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Spring 2008

The Magazine of the Rotman School of Management / Spring 2008

What’s a CEO to do? Longevity RiskLighting the Way

Forward

The All-consuming Issue

The A

ll-consuming Issue

Thinking About Thinking:How Much of Yours Is High Quality?10th Annual Rotman Life-Long Learning Conference

Friday, May 30, 2008Four Seasons Hotel Toronto

Register now for our 10th Annual Rotman Life-Long Learning Conference on May 30. The theme is “ThinkingAbout Thinking: How Much of Yours is High Quality?”We’re pleased to offer:

Conference Chair:Mihnea Moldoveanu, Professor andDirector, Desautels Centre for IntegrativeThinking, Rotman School and Author,“The Future of the MBA: Designing theThinker of the Future”

“The Power of Thinking Without Thinking” Malcolm Gladwell, Staff Writer, The NewYorker Magazine and Author, “Blink: ThePower of Thinking Without Thinking” and“The Tipping Point” In conversation withRoger Martin, Dean and Professor,Rotman School of Management andAuthor, “The Opposable Mind: HowSuccessful Leaders Win ThroughIntegrative Thinking”

“Observations on Our Thoughtless Acts” Jane Fulton Suri, Co-Chief CreativeOfficer 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 Insightsinto the Mind of the Market” and “Marketing Metaphoria: What DeepMetaphors Reveal About the Minds of Consumers

“Thinking About Your Firm’s Performance When You're Thinking About Thinking”Anita McGahan, Professor of StrategicManagement, Rotman School ofManagement and Author, “How IndustriesEvolve: Principles for Achieving andSustaining Superior Performance”

“Predictably Irrational: The Hidden ForcesThat Shape Our Decisions”Dan Ariely, Professor of BehavioralEconomics, Fuqua School of Business,Duke University and Author, “PredictablyIrrational: The Hidden Forces That ShapeOur Decisions” (Feb 2008)

Confirm your attendance today by registeringat rotman.utoronto.ca/thinkingWe look forward to seeing you on May 30th!

20635 Cover 3/28/08 12:48 PM

Roger Martin interviews Gord Nixon

Nobel Laureate William Sharpe on

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Rotman Magazine Spring 2008 / 121

Upcoming EventsComplete details are available

May 2008

May 12, 5:45-7:30pmBook Launch for “Who Owns Canada Now: Old Money, NewMoney and the Future of Canadian Business”Place: Fleck Atrium (ground floor), Rotman SchoolAuthor: Diane Francis, Editor-at-Large, Financial Post

May 22, 5:30-7:30pmRotman Integrative Thinking Speaker SeriesPlace: Four Seasons Hotel ChicagoAuthor: Roger Martin, Dean and Professor of StrategicManagement, Rotman School; AuthorTopic: “The Opposable Mind: How Successful Leaders Win Through Integrative Thinking” Session Sponsor: Doblin Group

May 28, 8:00am-2:00pmAtlantic Business SummitPlace: Fleck Atrium (ground floor), Rotman SchoolSynopsis: the summit promotes “brain circulation” to enableAtlantic Canada and Toronto to benefit from the best of what each region has to offer through the free flow of capital, knowledge and creativityCo-Hosted by: Dalhousie University Faculty of Management; East Coast Connected; Rotman School

May 29, 6:00-11:00pmAnnual Rotman Alumni Reunion GalaPlace: Four Seasons Hotel TorontoDetails: 6:00-7:00pm, reception in honour of the MBA classesof 68, 88, 98 and 03 to celebrate their 40-year, 20-year, 10-yearand 5-year Reunions; 7:00-8:30pm, dinner, open to all Rotmanalumni and guests; 8:30-11:00pm, dancing

May 30, 8:30am-4:30pmAnnual Rotman Life-Long Learning ConferenceTopic: “Thinking About Thinking: How Much of Yours is HighQuality?”Place: Four Seasons Hotel TorontoChair: Mihnea Moldoveanu, Professor and Director, DesautelsCentre for Integrative Thinking, Rotman School and Author Speakers: Dan Ariely, Professor of Behavioral Economics, FuquaSchool of Business and Author; Malcolm Gladwell, Staff Writer,The New Yorker Magazine and Author; Roger Martin, Dean andProfessor of Strategic Management, Rotman School and Author;

Anita McGahan, Professor of Strategic Management, RotmanSchool and Author; Jane Fulton Suri, Co-Chief Creative Officerand Director, Human Factors Team, IDEO and Author; andGerald Zaltman, Professor Emeritus of Marketing, HarvardBusiness School and Author

October 2008

Date TBARotman Integrative Thinking Speaker SeriesPlace: New York CityPresenter: Roger Martin, Dean and Professor of StrategicManagement, Rotman School; AuthorTopic: “The Opposable Mind: How Successful Leaders Win Through Integrative Thinking”

Date TBARotman Integrative Thinking Speaker SeriesPlace: New York CityPresenter: Mihnea Moldoveanu, Professor and Director, DesautelsCentre for Integrative Thinking, Rotman School and AuthorTopic: “The Future of the MBA: Designing the Thinker of theFuture” (Oxford, April 2008)

November 2008

November 10, 4:30-6:30pmRotman Integrative Thinking Speaker SeriesPlace: ITC Grand Central Hotel, MumbaiPresenter: Roger Martin, Dean and Professor of StrategicManagement, Rotman School; AuthorTopic: “The Opposable Mind: How Successful Leaders Win Through Integrative Thinking”

December 2008

December 4, 5:00-6:30pmInstitute for International Business @ Rotman Speaker SeriesPlace: Fleck Atrium (ground floor), Rotman School

Times and AuthorTopic: “In Spite of the Gods: The Strange Rise of Modern India”(Doubleday, 2007)

20635 Cover 3/28/08 12:48 PM

Presenter: Edward Luce, Washington Bureau Chief, Financial

at rotman.utoronto.ca/events

The All-consuming IssueSpring 2008

4Balancing Multiple Stakeholders:What’s a CEO to Do?by Roger Martin Gord Nixon, Canada’s OutstandingCEO of the Year, discusses some of hisbiggest challenges and opportunities aschief executive of Canada’s largest bank.

14The New Consumerism: Inequality,Emulation and the Erosion of Well-Being by Juliet SchorSociety’s wealthiest tier has become awidespread emulative target, and there areimplications for our collective well-being.

20The Effects of Partitioning onConsumer Behaviour by Dilip Somanand Amar CheemaWhen a given quantity of a resource isphysically divided into smaller quantities,it reduces both the total quantity consumedand the speed of consumption.

26Consumption: The Happiness ofPursuit by John Quelch and Katherine JoczThe consumer in each of us can learnfrom the citizen, and the citizen canlearn from the consumer. Marketersmust learn from both.

32Social Innovation and SustainableDevelopment as Drivers of Growthby Patrick CescauFinding the ‘sweet spot’ between theneeds of consumers and our planet canbe the path to competitive advantage.

Features

38Energizing Cities: Lighting the WayForward by Janet Sawin and Kristen HughesCities can lead the way to a moresustainable future, improving the qualityof life for urban and rural dwellers alike.

44Hedonomics in ConsumerBehaviour by Claire Tsai andChristopher HseeTo maximize happiness, consumersmust accurately predict the emotionalconsequences of their options and makechoices based on those predictions.

50Tom Sawyer and the Constructionof Value by Dan Ariely, GeorgeLoewenstein and Drazen PrelecAs evidenced by ‘Tom’s Law,’ consumervaluations are malleable and have a surprisingly large arbitrary component.

56From Plague to Paradigm:Designing Sustainable RetailEnvironments by Steve Bishop and Dana ChoConsidering a shopper’s context is the key to making green products andservices relevant to them.

62Blurring the Lines: Why It’s Time toRethink Marketing by Yoram WindIt is time to develop new mental modelsthat reflect the complex inter-linkagesbetween modern consumers and business.

26

32

62

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Idea Exchange

70 Questions for: Seth Godin74 Questions for: Barry Schwartz77 Questions for: Alex Steffen 80 Point of View: Nicola Morrelli 83 Faculty Focus: Sridhar Moorthy85 Questions for: Marion Nestle 88 Questions for: Stuart Boden91 Faculty Focus: Pankaj Aggarwal 94 Questions for: David Lewis97 Questions for: Mathis Wackernagle

3From the Dean

10Thought Leader Interview: William Sharpe

101News Briefs

108 Alumni Profiles 110 Alumni Capsules 112 Alumni Network News113 Class Notes 121 Upcoming Events

In Every Issue

Rotman Magazine, Spring 2008 Rotman magazine is published three times per year for alumni and friends of the Rotman School of Management, University ofToronto. Subscriptions are available for CAD$99 per year. To subscribe, go to rotman.utoronto.ca/subscribe

Editor Karen Christensen ([email protected]) 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: [email protected] Web: rotman.utoronto.ca

1070 85

94

“We have way more ‘stuff’than we need, but notenough time to enjoy it.This is the quandary ofthe post-consumptionconsumer.”– Seth Godin, p.70

Rotman Magazine is printed on:

• Chorus Art Silk (pages 1-68). This paper is made from 50 per cent recycled fibre and 25 per cent post- consumer fibres.

• Cascades Rolland Enviro 100 Smooth (pages 69-120).This paper is made from 100 per cent post-consumerfibres and is chlorine-free.

These paper choices have spared approximately 110trees, 64,306 gallons of water and used 6,814 poundsof consumer waste.

Cert no. SW-COC-2063

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The All-consuming

IssueTHE LATEST BLACKBERRY; a country home; foreign travel. If you don’talready 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 con-sumption is our major form of reward for the long hours we workand the stress of daily life. Indeed, consumer expenditures are oftenthe means by which we keep our frenetic lives going, whether it bestress-busters like vacations or restaurant meals, the contracting-out of household services or the use of time-saving gadgets.

Consumption has gone well beyond satiating needs or even ful-filling dreams to become an end in its own right. Globally, theinequalities are stark: the 20 per cent of the population in the high-est-income countries accounts for 86 per cent of privateconsumption expenditures (the poorest 20 per cent, a minuscule 1.3per cent); the richest fifth consumes 58 per cent of total energy (thepoorest less than four per cent) and owns 87 per cent of the world’svehicle fleet (the poorest, less than one per cent).

Unfortunately, the results of our rampant consumption arebecoming increasingly apparent, and they aren’t pretty: our coverimage, from Seattle artist Chris Jordan’s ‘Running the Numbers:An American Self-Portrait’ exhibition, shows the two million plas-tic beverage bottles that are discarded every five minutes in theU.S. This issue of Rotman , which will be launched on Earth Day2008, examines how and why we consume, and how our choicesimpact the planet.

Our consumption habits are not only ecologically unsustain-able; for many they are also financially unsustainable. Consumptionpatterns are all-too-often supported by the assumption of increas-ingly-debilitating debt. Nobel Laureate William Sharpe discussesthe investment effects of ‘longevity risk’ and a new approach to sav-ing called a ‘lockbox strategy,’ on page 10.

Fifty years ago, we compared ourselves to our peers: theSmiths wanted the Joneses’ Chevy and nifty TV – not theRockefellers’ mansions and art collections. But the referencegroups we now use to calibrate our consumer aspirations havebecome more vertical and less horizontal, as Juliet Schor docu-ments in The New Consumerism: Inequality, Emulation andthe Erosion of Well-Being on page 14.

Over the past few years, people’s inability to control their con-sumption – of everything from goods and services to food – hasspawned much discussion. A large part of the problem stems fromall-too-easy access to resources. Rotman Professor Dilip Somanand his co-author have discovered a way to help control our variedappetites. They examine The Effects of Partitioning onConsumption on page 20.

Elsewhere in this issue, Unilever’s Chief Executive PatrickCescau explains how social innovation and sustainable develop-ment can be drivers of business growth on page 32; Wharton’s JerryWind explains why it’s time to rethink marketing models on page62; and our Idea Exchange features 10 thought leaders includingSeth Godin, Barry Schwartz and Marion Nestle.

At one end of the spectrum lies the conventional economic wis-dom that ‘consumption is good’ – that new-and-improved productsreally are improvements, and that consumption makes our livesbetter in some meaningful ways. At the other end are those whopoint to findings that once our basic needs are met, consumingdoes little to improve an individual’s well-being. We need to findsome middle ground between these two extremes, to seek waysthat consumption can be restrained and redirected in order toimprove prospects for human well-being and sustainability.

The amount of energy we consume is a result of two kinds ofchoices: those we make as a society and those we make as individu-als and families. We can’t all stop consuming, but we can start toconsume more thoughtfully by examining how our values fit withthe products and services we consume. I’m pleased to announcethat with this issue, Rotman Magazine is going ‘greener:’ the firsthalf of our magazine will be printed on paper with 50 per cent recy-cled content and 25 per cent post-consumer waste; and the secondhalf on paper made from 100 per cent post-consumer waste. Thesechanges mean that with each issue we will spare approximately 110trees and 64,306 gallons of water.

