Accounting)/Master of Management and Professional Accounting / DIFA
obviously had a serious leakage, I have to admit that this also attered me, since it proves they like my phone. Luckily they werent able to copy my phone completely only the nut shell is somehow similar. It would be nice to hear also from you whats going on; some of you I havent heard from in a while!
2001
Class Champion: Elaine Ilavsky
Elaine.Ilavsky01@rotman.utoronto.ca
2002
2007
Class Champion: Ali Spinner (Charyk)
BE A CLASS ACT
VOLUNTEER AS A CLASS CHAMPION
Ali.Charyk02@rotman.utoronto.ca
Co-Class Champions: Dirk Lohmann
Dirk.Lohmann07@rotman.utoronto.ca
Simardeep Gill
2004
Linghao Su is operational risk manager at
Simardeep.Gill07@rotman.utoronto.ca
Guandong Development Bank in Guangzhou, China.
MBA (ACCOUNTING) / MASTER OF MANAGEMENT & PROFESSIONAL ACCOUNTING / DIFA

1992
Jacqui Kuypers (nee Bridel) is a principal in auditing
2006
Kristin Matthews is a manager in the claims valua-
and assurance standards with the Canadian Institute of Chartered Accountants. Jacqui was married this year, and she and her husband recently welcomed a new addition to the family Lara, who was born on January 12, 2008.
tion and litigation support group at Soberman Chartered Accountants in Toronto. In addition to her professional work in the eld of forensic accounting, she was appointed in October 2007 by the Government of Canada to sit on the board of directors of Parc Downsview Park Inc. for a term of four years.
2007
Toronto.
Class Champions ensure their class remains active and vibrant long after graduation and bring the Rotman School and its graduates closer together. They help organize reunions, promote events, and keep track of their classmates activities for inclusion in the Class Notes section of Rotman magazine. To represent your graduating class, contact the Rotman Alumni Ofce at (416) 978-0240, or via e-mail at alumni@rotman.utoronto.ca.
Tamer Alibux is an accountant with KPMG in Jennifer Qin Hua is a staff auditor at PKG Hill LLP Jonathan Lau is an accountant / auditor for Ernst
1994
in Toronto.
Class Champion Chris Hind
& Young in Toronto.
Chris.Hind94@rotman.utoronto.ca
PHD
Guy Bellemare is director, investment & research at Caisse de depot et placement du Quebec, in Montreal.
1996
Co-Class Champions Vanessa Blumer
1997
Vanessa.Blumer96@rotman.utoronto.ca
Blake Langill
Blake.Langill96@rotman.utoronto.ca
Janet Scarpelli
Janet.Scarpelli96@rotman.utoronto.ca Lorraine Lipschutz is nancial controller for The Atlantic Philanthropies in Hamilton, Bermuda.
2004
1998
Mustafa Karakul is an assistant professor of management science at Y ork University since July 2003. Mustafa had his rst baby, Derya Seher Karakul, in April 2006.
Class Champion Melody Tien Grewal
Melody.Grewal98@rotman.utoronto.ca
1999
Class Champion Jamie Ferguson
Jamie.Ferguson99@rotman.utoronto.ca Yin Luo is an executive director and head of quantitative strategy at CIBC World Markets. In Canada, he covers three sectors (quantitative analysis, hedge fund, and equity indexing) in equity research; in the U.S., he manages an equity market neutral proprietary trading portfolio. Yins wife, Jane Wang (MMPA 00) recently left IBM Canada and joined OMERS as a senior analyst, external funds, responsible for international public investments. Yin and Janes daughter Emily-Jane is now two years old and enjoys her school days at Montessori.
Upcoming Events
Complete details are available at rotman.utoronto.ca/events
May 2008
May 12, 5:45-7:30pm Book Launch for Who Owns Canada Now: Old Money, New Money and the Future of Canadian Business Place: Fleck Atrium (ground oor), Rotman School Author: Diane Francis, Editor-at-Large, Financial Post May 22, 5:30-7:30pm Rotman Integrative Thinking Speaker Series Place: Four Seasons Hotel Chicago Author: Roger Martin, Dean and Professor of Strategic Management, Rotman School; Author Topic: The Opposable Mind: How Successful Leaders Win Through Integrative Thinking Session Sponsor: Doblin Group May 28, 8:00am-2:00pm Atlantic Business Summit Place: Fleck Atrium (ground oor), Rotman School Synopsis: the summit promotes brain circulation to enable Atlantic Canada and Toronto to benet from the best of what each region has to offer through the free ow of capital, knowledge and creativity Co-Hosted by: Dalhousie University Faculty of Management; East Coast Connected; Rotman School May 29, 6:00-11:00pm Annual Rotman Alumni Reunion Gala Place: Four Seasons Hotel Toronto Details: 6:00-7:00pm, reception in honour of the MBA classes of 68, 88, 98 and 03 to celebrate their 40-year, 20-year, 10-year and 5-year Reunions; 7:00-8:30pm, dinner, open to all Rotman alumni and guests; 8:30-11:00pm, dancing May 30, 8:30am-4:30pm Annual Rotman Life-Long Learning Conference Topic: Thinking About Thinking: How Much of Yours is High Quality? Place: Four Seasons Hotel Toronto Chair: Mihnea Moldoveanu, Professor and Director, Desautels Centre for Integrative Thinking, Rotman School and Author Speakers: Dan Ariely, Professor of Behavioral Economics, Fuqua School of Business and Author; Malcolm Gladwell, Staff Writer, The New Yorker Magazine and Author; Roger Martin, Dean and Professor of Strategic Management, Rotman School and Author;
Anita McGahan, Professor of Strategic Management, Rotman School and Author; Jane Fulton Suri, Co-Chief Creative Ofcer and Director, Human Factors Team, IDEO and Author; and Gerald Zaltman, Professor Emeritus of Marketing, Harvard Business School and Author
October 2008
Date TBA Rotman Integrative Thinking Speaker Series Place: New Y ork City Presenter: Roger Martin, Dean and Professor of Strategic Management, Rotman School; Author Topic: The Opposable Mind: How Successful Leaders Win Through Integrative Thinking Date TBA Rotman Integrative Thinking Speaker Series Place: New Y ork City Presenter: Mihnea Moldoveanu, Professor and Director, Desautels Centre for Integrative Thinking, Rotman School and Author Topic: The Future of the MBA: Designing the Thinker of the Future (Oxford, April 2008)
November 2008
November 10, 4:30-6:30pm Rotman Integrative Thinking Speaker Series Place: ITC Grand Central Hotel, Mumbai Presenter: Roger Martin, Dean and Professor of Strategic Management, Rotman School; Author Topic: The Opposable Mind: How Successful Leaders Win Through Integrative Thinking
December 2008
December 4, 5:00-6:30pm Institute for International Business @ Rotman Speaker Series Place: Fleck Atrium (ground oor), Rotman School Presenter: Edward Luce, Washington Bureau Chief, Financial Times and Author Topic: In Spite of the Gods: The Strange Rise of Modern India (Doubleday, 2007)
Thinking About Thinking: How Much of Yours Is High Quality?