As consumers on a much larger scale, business faces one of themost important questions of our time: will it be a barrier to sustain-ability, or its greatest hope? At Rotman we believe that the latter isa possibility, and we are giving our students the thinking toolsrequired to shape our world for the better. Because we can, andbecause we must.

From the Dean:

Roger Martin

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4 / Rotman Magazine Spring 2008

Roger Martin: Global capital markets are in turmoil at themoment. What key challenges is RBC facing?Gord Nixon: We are living in a new world today – even relative towhere we were just six months ago. We’ve been through a ten year‘party’ where there’s been way too much consumed, and we’re nowdealing with a hangover that is painful and will last a lot longer thanpeople expected. Our key challenge in the short term is navigatingthrough these choppy waters. Every day there are new challengesin the market – for instance, write downs as a result of what startedoff 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 alarge global financial institution in a world where markets are indisarray – some might even say crisis – isn’t easy. As the crisisspreads into the general markets –from Bay Street and Wall Streetto Main Street – the operating environment for corporations and

financial institutions will be more difficult than it has been in quitesome time. GDP growth of three or four per cent and financialservices growth of six or seven per cent – which we’ve experiencedrecently – is just not going to happen. So making sure that we manageour organization effectively in a much more difficult operatingenvironment is challenge number two. Being very diligent from arisk management perspective will be essential over the next coupleof years. A lot of mistakes have been covered up in our industry bythe great markets of recent years, but that is no longer the case.Operational excellence is more important than ever.

And on the opportunity front?For firms (such as ours) that have managed through the turmoileffectively and maintained a strong credit rating, I think it willpresent opportunities as credit spreads widen globally. It’s not

BALANCING MULTIPLE STAKEHOLDERS:

WHAT’S A CEO TO DO?

Canada’s 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 Canada’s largest bank.

Interview by Roger Martin

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necessarily a good thing for borrowers, but it should be positivefor firms that have the ability to extend their balance sheet andtake advantage of the situation. Over the last five years there hasbeen a tremendous amount of leveraging and disintermediation,but I think there will be far less of that; in fact, I think we’ll see areversal of this trend, and that things like balance sheets, customerrelationships – some of the things RBC does well – will becomeeven more valuable.

Many of our competitors are dealing with the industry turmoilby restructuring their businesses, and I think we’ll see anotherround of consolidation – breaking-up of companies because themarkets demand it or because balance sheets and capital require-ments demand it. All of that creates opportunities. As a financialservices firm, you want to be in a position where you’ve got a highdegree of optionality to take advantage of these opportunities,whether it be through acquisition or allocating capital to businessesthat have high returns. We aim to maximize our optionality asthings unfold over the next couple of years.

You were recently quoted as saying, “Welcome to the newworld of investing, where guilt and pride are becoming as mucha part of the mix as ROI.” What did you mean?I was referring to a media article that was circulating at the timeabout a woman who was very proud of her returns in tobaccostocks, but was too embarrassed to admit to her friends that sheactually owned tobacco stocks. This was discussed at a workshopwe held on the importance of sustainable and responsible investing.There is no question that in today’s world, returns remain a veryimportant criteria from an investment perspective; but how peoplegenerate those returns – what they invest in, and governancearound responsible investing – are becoming equally important.Not to suggest that guilt and pride necessarily compromise returnon investment: the good news is that they are not mutually exclusive.

RBC was recently named by Newsweek as the top large companyin the world at effectively managing environmental risks; con-gratulations! Tell us about one of your latest initiatives, ‘TheBlue Water Project.’There is no shortage of environmental issues that we could havechosen to support, but we believe that access to water will be the

most significant issue facing the world in the coming decades.Only three per cent of the Earth’s supply of water is fresh, and thisprecious supply will be threatened even further as we embark onan era characterized by climate change and population growth.The need for better fresh water management is critical becauseeveryone on the planet needs fresh water. Shortages and access toclean water are already a growing problem, everywhere from Africato Australia to California. The Blue Water Project is a $50-mil-lion commitment over the next 10 years by RBC to support glob-al solutions for freshwater preservation, conservation and access inCanada and around the world. We felt it was important to focus onan area where we can make a difference, and where there’s a natu-ral affiliation with our brand (since Canada has one of the world’slargest supplies of fresh water.) To kick off the RBC Blue WaterProject, we announced a commitment of $10 million over 10 years– the largest donation in our history – to the ONE DROPFoundation to support a host of water projects in Canada anddeveloping nations. As a founding partner of ONE DROP, we areproud to join forces with another Canadian organization, Cirquedu Soleil, to make a difference in the world.

You have earned a reputation for being outspoken on some keynon-financial topics, including diversity and Canada’s prosperi-ty. Why are these issues so important to you?Rightly or wrongly, CEOs – along with business school deans – areput in a position where we have the ability to speak out on issueswe believe are important. Obviously Canada’s prosperity has a bigimpact on RBC’s ability to succeed, because while international mar-kets are increasingly important to our organization, our mostimportant market is right here in Canada. You and I co-authored anarticle for The Globe and Mail last July [“Growing Global Leaders:The Hollowing-Out Solution”], so I know we agree that Canada isnot necessarily maximizing its potential globally. I have tried totake a fairly public position in terms of ensuring that our views onthese important issues are heard, to ensure that Canadian business-es – small, medium or large – have every advantage and capabilityrequired to compete globally.

The diversity issue is very much related to prosperity, becauseit’s an issue of human resources. We all know about Canada’s demo-graphics: we have an ageing population and a shortage of skilled

Over the last five years there has been a tremendous amount of leveraging anddisintermediation, but I think there will be far less of that; in fact, I think we’ll see a reversal of this trend.

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workers, which will soon intensify. Canada is a wonderful exampleof the value of diversity, and this is an opportunity for us to maximizethe return we can get from the massive human resource potential inthis country. While we are a shining example of successful multicultur-alism, we are not without our problems: a tremendous number ofimmigrants come to Canada every year, and we have not done agood job of maximizing their potential. This is very important toCanada’s – as well as RBC’s – future.

Have you seen any progress since our Globe and Mail articleappeared?The article definitely helped to put these issues on the front burner,where they belong. Since then, the government has put together aCompetition Panel, under Red Wilson, to look at what somepeople like to refer to as Canada’s ‘hollowing out.’ In our article wewent out of our way to say that people should stop talking abouthollowing out, and just talk about how to maximize Canada’s com-petitive position in the world, and that’s precisely what this panelis looking at.

There has also been a separate commission formed to look attaxation – which I consider to be the ‘grandaddy’ issue of them all.Whenever I talk about tax issues I am perceived as a greedy CEOlooking to generate more after-tax earnings for his organization,but the truth is, we are no longer competing against other banks ortelecommunications companies or mining companies down thestreet or across the country: we are competing on a global stage,and when people make decisions in terms of where they want toallocate capital or set up head offices, a number of factors comeinto that. That’s why the work being done at the MartinProsperity Institute by Richard Florida and his team is soimportant. They are focusing on all of these issues, which at theircore revolve around human issues like diversity and culture; butthey also revolve around taxation, because when we allocate capital,we have to make fiduciary decisions based on where we can maximizeour return, and Canada is undeniably a high-tax jurisdiction. Ouraggregate taxation rates in this country are actually quite competitiveby international standards, but at the corporate level, we have veryhigh marginal effective tax rates. We must continue to makeprogress on this front, because we’re competing not just with theU.S. but with Scandinavian countries and Singapore and Ireland –not to mention emerging-market countries, all of which have veryaggressive tax rates in terms of attracting investment.

How is RBC dealing with emerging markets?I just got back from India last week, where we opened a newbranch office. The challenge for us is quite different from otherbanks like HSBC, which actually has a history in emerging markets.It’s important to recognize that our competitive strengths revolvearound our history and track record in Canada and our strengthsin Europe and the U.S. Hundreds of foreign banks are now oper-ating in China and India, but the vast majority of them will not besuccessful – notwithstanding the fact that those markets may begrowing at 10 to 12 per cent a year. The key for RBC is to find areas

where we can play into our competitive strengths, and that’s whatwe’re trying to do in both China and India. Areas where we arestrong globally – like global private banking, wealth managementand our capital markets and trading businesses – are our focus inemerging markets. I’m proud to say that in China, while we arenot large in terms of scale, we are profitable, and we will continueto build on that. But we have to be patient and make investmentsfor the long term.

Do you think we will see more of the ABN-AMRO ‘consortiumapproach’ – where firms get together and buy things up, thensplit up the proceeds? I do think there will be a lot of restructuring in the industry. Theproblem with consortium bids is that they’re very difficult to execute.The one you mention is one of the only ones in the financialservices sector. I was actually directly involved in the merger of thethree telephone companies in Atlantic Canada many years ago, andI can tell you that two-party transactions are complicated enough,but when you get into three or four parties it gets extremely com-plicated. Having said that, I think the answer is yes, we will seemore of it, and there is a good chance we will also see the break-upof some large financial services companies, either because theirbalance sheets will demand it or their investors will demand it.We’ve already seen that with the hedge funds pressuring banks likeCitiGroup, UBS, HSBC and others to look at breaking up theiroperations, to separate their investment operations from theirwealth management operations; as that pressure builds and trans-actions happen, I think we’ll see opportunities and different waysfor organizations to take advantage of those assets that are sold orparcelled and then broken up.

How does Canada’s banking system stack up globally?Our banking system is a shining example in the world today – andnot just because we haven’t suffered as much as some of the U.S. orEuropean banks. If you look at the delivery of financial serviceswithin this country, at the quality of the technology and the prod-ucts that are provided, it’s something we don’t get much credit for.It’s a lot easier to be critical of the big banks and beat them up thanit is to recognize their strengths; but I can tell you that interna-tionally, Canada’s banking and financial system is something thatpeople should be very proud of. If you don’t believe me, go and dosome banking in the U.S. or somewhere in Europe, where you willpay a lot more, and you won’t get the same services or technologythat you get right here in Canada.

With respect to RBC, we are clearly the most diversified of theCanadian banks: we are number one or two in virtually every sec-tor of the financial services industry in Canada, not just banking(where TD is a fierce competitor) but asset management, creditcards, wealth management, insurance and capital markets. Whilewe continue to invest significantly in all areas of financial services,most of our Canadian competitors tend to focus more on one ortwo areas. One question that I get from time to time is, ‘are youbig enough to be involved in so many areas?’ This is a very good

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strategic question: should you be focused and dedicate a lot ofyour capital to just one area or are you better off to be diversified?My view is that there is no right or wrong answer. For RBC, diver-sification has been a very sound strategy. Frankly, it’s provided uswith some degree of stability as our businesses perform different-ly in different environments. For example, we are very invested inthe capital markets business relative to many of our competitors,but some of the diversification of our earnings has been very ben-eficial as the capital markets business has gone through a difficulttime in its cycle.

What is coming down the ‘strategic pipe’ at RBC?On the personal commercial banking side and the wealth manage-ment side of our business, we’ve been investing outside of Canada –both in the United States and internationally. One of our recentacquisitions is Alabama National Bank, a 1.6-billion dollar acqui-sition that reflects our ongoing intention to build our SoutheastU.S. banking capability. We now have about 430 branches in theSoutheast and very strong presence in North Carolina, Alabama,Georgia and Florida. In addition to that, we’ve been looking at a lotof opportunities in the wealth management business both in theU.S. and elsewhere. As a result of what has happened in the inter-national markets, we may be presented with opportunities to dosome things that are more transformational in nature; we want tobe well prepared to respond in the event that certain opportunitiespresent themselves. However, we would never buy a business forthe sake of expanding our operations if it were not consistent withour competitive strengths. There has been – and will be – lots forsale: one of the blessings of financial services (but it can also be acurse) is that we generate a lot of capital, and one of our mainresponsibilities 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 sakeof investing.

For those in the audience who aspire to reach the CEO-levelone day, what advice do you have?There is no such thing as a prototypical CEO, but I would say thatone of the things that is important in terms of building a career ispaying attention to mentorship. It’s very important for organiza-tions to provide mentoring opportunities, and it’s a two waystreet: we need to step up as mentors too. This has certainly beenvery important to my career. In addition, particularly in largecompanies, the ability to work with different types of people andbuild consensus, to develop a common purpose and a sense of

teamwork within an organization is extremely important. Thedays of aggressive autocratic CEOs are by-and-large gone. As aCEO you have to constantly be looking for ways to improve yourmanagement capability and your interface with people. I knowwhat my personal strengths and weaknesses are: people aren’t shyabout telling you these things, particularly when it’s done confi-dentially (which is the way we do it.) Overall, you are only as goodas your people: I’m only as good as my management team, andthey are only as good as their operating committees, and the oper-ating committees are only as good as the 70,000 employees whomake the bank work day in and day out.

What would you like your legacy to be?In my view, true legacies are built by people like Ted Rogers, IssySharp, Peter Munk and Jim Balsillie – people who create companiesfrom scratch and build them into large organizations over anextended period of time. When you look at most large public com-panies, Royal Bank included, we have a 140-plus year history, andthe average tenure of a CEO is somewhere between five and tenyears. If every CEO was just trying to build their own legacy, half ofthem would be spending their time unwinding their predecessor’slegacy. CEOs of large public companies inherit great legacies, andthat’s what I’ve done at RBC. Our organization has been built upover many years by a lot of wonderful individuals, including theleaders 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 extremelydynamic. CEOs should be accountable for ensuring that theirorganizations continue to move forward and evolve. When I lookback at my time as CEO, in five years we’ve gone from the 51st

largest bank in the world to 19th, and sixth in North America. Ofcourse I’m proud of that; but part of it is due to the investmentswe’ve made and our operational performance, and part is a result ofthe mistakes that our competitors have made – investments thathave actually destroyed value. Assuming that I remain with theorganization for a number of years going forward (which hopefullyis a fair assumption) I want to look back and say that I took anorganization that was strong and successful and had a great history,and I made it even stronger and more successful, with an evengreater history.

This interview took place at the Rotman School on February 13, 2008. For more about Canada’s Outstanding CEO of the Year for 2007, visit ceoaward-canada.org/history

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There are lots of mixed messages out there for financialservices consumers. In your view, what are the key steps tofinancial security?The first thing I would suggest is that people get good, realisticforecasts of where they’re likely to end up in retirement if theycontinue to do what they are currently doing. And by realistic, Imean taking into account not only how good it could be, but thebad and the ugly, so that they have some realistic view of theirfuture if they continue to do what they’re doing. Having donethat, they can begin to ask the hard questions: “Should I savemore?” (very often, the answer is yes.); “Should I take a differentamount of risk?”; “Am I diversified sufficiently?”, etc.

Second, people need to invest their savings in efficient andlow-cost ways, and choose investments that are consistent withtheir circumstances, their other assets and their tolerance forrisk. At retirement time, decisions need to be made concerningthe funds that have been saved: should you buy annuities? If so,what types, and how much money should be annuitized? If fundsremain, how should they be invested and spent over your retire-ment years? These are all difficult decisions, and they must bemade as thoughtfully as possible.

You have devoted much of your career to the study of marketrisk. Do today’s investors focus enough on the downside?Unfortunately, many investment decisions are being made by indi-viduals who are ill-prepared to make them. To say to someone, ‘hereare 8,000 mutual funds’ – or even ‘here are 10 – do what’s right’, isnot very helpful. The software and some of the human advice peo-ple are getting often seems to ignore risk. These are bookkeepingschemes in which you earn nine per cent every year like clockwork,and you die right on schedule; there’s no uncertainty at all. Making

a decision as to ‘stocks vs. bonds vs. cash’ and about how much tosave, without acknowledging uncertainty – let alone trying to esti-mate 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?Living longer entails the need to either save more, work longer, ordo both. It would be nice if there were some simple way to earnmore on investments, but once the inefficiencies have been wrungout of an investment program, there is no way to accommodateincreased longevity without incurring the pain of consuming less,working longer, or both.

One of the most popular retirement strategies involves annu-ally spending a fixed amount equal to four per cent of initialwealth and rebalancing the remainder to a 40/60 per cent mixof bonds and stocks. What do you think of this approach?My colleagues and I have addressed the ‘four per cent rule’, andwe believe it is inefficient to couple a desired fixed-spendingprocess with a variable and uncertain investment strategy. Astypically implemented, it runs the risk of running out of moneywithin the intended period and the risk of having money leftover after the period ends. It is possible to obtain the same out-comes with the same probabilities at a lower cost. In recentresearch we estimated that in a typical setting, such an approachmay be equivalent to throwing away 10 to 20 per cent of one’sretirement savings. For all of these reasons, we believe that thiswidely-advocated ‘rule of thumb’ is not a good approach. Theproblem with traditional retirement security strategies is thatthey are split into two parts: an investment strategy and aspending policy. These really need to be integrated.

The Nobel Laureate and Stanford professor discusses longevity risk, the inefficiencies of the four-per-cent rule,

and the importance of a lockbox strategy.

Thought Leader Interview:

William Sharpeby Karen Christensen

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In a recent paper (“Efficient 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 hasdecided to devote a given amount of savings to spending in futureyears. The idea is to assess the individual’s preferences for variousamounts of consumption in each future year, his or her risk toler-ance vis-à-vis spending at various times in the future, currentwealth and other sources of income, and then determine an overallplan. Part of this plan involves allocating current funds to a seriesof ‘lockboxes’, each of which is designed to provide spending in agiven future year. Thus one might put, say, $20,000 in a lockboxfor the year 2020. The box would also include instructions for themanagement of the money from the present to the terminal year.Different boxes could well have different investment managementstrategies, as well as different amounts of initial funding.

In the paper I show that in a so-called ‘complete’ financial mar-ket, any spending and investment strategy can be implemented witha lockbox approach. Of course the notion of a ‘complete market’ isjust a convenient assumption often made by economists; real finan-cial markets do not fit this ideal. Nonetheless, investmentoutcomes that people might actually wish to achieve could well beobtained with existing financial instruments. Alternatively, if therewere sufficient demand for a particular set of outcomes, the finan-cial services industry would undoubtedly create appropriateinstruments. Some current approaches to retirement investmentand spending can be implemented now with the lockbox approach.

An important consideration that makes lockboxes attractive isthe fact that in our later years, our ability to make optimal decisionsmay be diminished; so in a sense, the lockbox approach allows anindividual to make decisions for his or her ‘elder self.’ This does notmean that lockboxes cannot be opened prematurely to obtain addi-tional funds, nor that all the money in a lockbox must be spent inits designated year. But there are many advantages associated withthe intentions reflected in a lockbox strategy. Moreover, it is morelikely to provide efficient investment outcomes than some rules ofthumb that treat all of your savings as a single portfolio.

You have said that investments with higher expected returnstend to be those that do the worst in bad times. Why is this?Some investments do have higher expected returns than others,and by and large, they’re the ones that do the worst in bad times.This is the standard result of asset pricing theory, be it the CapitalAsset Pricing Model or the more general approach utilizing pricingkernels. The fundamental idea is that goods that are scarce com-mand higher prices than those that are plentiful. If this were not

the case, people would want more of the former than the latter,which is infeasible. In future states of the world where markets arebad, there is less money, and hence people will pay more for apromise to receive $1 in a down market than for a promise toreceive $1 in an up market. This leads directly to higher expectedreturns for investments that are expected to do worse in bad times– that is, provide fewer of the expensive dollars and more of thecheap ones. In this context, ‘bad times’ refers to situations inwhich a broadly-diversified portfolio of financial securities of alltypes does badly. For example, one might want to think about the‘World Market Portfolio’, including all traded bonds and stocksaround the globe.

You have noted that a gulf exists between economists’approach to retirement strategies and the 'rules of thumb'used by financial advisors. How can the average investor navi-gate this gulf?The average investor should definitely get advice from a person ororganization that listens to what the economists are saying.

Do you believe that Behavioural Finance is making a positivecontribution to the discipline of Financial Economics?It is making – and will continue to make – a significant contribu-tion, but it is important to differentiate between two things: assetpricing and portfolio choice. There are asset prices – risk andreturn and all that – and there are the portfolios people hold. In hisbook The Wisdom of Crowds, James Suroweicki sensibly refers to alot of behavioural work and efficient markets work. The basicargument is that if we have enough people, even though they maybe ill-informed and irrational coming to market, it is entirely pos-sible that the prices of assets, thereby true risks and returns, arewhat you would get if they were all rational and well-informed.Bob Merton and Zvi Brodie have made the same point that cap-ital markets can give you results that are consistent with thesealmost-silly models in which everyone knows everything andeverybody is perfectly rational; and that those models can be goodin terms of prices, risk and returns and all the rest. Even thoughpeople’s portfolios are widely divergent from the market, I thinkwhere behavioural research can really help – and I have been a fanof it since the 1970s, long before it became popular – is in helpingus to understand what people do and why.

Do you use behavioural research at your firm?Yes, we spend a lot of time using it to help people make sensibleportfolio decisions. But I remain skeptical about using it to try to‘beat the market.’

Some investments have higher expected returns than others, and by and large, they’re the ones that do the worst in bad times.

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You received the Nobel Prize for your Capital Asset PricingModel (CAPM). Please describe it.The basis of the CAPM is that an individual investor can chooseexposure to risk through a combination of lending-borrowing anda suitably composed (optimal) portfolio of risky securities. Everyinvestment carries two distinct risks: the first, the risk of being inthe market – known as systematic risk or ‘beta risk,’ cannot bediversified away. The second type – unsystematic risk – is specificto a company’s fortunes. Since this uncertainty can be mitigatedthrough appropriate diversification, a portfolio’s expected returnhinges solely on its beta – its relationship to the overall market.CAPM was the first efficient capital market theory. It concludedthat only one type of risk would be rewarded with higher expect-ed return – the risk of doing badly in bad times. Such risk was stat-ed in terms of a ‘beta’ value. For example, a security or portfoliowith a beta of 0.5 would be expected to fall half as much as theworld market portfolio in a bear market (for example, five percent if the market fell 10 per cent.) A security or portfolio with abeta of 1.5 would be expected to fall 1.5 times as much (15 per centif the market fell 10 per cent). The higher an asset’s beta (badnews) the greater its expected return (good news). In a CAPMworld, only beta risk is rewarded.

How has CAPM evolved since you created it in the 1960s?Asset pricing has evolved significantly. People – myself and others– went on to what I call ‘extended’ capital asset pricing models, inwhich expected return is a function of beta, taxes, liquidity, divi-dend yield and other things people might care about. Much of thecurrent theory and practice can be traced more directly to thestate/preference work of Arrow and Debreu than to themean/variance approach of Harry Markowitz and the CapitalAsset Pricing Model. However, the two are related, and the lattercan be considered a special case of the former. I discuss theseissues in my latest book. The fundamental idea remains that there’sno reason to expect reward just for bearing risk. Otherwise, every-one would head for Las Vegas. If there is reward for risk, it’s got tobe special: there must be some economics behind it, or the worldis 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 singlenumber to summarize the desirability of an overall investmentstrategy, what would it be? My answer many years ago was a ratiothat I called the ‘Reward-to-Variability Ratio’ and others called theSharpe Ratio. The numerator is the expected return over andabove a riskless rate of interest; the denominator is the standarddeviation of that difference. Thus higher expected return leads toa better ratio, as does lower risk. The basis for the measure is theassumption that the investor can lever a portfolio up or down toobtain the most desirable level of risk and expected return, so thata portfolio with a higher Sharpe Ratio will dominate one with alower ratio at every possible level of risk.

Of course, we have computers now, so we don’t need to rely ona ‘single number’ to rate alternative strategies. Moreover, for

components of an overall portfolio we need other approaches.One, often called the Information Ratio, is equivalent to a SharpeRatio in which a benchmark portfolio is used instead of a risklessasset when computing the expected value and standard deviation.It is also the case that when a measure such as the Sharpe Ratio isused with ex-post realized results, the value is at best an approxima-tion of what one might expect in the future, and the latter is whatmatters when making investment decisions.

In November of 2007, your firm [Financial Engines] announcedthat it had reached $15 billion in assets under management –over double what you started the year with ($6 billion.) How didyou achieve such remarkable growth?We began directly managing individuals’ 401(k) accounts relativelyrecently. As the number of plan sponsors choosing us as theprovider of managed accounts has increased, the number ofemployees who can use our services has increased. Moreover, as we‘roll out’ our services to employees within a plan, the numberchoosing to have us manage their assets increases. Since we are farfrom a steady state in this area, our assets under management haveincreased substantially.

You believe that the principles of good investing can be sum-marized in four verbs: Diversify, Economize, Personalize andContextualize. Please explain.First, Diversify, Diversify, Diversify: one should hold many types ofassets in order to minimize the impact on the portfolio of any sin-gle type of risk. The closer you come to holding the entire marketportfolio, the higher your expected return for the risk you take.Second, Economize: money should only be spent on things likeinvestment management fees and trading costs when there is rea-son to believe that the reward will be great enough to offset thecost. Third, Personalize: when investing, take into account yourcircumstances and the things that make your situation unique,especially the risks you face outside the financial markets. As anextreme example, imagine that all you eat is chocolate. In thatcase, you’d want to invest more in the stock of candy makers sothat if they raise prices, your food will cost more but your stockwill go up. Lastly, Contextualize: have a well considered view of themanner in which asset prices are determined in capital marketsand the resultant trade-offs of risks and expected returns.Remember, if you bet that market prices are wrong (by investingheavily in a single stock or sector), you have to be able to justifywhy you are right and the market isn’t. Asset prices are not deter-mined by someone from Mars. Not yet, anyway.