10th Annual Rotman Life-Long Learning Conference
Register now for our 10th Annual Rotman Life-Long Learning Conference on May 30. The theme is Thinking About Thinking: How Much of Yours is High Quality? Were pleased to offer:
Conference Chair: Mihnea Moldoveanu, Professor and Director, Desautels Centre for Integrative Thinking, Rotman School and Author, The Future of the MBA: Designing the Thinker of the Future The Power of Thinking Without Thinking Malcolm Gladwell, Staff Writer, The New Yorker Magazine and Author, Blink: The Power of Thinking Without Thinking and The Tipping Point In conversation with Roger Martin, Dean and Professor, Rotman School of Management and Author, The Opposable Mind: How Successful Leaders Win Through Integrative Thinking Observations on Our Thoughtless Acts Jane Fulton Suri, Co-Chief Creative Ofcer and Director, Human Factors Team, IDEO and Author, Thoughtless Acts?: Observations on Intuitive Design Think Deep: Navigating the Unconscious Mind Gerald Zaltman, Professor Emeritus, Harvard Business School and Author, How Customers Think: Essential Insights into the Mind of the Market and Marketing Metaphoria: What Deep Metaphors Reveal About the Minds of Consumers
Friday, May 30, 2008 Four Seasons Hotel Toronto
Thinking About Your Firms Performance When You're Thinking About Thinking Anita McGahan, Professor of Strategic Management, Rotman School of Management and Author, How Industries Evolve: Principles for Achieving and Sustaining Superior Performance Predictably Irrational: The Hidden Forces That Shape Our Decisions Dan Ariely, Professor of Behavioral Economics, Fuqua School of Business, Duke University and Author, Predictably Irrational: The Hidden Forces That Shape Our Decisions (Feb 2008) Conrm your attendance today by registering at rotman.utoronto.ca/thinking We look forward to seeing you on May 30th!
105 St. George Street Toronto, Ontario, Canada M5S 3E6
Publication Mailing Agreement Number: 40062461

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Roger Martin interviews Gord Nixon Whats a CEO to do?

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