William Sharpe is the Stanco 25 Professor of Finance, Emeritus atStanford University’s Graduate School of Business, where he hastaught since 1970. The founder of Financial Engines Inc., he receivedthe Nobel Prize in Economic Sciences in 1990. His latest book isInvestors and Markets: Portfolio Choices, Asset Prices, and Investment

Advice (Princeton University Press, 2006).

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The top tier of society’s income and wealth distribution has become a widespread emulative target, and there are implications for consumersatisfaction and collective well-being. by Juliet Schor

ONE OF THE MOST SALIENT CHARACTERISTICS of the 1990s boom inNorth America was the extent to which income and wealth flowedto the top 20 per cent of the distribution. While this phenomenonhas been widely studied, little attention has been paid to how thisshift in wealth distribution affected developments in the consumersphere. In my view, it is associated with a marked shift in both theideology and practices of consumers, which I have termed ‘the newconsumerism.’

The essential features of the new consumerism are a change inthe operation of reference groups and a shift from a model of con-sumer emulation characterized by ‘horizontal’, or proximatecomparisons, to one dominated by ‘vertical emulation’. This shifthas enormous consequences for consumer satisfaction, social com-petition and ultimately, collective and personal well-being.

In contrast to the dominant approach of Economics, I takethe point of view of other social sciences such as Anthropologyand Sociology, that consumption is primarily a social process,and that in societies such as ours, much of the function andmotivation for consumption derives from social communica-tion and symbolic action, rather than the drive to meet basicneeds such as food, shelter or clothing. Indeed, we create ourculture and the quality of social connection through our con-sumption practices.

Vertical EmulationThe new consumerism is distinguished first and foremost by anunusually large increase in the dominant norm of consumer aspira-tion. The previously dominant ideal of ‘comfort’ has been replacedby a norm of ‘affluence’ or ‘luxury.’ In structural terms, this can bedescribed as a shift to a situation in which the upper 20 per cent ofthe income and wealth distribution (whose consumer patterns areroughly synonymous with affluence and luxury) becomes a wide-spread 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’ toone of ‘keeping up with the Gateses’ (Bill and Melinda, that is.) Infact, the Gateses are not really the emulative target. The dominanttarget is an upper middle class lifestyle, roughly speaking, a style oflife that is attainable on a $100,000 and higher annual income. In1999, the average income level of the top 20 per cent was$144,000 and the bottom of the quintile was about $90,000 (in2005 it had risen to $103,000.) Gates does become a more relevanttarget within the top 20 per cent, where a similar process of morevertical emulation has also occurred.

To make this shift clearer, let us consider the ‘old consumerism.’This is the world of James Duesenberry, whose 1949 classicIncome, Saving and the Theory of Consumer Behaviour outlined a


THE NEWCONSUMERISM: INEQUALITY, EMULATION, AND THE EROSION OF WELL-BEING

20635 14-19 4/2/08 6:27 PM Page 15

During the 1980s and 1990s, the

economic resources and consumption

levels of the top 20 per cent increased

far more rapidly than those of the

bottom 80 per cent, whose income and

wealth mainly stagnated.


model in which consumer aspirations and expenditures wereprompted by comparative processes that were mainly horizontaland proximate. Writing about the post-war United States,Duesenberry’s model fit a world in which increasing numbers ofpeople were being incorporated into the suburban middle-class andthe social structure was getting far more homogeneous.

The phenomenon of ‘keeping up with the Joneses’ was mainlyneighborhood 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 Duesenberrycalled ‘demonstration effects’) led to consumer desire and thenpurchase. Because neighborhoods are relatively economicallyhomogeneous, these processes tended to be economically proxi-mate – that is, Smiths and Joneses were of roughly similareconomic status and consumption comparisons were mainlyintra-class. Furthermore, the growing equality of the income dis-tribution during this time fostered proximate comparison, as didhigh levels of domestic labour and active neighborhood sociabili-ty. These were the structural features that would change,triggering the shift to the ‘new consumerism.’

Tracing the causesAt least three factors led to the demise of ‘old consumerism’ and thedevelopment of a new emulative process. The first was the dramat-ic growth in income and wealth inequality that has occurred overthe last 20 years. The U.S. has recently gone through a period ofunprecedented increase in inequality. This reversal of the equalizingtrend began in the 1970s, but the major growth in inequalityoccurred during the next two decades. During the 1980s and 90s,

the top 20 per cent of the distribution increased its share dramati-cally, while the bottom 80 per cent lost considerable ground.

According to analyses of the U.S. Federal Reserve’s Survey ofConsumer Finances, between 1983 and 1998, the top 20 per centincreased its share of total income from 51.9 per cent to 56.2 percent and its share of net worth rose from 81.3 per cent to 83.4 percent. Furthermore, within the top 20 per cent there was also aworsening of inequality: the share of net worth held by the topone per cent rose from 33.8 to 38.1 per cent over this period andtheir share of total financial wealth rose from 42.9 to a stunning47.3 per cent. Unlike previous economic booms, the 1990s boomdid not yield a more equitable distribution of income and wealth.The shares of income, net worth and financial wealth of the bot-tom 80 per cent all declined.

Second, levels of income and wealth of the top 20 per cent rosesignificantly. For example, the mean income of the top 20 per centrose from $121,700 to $147,000 between 1982 and 1997 and averagenet worth rose from $864,500 to $1.126 million between 1983–1998.Among the top one per cent, average income rose from $602,700to $869,800 and net worth from $7.125 million to $10.204 million.By contrast, incomes were relatively stagnant for the next 80 percent, with a roughly 10 per cent gain for the second quintile, andvirtually no gain for the next 60 per cent.

The effects of the changing income distribution on consumptionaspirations and expenditures were significant. The growing level andshare of the top 20 per cent led to a boom in luxury spending (whateconomist Robert Frank has called ‘luxury fever’) which reached itsapex at the end of the 1990s. The upper middle class and the wealthyspent profligately and highly visibly. The culture of consumer excess

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could be seen in the growth of McMansions; the proliferation ofJaguars, Porsches and other luxury cars; $20,000 outdoor grills,$17,000 birthday parties for 12-year-old girls; diamond-studdedbrassieres; professional quality appliances for people who are neverhome to cook; designer clothes for six-year olds; and bed sheets at athousand dollars apiece.

Trends in housing exemplify this consumer upscaling. Since1987, the fraction of new homes that are larger than 2,400 squarefeet has risen from 21 to 34 per cent, and the fraction with four ormore bedrooms has risen similarly. The average ratio of lot size tohome size has plummeted from 9.24 to 5.74, as buyers try to packmore status onto smaller plots. Consumer preferences in housingfeatures, luxury amenities and so forth have similarly increased. By1996, 43 per cent of the population desired a second, vacationhome, up from only 19 per cent in 1975, and 36 per cent (comparedto 14 per cent) wanted swimming pools. Analyses of trends in vehi-cles, apparel, jewelry, tourism, consumer electronics, householdappliances, and many other consumer categories would yield simi-lar conclusions: we have increasingly been buying more andhigher-priced consumer goods and services.

The second and third factors that led to the shift toward verti-cal emulation are tied to the decline of the neighborhood as a‘social site’, and the rise of two alternate sites of sociability: theworkplace and the make-believe world of television.

In the old consumerism, people learned about consumer trendsthrough extensive face-to-face contact. They socialized in eachother’s homes. The 1950s and 60s were a period of high levels ofcivic engagement and neighborhood socializing. Women mettogether in morning ‘coffee klatches;’ they talked together at play-grounds and schools; they entertained in ‘cocktail hours.’ Thisfostered the horizontal, proximate consumer comparisonsdescribed earlier.

By contrast, the decline of the neighborhood as a site of socia-bility led to new patterns of socializing. The first was the rise ofthe workplace as a site of social interaction. As increasing num-bers of married women entered the workplace, particularly thosewith college educations, they entered hierarchical organizationsin which they interacted with people of higher corporate rankand position. At the innumerable office and networking meetingsthat characterize professional and managerial work, consumerinformation was shared: women discussed vacation plans, schoolchoices, children’s extra-curricular activities, and home remodel-ing projects. They displayed designer wardrobes, jewelry,watches, and new cars. But because the corporation is a morehierarchical organization than the neighborhood, women wereincreasingly exposed to the consumer choices of those abovethem, fueling vertical aspiration.

The third factor was the media. Since the 1970s, people havebeen interacting less with their neighbors, families and friends.Harvard political scientist Robert Putnam has found declining

levels of informal socializing, neighborhood socializing, gameplaying, getting together in restaurants and other activities.Instead, people are spending far more time with media, and inparticular television.

The media has two important functions in fostering the newconsumerism. First, it has served as a major conduit of informationon the consumption patterns of the top 20 per cent. This is prima-rily through the special sections of newspapers (home and garden,technology, fashion, food), magazines, television shows devoted tolifestyle, and to some extent, movies. The second effect, especiallywith television, is that it imparts an upward bias on an individual’ssense of the prevailing consumer norms by depicting lifestyles atlevels that are far above the actual norm.

Television and the movies vastly over-represent the prevalenceof the wealthy and very-wealthy, and they tend to depict the ‘aver-age’ household at a lifestyle which is in fact at the upper middlelevel (or above). Studies have shown that people who are heavy TVviewers greatly overestimate how the average American lives andthe possessions they have. This effect, I argue, is responsible formy finding that television watching is positively correlated withconsumer expenditures and negatively correlated with savings.With respect to the growth of new consumerism, what is particu-larly relevant is the large increase in TV viewing time amongconsumers in the latter part of the 20th century. Increased elec-tronic media use coupled with declines in informal sociabilityresulted in a situation where consumers increasingly got theirinformation and had their desires stimulated not in face-to-facesettings, but through the media.

The result of these three shifts (in wealth and income distribu-tions, of women out of the neighborhood and into corporatehierarchies, 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 isnecessary have shifted to include former luxuries; the non-materi-al components of what is considered ‘the good life’ – things like ameaningful job, children and a happy marriage – have declined;and the material components – having a job that pays a lot morethan the average job, having a really nice wardrobe, a secondhome, a second car, and owning other consumer products – haveall increased substantially.

The Aspirational GapThe simple economics of vertical emulation suggest the ongoingproblem of what I call ‘the aspirational gap.’ If most of the popula-tion desires an affluent lifestyle (for which a $100,000-plusincome is necessary but median income is only half that), aspira-tions will be frustrated.

Because the economic resources and consumption levels of thetop 20 per cent have increased far more rapidly than those of thebottom 80 per cent, the middle and lower-middle classes have had

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difficulty keeping up with a rising aspirational target, and manyhave responded by reducing their savings: household savings haveplummeted for the past two decades from roughly eight per cent ayear 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 forhouseholds in the $50,000-$100,000 range, and one result wasrecord numbers of personal bankruptcies, which have risen substan-tially for two decades (from about 200,000 per year in 1980 to about1.4 million currently). The fraction of households without any assetsgrew substantially, the fraction in debt increased, and those livingwithout health insurance and retirement provisions rose.

Households also added extra earners and increased their work-ing hours in order to keep up with rising income requirements.Average annual hours (not including the impact of involuntaryunderemployment) rose by an additional 75 per year between 1989and 1998. The fraction of the population working continued to risein the 1990s, as did women’s labour force participation.

As a result of all this, financial insecurity and excessive work-ing hours have led to stress and worry for millions of households.The majority of workers feel pressed for time, and many feel thattheir lives are out of control. The squeeze on the middle class hasfacilitated conservative political forces’ drive to cut income taxesand reduce non-military public services, and this has reboundeffects on consumer pressures: as public goods deteriorate, mid-dle class families increasingly feel they must look for privatealternatives – schools, security, recreational facilities, etc., fur-ther 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 correlatedwith well-being, as a now-extensive body of psychological literatureshows. The causal relations involved are complex because material-ist values both affect well-being and are a product of it. However, itincreasingly appears that there is a causal link from a materialistorientation to a lower level of well-being.

Second, the strength of what I have called ‘the cycle of work andspend’ (long hours at work coupled with high consumer aspirations)appears to be destructive of time-intensive social connections andwell-functioning communities. As the demands of the consumptioncompetition intensify, the sources of durable well-being (friendships,healthy families and communities) are increasingly in jeopardy.

Finally, ‘consumer upscaling’ has been nothing short of disas-trous for the natural environment. Economic growth in generaltends to be destructive of natural capital, but the trends in consumerpatterns have been especially damaging: the growth in housing hasled to a reversal of what had been declining residential energy usageand much greater use of materials; the shift to luxurious vehicles hasled to a reversal of what had been declining fuel use per vehicle;trends in tourism have led to far more damaging patterns (frequentshort air trips, use of higher-impact hotels); and trends in apparelconsumption have led to increased numbers of garments producedunder ecologically-damaging conditions. The list goes on.

In closingLet me end with a few words about the task before us: a responseto the new consumerism. For those of us in academia, sociologistsand social scientists, my analysis suggests the need for an integrat-ed treatment of both consumption and production. The dynamicsof these two spheres are now highly integrated through obviousmechanisms such as income, but also through other factors, suchas time-use and time-scarcity, which is increasingly a major compo-nent of well-being.

Second, social analysis must explore the ways in which rationalindividual behaviour is yielding irrational social outcomes (e.g., eco-logical collapse). This perspective is absent from both traditionalEconomics and most contemporary analyses of consumption,which are locked in an often-fruitless debate between the ideas ofconsumer 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-and-spend cycle are destroying the planetary ecology, and integratethose effects into our analysis. For if we do not, our ability tounderstand will be seriously compromised, and our ability totransform tragically impaired.

Juliet Schor is a professor of Sociology at Boston College.Previously, she taught in Harvard’s Department of Economics for 17years. She is the author of Born to Buy: The Commercialized Child andthe New Consumer Culture (Scribner, 2004) and The OverspentAmerican: Why We Want What We Don’t Need (Harper, 1999).

The cycle of ‘work and spend’ appears to be destructive of time-intensive social connections and well-functioning communities.

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When a quantity of a given resource – such as food,money, or cigarettes – is physically divided into smaller quantities, it reduces both the total quantityconsumed and the speed of consumption. by Dilip Soman and Amar Cheema


IMAGINE THAT you are at a local theater to watch a movie: you makeyour customary stop at the concession stand to buy popcorn anddrinks; when you ask for a large bag of popcorn, to your surprise, theperson at the counter hands you the same quantity of popcorn inthree smaller bags, saying that the large bags are out of stock. Wouldthis odd encounter change the amount of popcorn you eat or thespeed at which you eat it? Our research suggests that it would.

Since the days of Ulysses, human beings have been devisingrules to constrain undesirable behaviour. However, these rules aresometimes broken, leading to consequences that we would other-wise avoid. We recently studied situations in which individuals tryto avoid consuming a given pool of resources including money andfood, and found that the ‘packaging’ of the resource plays a signifi-cant role in our ability to exert self control.

In particular, we studied the effect of partitioning a largeramount of resources into several smaller amounts. The term par-titioning refers to the act of creating subsets of the resource byadding artificial 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 intotwo smaller amounts of $25. Each partitioned amount is a ‘poolof resources.’

The rules used by individuals to control consumption requirethe exertion of willpower to control impulsive short-term behav-iour in favor of longer-term benefits. When the resource inquestion is money, examples of such rules might include not spend-ing more than one’s current income; pre-committing to spendinglimits; or having a monthly savings target. People follow such self-imposed rules because failure to do so is associated with negativeemotions: breaking such rules can lead to guilt, regret, a feeling offailure, or a loss of faith in oneself. We label this psychological costof breaking a personally-imposed rule a ‘transgression cost.’

We have found that consumers incur such transgression costswhenever they break rules or pre-commitments. These rules mayrelate to not using resources for purposes other than the ones theyare earmarked for (e.g., using retirement savings to buy a new car)or over-consuming a resource (e.g., eating too much chocolate). Ineither case, partitioning a large pool of resources into smaller onesincreases the number of available ‘pools:’ the greater the number ofclosed pools the consumer has to break open, the larger the trans-gression cost, and the less likely the individual is to consume.However, once individuals do break open a resource pool and incurthe related transgression cost, we have found that they may morereadily consume the remaining resources in that pool.

The Effects of Partitioning on Consumption

20635 20-25 3/28/08 2:45 PM Page 21


The Psychological Costs of ConsumptionWhenever consumers make spending decisions, they must firstchoose which pool of resources to use, and then whether to engagein the transaction. While these two components of the decisionhave typically been considered as inseparable, an increasing bodyof research suggests that the psychological cost associated with theidentity of the resource pool plays an important role in the deci-sion-making process.

For instance, once individuals absorb the up-front ‘pain of pay-ment’ associated with buying casino chips or a foreign currency,subsequent spending of these currencies is made easier, makingthem feel like ‘funny money.’ In a similar vein, consumers may ear-mark some money for spending, absorb the psychological cost ofdoing so, and transfer it into the ‘spending money’ account. Theunderlying assumption is that there is a relatively large fixed cost ofopening a resource pool (i.e., deciding to spend from it) and a smallvariable cost of consuming an incremental unit from the open pool.As a result, once the cost of using money from certain sources hasbeen incurred, the actual transaction decisions are not psychologi-cally painful. One corollary of this account is the fact that it iseasier for an individual to spend $X from a given pool than $X/2from each of two separate pools.

The rules that govern our behaviour may be externally imposedby those who propose to have our best interests in mind, or inter-nally construed by individuals as we perceive a need for them. Inthe absence of external limits, we may try to control spending bythe exertion of self-imposed principles that favour long-term ben-efits over short-term gain. Internal rules evolve over time fromrepeated tradeoff decisions. For instance, we may try to avoidopportunities for temptation, hold illiquid assets, sign binding con-tracts and seek other forms of ‘tying oneself to the mast.’

When the trade-off between short- and long-term benefits isnot readily apparent, guiding principles are often used in decision-making, such as when making the decision whether or not to eattoo much chocolate, or to pick up an expensive magazine at the

grocery store check-out. Other examples of applying limits to one-self include diets, monthly savings targets, and resolutions tosmoke only after meals or to jog twice a week. However, exertingself-control is psychologically costly: there is an expenditure ofwillpower to making decisions according to principles. On theother hand, people who break rules experience guilt, regret, a feel-ing of failure, and a loss of faith in themselves.

The psychological cost of breaking personal rules (transgres-sion cost) may be a result of Pavlovian-style conditioning: peoplelook 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 thatthey have let themselves down. Violations that may result in feel-ings of guilt or remorse include not using resources for purposesother than the ones for which they are earmarked (such as usingretirement savings to buy a car), or over-consumption (such as eat-ing too much dessert). In either case, partitioning can play a role incurbing unwanted behaviour: the greater the number of closedpools that a consumer has to break open — whether the resource ismoney in a savings account, a bag of chips, or a pack of cigarettes —the larger the transgression cost, and the less likely the individualis to consume.

Critical to the argument that people employ self-controldevices to monitor their consumption is the notion that individu-als are – in the language of economists Matt Rabin and TedO’Donoghue – sophisticated, yet dynamically inconsistent. Insimple English, this means that individuals are tempted to consumewhen it is not in their best interests, but that they are aware of thisshortcoming. They can impose control on their behaviours whenthey are cognitively vigilant, and are consciously making decisionsabout whether to consume or not.

However, the manner in which resources are packaged mightnot allow for such vigilance: when a large bag of popcorn is opened,it is difficult to imagine any movie-goer making a conscious decisionabout whether or not to eat the next kernel of corn. Rather, we reacha state of ‘mindless habituation’ and continue consuming – unless

The greater the number of closed poolsthat a consumer has to break open, the larger the transgression cost, andthe less likely they are to consume.

20635 20-25 3/28/08 2:45 PM Page 22


some external constraint forces us to stop and think. When themovie-goer scratches at the bottom of a small bag to find the pop-corn all gone and realizes that she now needs to actively decidewhether or not to open the next bag, the sophisticated consumerdecides that it would be now prudent to stop consuming. Therefore,partitions work in curbing consumption because they give con-sumers a decision point – an opportunity to stop and think aboutwhether to consume or not. As such, partitions move consumersfrom a mindless to a thoughtful mode of information processing.

Our researchWe tested the effect of partitions on spending and consumptionacross five studies and found exactly what we predicted. The firstthree studies measured transgression costs and explored theirmediating role on the effect of partitioning on spending. We thendemonstrated the effect of partitioning in two real consumptionsettings: consumption of chocolate and use of pre-paid phone cards.

In one study, a number of participants volunteered to partici-pate in a cookie-tasting study. Every participant received anidentical box of 24 cookies and was asked to consume them overtime, noting how much they liked the cookies and when they atethem. Unknown to them, there were differences across partici-pants: some participants (let’s call them Box A) received 24 cookiesin a box; others, who received Box B, got the same box and the samecookies, but each cookie was individually wrapped in foil. Wefound that the typical consumer of Box A took six days to finish thecookies, while those that got Box B took 24 days to finish. A simplesheet of thin foil paper had the power to slow down consumptionby a factor of four! We tried varying packaging of biscuits, choco-late and popcorn and found the same results.

Interestingly, we found similar results when we partitionedmoney. In one study, students were given $100 cash coupons to par-ticipate in a gambling study – an activity that is considered fun butsomewhat ‘sinful.’ Some students were given all $100 couponssealed in one envelope, others were given 10 coupons in each of $10sealed envelopes. We found that once the big envelope was opened,it became easier to spend the $100 coupons. However, with thesmaller envelopes, people tended to spend much less – in one study,about half as much.

In an ongoing series of studies with daily-wage labourers whoreceive cash wages, we found that giving them cash divided intosealed envelopes increased their savings rates dramatically as com-pared to giving them a single wad of notes. And in an analysis ofdata from prepaid calling cards, we found that people who pur-chased five $10 cards rather than one $50 card spaced out theirphone calls over a longer period of time.

In one study, participants were presented with a scenario inwhich they were saving up for their retirement. As a part of thisprogram, they recently put $5,000 in savings at an annual interestrate of three per cent, for a minimum of 10 years. A portion of the

participants were told that they had simply saved $5,000 – whilethe other group was told that the money had been invested in a cer-tificate of deposit (CD), either one $5,000 CD, or two valued eachat $2,500. All participants were then told they come across a pro-motion by a local car dealership for a car that they have beenthinking of buying for some time. The discounted price was attrac-tive, but the promotion would expire at the end of the month, andrequired a cash down payment of $5,000. The only cash they hadfor the down payment was that which they put in the CDs.

We expected that participants who had to break open twodeposits to buy the car would experience higher transgressioncosts than those who had to only break open one deposit. We alsoexpected that those who were aware of the artificiality of the par-tition involved – that the bank’s highest valued CD was valued at$2,500 – would experience lower transgression costs. The datasupported both expectations: the impact of partitions on thespending decision was reduced when the artificiality of these par-titions was highlighted.

Another study demonstrated the effect of partitioning on theconsumption of food. Participants received a sealed box containingsix pieces of different types of chocolate. They were asked to eatthe chocolates over the following week, and to return the responsesheet after finishing all the pieces. The packaging of the chocolatevaried. Half the participants received a sealed box containingunwrapped pieces: breaking open the box allowed them to accessall six pieces unhindered. The remaining participants receivedsealed boxes containing pieces that had been individually wrappedin foil. The data revealed that participants took significantly fewerdays to eat the unwrapped chocolate pieces. The type of chocolatedid not affect the speed of consumption and was not a factor. Onlythe packaging significantly affected results; once again, partition-ing was shown to inhibit consumption.

Our final study explored how partitioning pre-paid telephonecalling cards into different pools affected their usage. According tothe scenario, the seller of the phone cards would often run out oflarge denomination ($50) cards, and instead give customers multi-ple small cards (5 x $10). Card users were charged a flat rate perminute of their call and there were no other usage fees. We expect-ed that individuals who received several smaller-denominationcards would use them significantly less than those who received the$50 cards, because of the transgression cost associated with break-ing open a pool (i.e. using a new card). The data supported thishypothesis: consumers who had one resource pool (a large denom-ination card) used it up much faster than those who had severalsmaller resource pools.

Taken together, our findings paint a consistent picture of theimpact of partitioning on transgression costs and consumption. Thefirst three studies demonstrate that partitions trigger transgressioncosts, which then influence spending. They also identify the moder-ating role of partition artificiality: highlighting artificiality lessened

20635 20-25 3/28/08 2:45 PM Page 23

Dilip Soman is the Corus Chair inCommunication Strategy and professor ofMarketing at the Rotman School ofManagement. Amar Cheema is an assistant pro-fessor of Marketing at the Olin School of

Business at Washington University.

For a complete copy of the paper from this was excerpted, [email protected]


transgression costs, reducing the impact of packaging. The final twostudies looked at the effect of partitions on consumption in the realworld. Since these latter studies used fewer controls and were con-ducted in a real world environment, they were more successful inruling out the possibility that another, unknown behavioural factorwas swaying the results.

Across our studies, participants appeared to be averse to open-ing pools of resources when doing so required them to breakexternal or internal rules. Partitioning one large pool of resourcesinto several smaller resource pools consistently decreased spendingand consumption.

Consumers frequently exercise self-control to avoid using cer-tain pools of resources for current expenditures through suchdevices as savings accounts and credit cards. However, once theyincur the transgression cost to overcome their own rules and breakopen these pools of resources, they may be insensitive to theamount consumed from each resource pool.

Implications Our results have significant implications for consumers who startspending from ‘closed pools’ such as savings accounts, or whobreak pre-set spending rules. Such consumers risk engaging in a‘spending spree’ from the opened pool without restraint once theinitial transgression cost is endured.

Possible parallels exist with research on the ‘shopping momen-tum effect,’ which details how the momentum from one purchasemakes a subsequent purchase more likely. Our research demon-strates that this effect may persist only while the consumers arespending from the opened pool of resources. If they have to breakopen another pool, and incur the associated transgression cost, thiseffect could be diminished.

Our results are also consistent with theories about the counter-productive effect of goals, where exceeding a pre-committed-to

spending limit deteriorates subsequent performance. As we haveindicated, breaking open a pool leads the individual to incur thetransgression cost, and subsequent spending from the opened poolbecomes easier.

The behaviour we describe here is also indicative of crossing a‘bright line’ – such as in the example of an alcoholic who swears tonever drink again, but does so – which decreases the individual’sbelief 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 closingFor marketers, our results suggest that simple forms of packag-ing have the ability to create dramatic variations in consumption.For consumers, the message is simple – for consumption that youwant to control (but that is tempting), the simple act of parti-tioning the resource will help curb consumption. This mightmean cutting up food into smaller portions, partitioning moneyacross smaller ‘stashes’ or adding small costs that force us tothink about consumption. In short, we can divide and conquerthe consumption epidemic.

For consumers, the message is simple: for consumption that you want to control, the simple act of partitioning a resource will help curb consumption.

20635 20-25 3/28/08 2:45 PM Page 24

Wealth and Risk Management

gluskinsheff.com

Where the smart money goesto get its PhD.

20635 20-25 3/28/08 2:45 PM Page 25

The consumer in each of us can learn from the citizen, and the citizen can learn from the consumer. Marketers must learn from both.

20635 26-31 3/28/08 2:49 PM Page 26

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 deliber-ated on, it can have far-reaching consequences. Taken together, allof the small, everyday decisions we make about whether and whatto consume influence what is available in the marketplace.

Although few people give much thought to the effect of theirspending on national economic well-being, Americans were madeaware of it following the terrorist acts of September 11, 2001. Amidfear and uncertainty and an ongoing economic downturn,President George Bush and New York City Mayor RudolphGiuliani 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-durablegoods and services represents about two-thirds of the nationaleconomy as measured by GDP. Accordingly, closely-watched indi-cators of the economy’s health include housing starts, new-homesales and retail and food service sales. In addition to adjusting con-sumption according to their income, prices for goods, and financerates, consumers also base their spending on what they thinkprices, the job market, general economic conditions and so on willbe like in the future. Consequently, consumer confidence levels areanother vital economic indicator, one that Bush and Giuliani werelikely trying to boost.

With the exception of the Great Depression and World War II,consumer demand steadily expanded during the 20th century, andconsumption did not slow down after a basic stock of goods wasacquired: the average household continued to consume new thingsand upgrade existing consumption. With few exceptions, no mat-ter how wealthy today’s households are, they continue to acquireadditional goods and services.

The Democratization of ConsumptionIn modern societies people take for granted equality of consumptionrights: if the Smiths have the means, they can buy and consume

whatever the Joneses consume. In addition to the right, consumershave the ability to consume, constrained mainly by their means orcredit limits. Low-cost goods – including groceries, household itemsfrom discount stores, electronics or appliances with their decliningprices, and cheap auto imports from Asia – along with the availabili-ty of consumer credit mean that most consumers can acquire mosttypes of goods and services, and middle-income buyers can move upfrom ‘adequate’ goods to higher-quality goods and even luxuries.

Makers of luxury goods also do their part to democratize con-sumption. At the risk of diluting the cachet derived from exclusivityand costliness, as well as quality, many offer lower-priced versions oftheir traditional luxury products. Mercedes-Benz, for instance,brought out an A class of smaller vehicles; Burberry offers acces-sories that are more affordable than its iconic trench coat; and IsaacMizrahi sells outfits at Target. Marketers also create finer versionsof mass-market products. Even if consumers cannot afford a luxurybrand, premium versions of relatively small-ticket items like icecream or coffee are within the reach of nearly everyone.

Technology, too, democratizes consumption. Online retailingallows consumers in remote areas to gain access to nearly every prod-uct at competitive prices, ensuring that they are no longer hostage tothe prices charged by one or two local distributors. In addition, smallsuppliers of specialized products can serve narrow niches worldwide:eBay has created a massive global marketplace where consumers canfind products discoverable locally only by chance – such as a vintagetablecloth – and can purchase items that other consumers are finishedwith. In a further example of democratization, eBay allows any con-sumer to finance consumption by reversing roles and acting as a selleras well as a buyer.

The retail space is democratic in that it is the individual consumerwho decides what and how much to consume. Marketers don’t dictateconsumption; instead, they broker individuals’ consumption needsand influence what’s available. The match is not perfect, but technol-ogy lets marketers track people’s consumption in close-to-real timeand make quick adjustments of stock levels and pricing in response.For example, a combination of manufacturing and information

by John Quelch and Katherine Jocz

Consumption: The Happiness of Pursuit


20635 26-31 3/28/08 2:49 PM Page 27

India’s rapid economic growth has set thestage for fundamental change among thecountry’s consumers. The same energy thathas lifted hundreds of millions out of des-perate poverty is creating a massive middleclass centered in the cities. A recent studyby the McKinsey Global Institute suggeststhat if India continues its recent growth,average household incomes will triple overthe next two decades and it will become theworld’s fifth-largest consumer economy by2025, up from 12th now.

Along the way, spending patterns will shiftsignificantly as discretionary purchases cap-ture a majority of consumer spending. India’spotential should make it a high priority formost consumer goods businesses, but tosucceed in this complex market they mustovercome some major challenges.

Private consumption has already played amuch larger role in India’s growth than it hasin that of other developing countries. In2005, private spending reached about 17trillion Indian rupees ($372 billion), account-

ing for more than 60 per cent of India’s GDP,so in this respect the country is closer todeveloped economies such as Japan andCanada than are China and other fast-grow-ing emerging markets in Asia. Our researchshows that aggregate consumer spendingcould more than quadruple in coming years,reaching 70 trillion rupees by 2025.

Opportunities will blossom as millions offirst-time buyers step up to cash registersand as the bulk of consumer spendingmoves from scattered, hard-to-reach ruralareas to more concentrated, accessibleurban markets. Indian consumer spendingwill shift substantially from the informaleconomy, with its individual traders, to themore efficient formal economy of organ-ized businesses. That transition will lowerprices and further boost demand.

Neither incumbents nor attackers will havean easy time: bureaucratic hurdles and well-recognized infrastructure shortcomings willfrustrate many strategies. These challengeswill force companies to be more dynamic by

adapting their products, services, and busi-ness models to the rapidly-changing needsand incomes of Indian consumers.

The Birth of a New Middle ClassWhile urbanization isn’t proceeding as quicklyas it is in other Asian economies, rapid popu-lation growth means that in absolute termsthe country’s urban population will expandsignificantly, from 318 million today to >>


technology helps innovative retailers such as Benetton fabricate all ofits sweaters in gray: only in the final stage does it dye the finished gar-ments, depending on what colors are selling at that moment.

Overall, the democratization of finance – the ready availabilityof mortgage debt, car loans, and unsecured debt such as consumercredit cards – gives prudent consumers the financial freedom toconsume things that otherwise would be out of reach. In manydeveloping countries, financial institutions’ willingness or ability toextend credit to emerging consumers lags households’ ability topay. 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-ticketgoods may offer extended-payment plans.

In the long run, greater democratization of credit offered byfinancial institutions will be critical to increased consumption andeconomic growth in developing economies. For example, mostMexican consumers have for years lacked easy access to banking andcredit. Major purchases had to be paid for in cash, so consumption ofdurable goods was low. Houses were built room by room over time,paid for from savings. Since 2000, however, consumer credit hastripled. Now, more middle-class families can buy homes, cars, andmajor appliances on credit. As a result, sales of high-ticket items havegone up, and volatility in consumer spending has decreased.

Happiness and ConsumptionAs one would expect, surveys consistently find that people in rich

countries like Canada or Switzerland are happier than people inpoor countries like Bangladesh. But surprisingly, once a country’slevel of per capita income reaches a moderate threshold – aboutCAD$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 satisfactionhas remained flat since the end of World War II, even though GDPper capita has climbed steadily. In the U.S., income tripled duringthis period, but life satisfaction scores remained constant. In part,this is because there is always a gap between what people have andwhat they want: increases in national income levels are accompaniedby increases in material aspirations. An economist would say thatthese aspirations are essential because they motivate economicgrowth. But national well-being depends on social capital and polit-ical capital in addition to economic capital.

Thorstein Veblen introduced the term ‘conspicuous con-sumption’ to describe the phenomenon of people choosing to buycertain goods in order to advertise their social standing and notbecause of the intrinsic enjoyment they get from consuming thegood. Clearly, wealthier people can flaunt their social status by buy-ing a Lexus instead of a Toyota or staying at the Four Seasonsrather than the Marriott. The question is whether they actually getmore intrinsic enjoyment from the Lexus than the Toyota. Butaccording to economist Robert Frank, there is considerable evi-dence that buying a larger house or a more expensive car does notlead to greater happiness.

Tracking the Growth of India’s Middle Class by Eric Beinhocker, Diana Farrell and Adil Zainulbhai

Continued on p.30

20635 26-31 3/28/08 2:49 PM Page 28

Figure 1Average Expenditures by Canadian Household Type (2005)

Total expenditure

Food

Shelter

Clothing

Transportation

Recreation

Education

Tobacco/Alcohol

Games of chance

Gifts of money/contributions

SOURCE: STATISTICS CANADA SURVEY OF HOUSEHOLD SPENDING

$ 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

Couples with children

$ 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

Canada

$ 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

Lone parent/female

$ 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

Single person

$ 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

Seniors (65+)

523 million in 2025. The Indian middle classhas already begun to evolve, and by 2025 itwill dominate the cities. By then about three-quarters of India’s urbanites will be part of themiddle class, compared with just more thanone-tenth today. About 400 million Indian citydwellers will belong to households with a com-fortable standard of living.

Companies shouldn’t underestimate themarket presented by the country’s most afflu-ent consumers: those earning more than1,000,000 rupees a year – $21,890 in real2000 dollar terms, or $117,650 in terms ofpurchasing power parity (PPP). They willremain a small portion of society: about twoper cent of the population in 2025, up from0.2 per cent today. But in absolute numbers,by 2025 India’s wealthiest citizens will total24 million, more than the current populationof Australia. These consumers have tastessimilar to those of their counterparts in devel-oped countries: brand-name goods, vacationsabroad, the latest consumer electronics, andhigh-end cars. >>

SOURCE: MCKINSEY GLOBAL INSTITUTE ANALYSIS

Share of average annual household consumption, %1

100% (thousand Indian rupees2) = 60

11

431

2

33

3

3

24

14

5

56

1995 20054 2015 2025

82 140 248

Forecast

Discretionary spending

Spending on necessities(ie. food, apparel3)

Health care

Education, recreationCommunication

Transportation

Personal products, servicesHousehold productsHousing, utilities3

Apparel

Food, beverages, and tobacco

5

7

17

8

12

6

42

6

9

19

9

12

5

34 25

9

13

20

11

10

5

1Figures may not sum to 100% because of rounding.2Real 2000 rupees; 45.7 ruppes = $1 in real 2000 dollars or 8.5 rupees = $1 adjusted for purchasing power parity.3McKinsy Global Institute’s cross-country comparisons of necessary consumption exclude housing from the category of necessity because of significant variantions in national housing market structures, regulations, and measurement methodologies.4Estimated.


20635 26-31 4/3/08 10:28 AM Page 29

simply relax in front of a television set, but TV programming andads further promulgate the consumption lifestyle.

Many are currently concerned whether developing or underde-veloped countries will attempt to replicate the Western experiencein building their economies around personal consumption. Someeconomists predict that workers in developing Asian economies –those producing inexpensive goods for the world market – willsooner rather than later insist on fulfilling their own pent-up con-sumer demand. When that happens, China will become theworld’s largest economy. Chinese consumers have already rapidlyembraced the automobile: from six million cars in 2000, there arenow about 20 million on the roads, and every day a thousand newcars are sold in Beijing alone.

Heavy consumption of natural resources like water, energy, andtropical forests by some nations can have far-reaching environmentalconsequences for other nations. Even among developed countries,the U.S. consumes a disproportionate share of energy: approximately25 barrels of oil annually per capita, versus 12 for Germany, and 16 for Japan. What will happen as developing nations – China, India, orothers – try to obtain a greater share?


Instead, “the ability to afford inconspicuous goods – such asfreedom from a long commute or a stressful job” and the ability todevote more time “to families and friends, exercise, sleep, travel,and other restorative activities” results in healthier, longer andhappier lives.

Economists, sociologists, and psychologists have found thatstrong social relationships are a hugely important component ofboth individual happiness and national well-being. While this factmay not appear directly linked to consumption, it actually helps toexplain its lure: building social relationships is one reason why people keep consuming.

Perhaps consumers are blocking out or forgetting simplersources of satisfaction – booking a costly cruise instead of sitting intheir own backyard, or playing the latest video game instead ofhanging out with friends. For driven achievers, leisure seems tomutate into work and consumption: you hire a coach to help per-fect your tennis game, consult a landscaper and invest in expensiveplants and equipment so that your garden looks like a magazinephoto, or buy the latest-model high-end mountain bike to shaveminutes off your competition time. To be sure, plenty of people

Changes in ConsumptionAs Indians climb the economic ladder, thecomposition of their spending will changeconsiderably. In a pattern witnessed in manyother developing countries, discretionaryexpenditures, such as mobile phones andpersonal-care products, will take up moreroom in the nation’s shopping basket.

This shift from necessities, defined in ouranalysis as food and clothing, is alreadyunder way – and taking place at lower

income levels than we have seen in othercountries. We expect that discretionaryspending in India will rise from 52 per centof total private spending today to 70 percent in 2025. Food (including beveragesand tobacco) will post the sharpest declinein relative consumption, even as overallspending in the category rises. The fall inthe share of food expenditures during ourforecast period – to 25 per cent, from 42per cent – is linked closely to the growth of

the middle class. Despite this relativedecline, food will remain the single largestcategory of expenditure, and we expect thatgrowth in consumption will accelerate to 4.5per cent annually, from 3 per cent over thepast 20 years.

That growth will appear tepid comparedwith the rise of other categories: in particular,spending on purchases that improve econom-ic prospects and quality of life – health, edu-cation, transport, and communications – willsoar and eventually command a greater shareof consumption than they do elsewhere. Theinadequacy of India’s public-health system, forexample, means that private health care is ahigh priority for many Indian families whentheir incomes grow. This imperative will drivegrowth in private health care spending byalmost 11 per cent a year, so that it willaccount for 13 per cent of the purchases ofIndian households by 2025, a larger sharethan current levels in all of the countries weexamined except the United States.

In another remarkable shift, spending oneducation will grow by 11 per cent over thenext 20 years, to nine per cent of householdconsumption, higher than today’s levels inany of our benchmark countries. In ruralareas, households emerging from povertywill make educating their children a priority,while higher-income urbanites will be spend-ing more on better-quality education, >>

SOURCE: MCKINSEY GLOBAL INSTITUTE ANALYSIS

70

60

50

40

30

20

10

01985 1990 1995 2000 2005 2010 2015 2020 2025

Actual Forecast

Urban households, millions of householdsMiddle Class Annual income

bracket1

Seekers

Strivers

Aspirers

GlobalsDeprived

1Annual 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.

Tracking the Growth of India’s Middle Class (cont’d)

20635 26-31 4/2/08 6:32 PM Page 30

In closingIn industrialized democracies, the consumer marketplace and thepolitical marketplace have something important in common: inboth cases, the consumer is the ultimate authority. Moreover, theconsumer marketplace evolved within the context of democraticsocieties, and in the consumer marketplace there are close paral-lels to the conditions that define democracy.

We believe that both a better democracy and a better mar-ketplace are possible if people aspire to combine their strengthsas citizens with the strengths they have as consumers. Citizensare called upon to subordinate narrow self-interest to the goal ofthe common good; consumers expect value from an exchangeand hold providers accountable. The consumer in each of us canlearn from the citizen, and the citizen can learn from the con-sumer. Marketers must learn from both.

Far-sighted marketers may exercise restraint in choosing thekinds of consumption they promote. In response to increasingconcerns about childhood obesity, for example, Kraft Foodsannounced it would shift advertising of sugar-laden Oreos andKool-Aid away from children between the ages of six and eleven.

No doubt the long-term goal is to retain consumers’ good faithin the companies marketing these products.

Globally, firms will likely see continuing and increasing pressureto cut down on forms of consumption that affect the environmentand the availability of natural resources. These issues will not goaway, and neither will concerns about the use of pesticides, chemicalfertilizers, and genetically-altered seeds in farming. In the democra-cy of the marketplace, consumers will increasingly choose toconsume those products and services they consider to be healthy,environmentally-sound or otherwise socially valuable.

John Quelch is the senior associate dean andLincoln Filene Professor of BusinessAdministration 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 operationsat the Marketing Science Institute.

The preceeding is an excerpt from Greater Good: How Good Marketing Makes forBetter Democracy (Harvard Business School Press, 2007) by John Quelch andKatherine Jocz. Reprinted with the permission of Harvard Business School Press.


university degrees, and study-abroad pro-grams. Despite India’s fondness for cricketand “Bollywood” movies, recreational prod-ucts and services will take a smaller slice of household spending there than in othercountries.

Transportation, already the largest catego-ry of expense after food, will take a biggerportion of household budgets in comingyears, exceeding its share in all of our bench-mark countries. The highest growth willcome from car purchases. Categories suchas clothing and household goods areexpected to post slower annual growth rela-tive to overall consumption – 6.4 per centand 6.9 per cent, respectively – and thus tolose share of wallet. Yet even in these cate-gories, growth rates will remain highlyattractive as compared with those in othermarkets around the world.

Implications for BusinessThree-quarters of India’s consumer marketin 2025 doesn’t exist today. About 52.6trillion rupees a year in future purchaseswill be up for grabs. Incumbents and chal-lengers alike face a sea change, but India’sdomestic companies will start with manyadvantages: existing relationships withcustomers, an understanding of theirneeds, and recognized brands.

Growing incomes and consumption will

pressure incumbents from two directions.First, such companies must adjust to thepace and magnitude of change, for as con-sumers rise through the income brackets,their needs, tastes, aspirations, and brandloyalties will evolve along with theirlifestyles. Second, India’s growing consump-tion will attract a raft of challengers, andongoing economic reform will significantlyintensify competition in many markets. Newcompetition will come from multinationalsentering the Indian market, from establishedIndian companies looking for expansionopportunities, and from entrepreneurs.Indeed, if the country’s policy makers createthe conditions for India’s entrepreneurs tosucceed, major new companies could bebuilt on the back of consumer growth.

For attackers, the challenge will be tospot the gaps and opportunities that ariseas India’s income and class structurechange; they might, for example, ask them-selves where small markets or limited com-petition, or both, have served middle-classconsumers poorly. Attackers could also turnto other emerging economies to seek les-sons on how tastes and needs will likelyevolve in India, perhaps looking in particularfor categories in which spending shiftedfrom local products and brands to interna-tional ones as aspirations rose. Attackersseeking to exploit these changes should

consider what new needs will be unique toIndian tastes and the market as the middleclass grows.

In India, as in many emerging markets,multinational companies will find them-selves squeezed between the desire of thecountry’s consumers for a modern middle-class lifestyle and the realities of their lim-ited budgets. In 2005 the average middle-class family spent just over 300,000rupees annually – roughly $6,600 – a verymodest sum in real terms, but in PPP termsequal to around $35,000. Multinationalsmust innovate to deliver an aspirationalmiddle-class lifestyle to families on anIndian budget. Companies that can developnew business models, design products withcarefully targeted features, and createbrands that appeal to India’s upwardlymobile citizens will attract huge numbersof eager consumers.

Eric Beinhocker is a consultant with the McKinseyGlobal Institute, where Diana Farrell is director. AdilZainulbhai is a director in McKinsey’s Mumbai office.

Reprinted with permission from McKinseyQuarterly. The full report, The ‘Bird of Gold’: TheRise of India’s Consumer Market, is available atmckinsey.com/mgi/publications/india_consumer_market/index.asp

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by Patrick Cescau

SOCIAL INNOVATION AND

SUSTAINABLE DEVELOPMENT

AS DRIVERS OF GROWTH

WHEN I WAS AN MBA STUDENT AT INSEAD in the early 1970s, subjectslike ‘corporate responsibility’ and ‘sustainable development’ barelyexisted. The green movement that was emerging at the time wasthe province of politics and protest, not business. The idea thatcompanies had responsibilities to society beyond making a fewcharitable donations had not yet taken hold.

Today, as CEO of a leading consumer goods company, I ampleased to say that social responsibility and environmental sustain-ability are core business competencies, not fringe activities. There isgrowing recognition that the social and environmental challenges

facing us in the 21st century are so complex and multi-dimensionalthat they cannot be solved unless government, NGOs and industrywork together effectively. It is difficult, for example, to imagine aproblem like climate change being addressed without the activeparticipation of Shell, BP and Toyota. Likewise it is hard to imag-ine an issue like poor nutrition being effectively tackled withoutthe involvement of the world’s major food companies.

We have come to a point where this agenda is not only centralto business strategy, but will increasingly become a critical driver ofbusiness growth. Indeed, I believe that how well and how quickly

Finding the ‘sweet spot’ between the needs of consumers, societyand our planet is a complex task, but it can be a significant source of

competitive advantage for those who do it well.


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businesses respond to this agenda will determine which companiessucceed and which will fail in the coming decades.

Partnering in Economic Development While multinational companies can and do play a significant role inthe development agenda, the positive role of business is rarelytalked about in the media. If brands are mentioned at all, it tends tobe those that have not behaved responsibly. Part of the problem isthat companies do not normally measure their social, economic andenvironmental 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 world’s leading consumer goodscompanies: 160 million times a day, someone somewhere will buy aUnilever brand. Our commitment to addressing social and envi-ronmental issues has been strengthened over the years by our deeproots in developing and emerging countries. Today, over 40 per centof our business is in these markets, which makes them bigger for usthan Europe, and sales there are growing much faster. By 2012,more of our business will come from Asia, Africa and Latin Americathan from the developed markets of Europe and North America.

In 2003, Unilever joined forces with Oxfam to analyze theimpacts of our business in one of our largest markets, Indonesia – acountry where I have seen the damaging effects of poverty first-hand. Our findings highlighted a number of interesting things.Firstly, we found that most of the cash value Unilever creates inIndonesia stays in the local economy. This challenges head-on theperception which some NGOs have that multinationals are mere‘extractors of wealth’ who make large profits locally that are thenimmediately remitted to shareholders in London and New York,without benefiting the local economy.

Secondly, the report looked at the impact of our upstream supplychain and found that some 84 per cent of our raw and packagingmaterials were sourced from local suppliers, thereby creating notjust jobs, but technology transfer from other Unilever factoriesaround the world. Finally, the report revealed the extent to whichour 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, morethan half of them in the distribution and retail chain.

Impressive though these figures may be, this exercise alsorevealed the very limited impact that our operations had in helpingthe farmers and shopkeepers at the furthest ends of the valuechain to lift themselves out of poverty. Nevertheless, the evidencefrom Indonesia is that a global company with embedded localoperations – what we call a ‘multi-local multinational’ – can have avery positive effect on developing economies.

Encouraged by the Indonesian exercise, we embarked onanother study, this time in Africa. Working with INSEADProfessor Ethan Kapstein, we have been investigating the social,economic and environmental impacts of our operations in SouthAfrica. Prof. Kapstein will not only be measuring our footprint inquantitative terms, he will also seek to capture and analyze our ‘soft’impacts – such intangibles as training and skills transfer; supportfor government capacity building; black empowerment initiatives;and environmental standard setting.

Following are some specific examples of how Unilever’s pres-ence in the emerging economies of Asia and Africa is contributingto the development agenda.

1. Capacity building ‘Capacity building’ is the term economists use to describe thecreation of the skills, physical infrastructure, public health andadministrative frameworks that are so necessary for developingcountries to prosper. Capacity can be built at both the macrolevel of the state and at the micro level of individual companiesand communities.

In Africa, Unilever engages at both levels. A good example of anintervention at the macro level is the work we are doing to facilitatecross-border trade on the continent. We were one of the foundingmembers of the Investment Climate Facility, a new public-privatepartnership that aims to address some of the structural bottlenecksholding back investment in Africa. We have committed one millionEuro to getting this going, and are concentrating our efforts onworking with African governments to rethink their approach tocustoms and border controls – something that has traditionallybeen approached with a revenue rather than a trade mindset. IfAfrica is to develop as an economic region, there need to be fewerrestrictions on cross-border trade. These not only discourage foreign


Over 40 per cent of our business is now indeveloping markets,

which makes them biggerfor us than Europe, andsales there are growing

much faster.

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direct investment but also stifle intra-regional trade – an importantdriver of economic growth. In the Association for South EastAsian Nations, for example, 60 per cent of trade is between neigh-bours; in Africa it’s more like 10 to 15 per cent.

An example of capacity building at the micro or communitylevel in Africa is Business Action Against Chronic Hunger – an ini-tiative we helped to launch last year. This is a program orchestratedby the World Economic Forum and involving The MillenniumVillages Project – a United Nations initiative pioneered byColumbia University Professor Jeffrey Sachs. Our shared aim is tohelp communities lift themselves out of poverty through sustain-able income generation.

The pilot program is in Western Kenya, where agriculture is theprimary livelihood, but the land available for farming is less thanhalf a hectare per household – insufficient to produce enough foodfor the average family. As a result, 60 to 70 per cent of the popula-tion lives below the poverty line. Agronomists from Unilever’sKenyan tea plantations are helping farmers to convert their smallholdings from commodities like maize to higher-value crops likesunflowers, herbs and spices. The land was prepared in January andFebruary of 2007; the seeds were planted in March; and inSeptember, they were harvested.

We have guaranteed these farmers that we will buy their crop atmarket prices. The sunflower oil will be used in our Blue Band mar-garine and the herbs in Royco – a local brand of bouillon stockcubes. Our aim is for the farmers to make enough money in the firstyear 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 haveagreed to put 10 per cent of the value of any surplus they make infuture years into community projects.

While we are still in the embryonic phase of this project, weplan to scale it up from 30 farmers to 4,000 – benefiting some20,000 people. Our objectives are clear: to work with others tomake Kenya a healthy, prosperous society in which businesses suchas ours can flourish.

2. New business models Capacity building is critical for long-term economic development.Of more immediate impact, however, is the ability of the private

sector to create new business models. Some of these are designedto reach down towards what C.K. Prahalad has called “the fortuneat the bottom of the pyramid.”

An example of this is our Shakti initiative in India. At the endof the 1990s, Hindustan Unilever realized that if it was to main-tain its growth trajectory, it would need to find a way to sell itsproducts to the rural poor. One in eight people on the planet lives inan Indian village, and very few of these are served by a retail distri-bution network. The solution we came up with to reach theseconsumers was to tap into existing networks of women’s self-helpgroups that had grown up on the back of micro-credit schemes.From these groups, we recruited and trained ‘Shakti entrepre-neurs,’ who became our local sales representatives, goingdoor-to-door, selling our products – not our standard range ofproducts, but re-engineered ones that were affordable to people ondesperately low incomes. More often than not, this implied smallpack formats – mainly sachets – which could be sold at prices as lowas one or two rupees.

The Shakti initiative lies at the intersection between socialresponsibility and business strategy. The social benefits are obvious:it creates economic activity at the very bottom of the pyramid; itgives poor people access to products that address their basic needsfor hygiene and nutrition; and it gives dignity and a sense ofempowerment to a large number of rural women. At the same time,the business benefits are huge. Today we have 30,000 Shakti entre-preneurs operating in 100,000 villages serving nearly 100 millionconsumers. The revenues generated are now close to $100 millionper year, and the margins are very similar to those we achievethrough our mainstream distribution channels.

Make no mistake: for Unilever, Shakti is not a philanthropicactivity. It is a serious and profitable business proposition. Suchinnovative routes-to-market enable us to serve the needs of first-time consumers, which in turn gives us the opportunity to addresssome of the nutrition and hygiene needs of some of the poorestpeople on the planet.

3. Products that meet social needs Every ten seconds, a child dies from diarrhea somewhere in theworld. One third of these deaths are in India, and most are children


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under five. Yet according to the World Bank, something as simpleas washing hands with soap can reduce such diseases by half.

Lifebuoy has been India’s leading soap brand for decades. Inthe late 1990s, we launched the largest rural health and hygieneeducation program ever undertaken in India: Swasthya Chetna –which means ‘Health Awakening’ in Sanskrit. Piggybacking on theinfrastructure created by Shakti, Lifebuoy health education teamsvisit thousands of schools and communities to teach children aboutthe existence of germs and the importance of washing their hands.

Marketing activity of this kind is a classic ‘win-win:’ the educa-tion program has a measurable impact on public health; and thebenefits for Lifebuoy come through in an expanding market forsoap, which leads to strong sales growth – nearly 10 per cent in 2006.

One of the biggest nutritional challenges in Africa is theabsence of certain nutrients in the diet. Iodine deficiency is a casein point: it affects millions of people and can cause mental retarda-tion and brain damage. In Ghana, for example, simply addingiodine to our Annapurna salt brand helped to nearly double iodineconsumption by over half the population. Our impact was ampli-fied by partnering with UNICEF to create and implement aprogram of social marketing. Once again, this was a win-win situa-tion: UNICEF and the Ghanaian Ministry of Health achievedtheir public health goals of increasing iodine consumption, andUnilever Ghana was able to open up a new market.

Social InnovationSocial innovation entails finding new products and services thatmeet not only the functional needs of consumers for tasty food orclean clothes, but also their wider aspirations as citizens. In thedeveloped markets of Europe and North America, we are observingnew patterns of consumption, driven by the emergence of whathas become known as the ‘conscience consumer.’ These consumersare worried about social and environmental issues and realize thatthey can influence change through the brands they choose toeither buy or boycott.

Our market research tells us that when making purchasing deci-sions, a growing number of consumers want to be reassured that thebrands they buy will benefit 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 benefits – whether,for example, Persil washed whiter than Ariel. Then advertising agen-cies, influenced by the social sciences like Psychology andAnthropology, started building in emotional benefits – wash withLux, the soap the stars prefer, and some of Hollywood’s glamour willrub off on you. Now there is a new dimension: brands with socialbenefits that appeal to consumers as citizens.

Dove is a Unilever brand whose social mission is to changepeople’s stereotypical views of female beauty. Research shows that90 per cent of women are not happy with the way they look. Muchof the problem lies with the unrealistic way women are portrayed inadvertising, fashion and the media. Through the Dove Self-EsteemFund, we are helping women, and young women in particular, to seethrough the artifice that permeates the world of fashion and, indoing so, build their self-esteem and become more confident aboutthe way they look.

Incidentally, it was neither pressure from the NGO world norlegislation that drove the Dove team towards the Campaign forReal Beauty: it was consumer insight. Intelligent interpretation ofmarket research highlighted that this issue resonated strongly withwomen of all ages around the world. The team realized that bychampioning the cause they would not only be doing somethingworthwhile, but at the same time strengthening the loyalty of theirconsumers to the brand. Today we are reaping the benefits of this inrapid rates of growth for Dove all around the world.

Another Unilever brand with strong credentials is Ben & Jerry’s.We acquired the business in 2000, but the values of its eponymousfounders, Ben Cohen and Jerry Greenfield, remain the values ofthe company today. One of Ben & Jerry’s key concerns is the envi-ronment and, in particular, the devastating effect global warming ishaving on the earth’s polar ice-caps. As Cohen and Greenfield like tosay: “Listen to two old ice cream guys – if it’s melted, it’s ruined.”

Their Lick Global Warming campaign and Climate ChangeCollege, which they set up in partnership with the World WildlifeFund, are outstanding examples of how you can make a complexsubject accessible to people and relevant to their everyday lives.Recently, Ben & Jerry’s announced its intention to become a ‘climate-neutral brand’ – the first big food brand to do so.


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Patrick Cescau is Unilever’s Group Chief Executive, based inLondon, England. Unilever’s brands include Dove, Knorr, Becel,Axe, Hellmann’s, Lipton and Sunlight.


Sustainability With over two-thirds of Unilever’s raw materials coming fromagriculture, we have had an active program of sustainable agricul-ture for more than a decade. Teams of agronomists have beenlearning how to grow crops like tomatoes, tea, palm, peas andspinach without using too much water and with minimal use ofpesticide and fertilizer.

Until recently, this valuable work never aroused the interest ofour brand teams, but they are now beginning to understand thatthis is an area where there is a convergence between our longstandingexpertise in sustainability and consumers’ concerns as citizens. Forexample, many consumers are increasingly worried about the welfareof the people in developing countries who grow and harvest thefood and drink they enjoy – as evidenced by the phenomenalgrowth of the fair trade movement. However, until now this haslargely been the preserve of niche operators. A couple of largecompanies like Starbucks and Nestlé have ‘dipped a toe in thewater’ by introducing fair trade versions of their coffees; but theserepresent just a small fraction of the total volumes they buy.

Coffee companies are not the only ones trying to capitalize onconsumer concerns in this area. Countless brands are jumping onthe ‘eco-ethical bandwagon.’ This is an agenda where you arejudged by your actions, not by your press releases. Consumers arequick to spot the difference between those brands that are authenticand those that aren’t: companies that try to promote themselves asbeing ethical in one aspect of their business but who tolerate badpractice in another will pay the price.

At Unilever we believe that this agenda offers huge potential forinnovation and brand development, but it will only work for us if itis fully integrated into our way of doing business. To help us achievethis, we have developed a diagnostic tool called ‘Brand Imprint.’ Ithelps our brands take a 360° look at their impacts on society andthe environment and gain deep insights into the external forcesshaping this agenda.

A number of our global brands have started to use this tool andthe first fruits of their work are starting to emerge. For instance,we recently decided to commit to purchasing all of our tea fromsustainable sources, and have asked the Rainforest Alliance to startauditing the estates from which we buy our tea, including our own in

Kenya. Unilever is the world’s largest tea company and Lipton is theworld’s favourite tea brand. We aim to have all Lipton Yellow Labeland PG Tips tea bags sold in Western Europe certified as ‘sustainable’by 2010, and all Lipton tea bags sold globally certified by 2015.

It is the first time a major tea company has committed to intro-ducing sustainably-produced tea on such a large scale and the firsttime the Rainforest Alliance will audit tea farms. The decision hasthe potential to improve the crops, incomes and livelihoods ofnearly one million tea growers and pluckers in Africa. Eventually, upto two million people around the world could benefit – nearly all ofthem in developing countries, and many of them living on or belowthe poverty line.

Once again, this is a win-win situation: our consumers will havethe reassurance that the tea they enjoy is both sustainably grownand traded fairly; subsistence farmers will get a better price; teapluckers 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 provideconsumers with the functional benefits they seek, while at thesame time maximizing social benefits and minimizing environ-mental impacts.

Doing business responsibly has served Unilever well. If youlook at our share price over the past 25 years and compare it withthe S&P 500, it is evident that ‘doing good’ and ‘doing well’ are notmutually exclusive. I strongly encourage business people every-where to get to know this agenda, and to come to understand howit can be a driver of growth. Very soon, the business world will bedivided into those that recognized its potential early on, and thosewho woke up to it too late.

Brands can continue to provide consumers the

functional benefits they seek, while at thesame time maximizing

social benefits.

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AT NIGHT, THE EARTH’S CITIES are visible from space as chains of light ina sea of blackness, exuding energy. A closer examination reveals com-plex webs of streets, enormous buildings, vehicles, and burgeoningpopulations – all of which require energy to build, use, and sustain. Tomeet 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 economiesto levels nearer those of richer nations, the Earth’s atmosphere andecosystems are demonstrating real limits to our ever-increasingconsumption of resources. As cities continue to expand, the enor-mity of their contributions to major social and environmentalproblems is only expected to rise. Cities in the future will bear thebrunt of many challenges related to today’s unsustainable energysystems – from air and water pollution to climate change – particularlyas growing populations put increasing pressure on resources.

Cities around the world are working to reduce their ecologicalfootprints, recognizing that they hold the key to mitigating prob-lems through urban planning, building design, and informed choice

of end-use products and energy resources and technologies. Thevery enormity of scale that today appears such a challenge, alsooffers cities the potential to make beneficial changes that will havesignificant 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 energyuse, and as cities become more populated, more and more of theworld’s buildings are found in urban areas. In 2005, Shanghai con-structed more building space than exists in all the office buildingsof New York City; and every month, China adds urban infrastructureequal to that found in Houston, Texas, simply to keep up with themasses of people migrating from its rural areas to cities.

Around the world there is a small-but rapidly-growing move-ment to make buildings ‘green’ – lowering their energy needs, forexample, through efficiency improvements and on-site energyresources. Green buildings incorporate designs and technologiesoften considered new and innovative; in reality, many of these ideas

by Janet Sawin and Kristen HughesIllustration by Amedeo De Palma

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

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have been around for centuries. Architects, planners, and othersare rediscovering traditional ways to light, heat, and cool indoorspaces and adapting them for modern uses.

Lighting accounts for nearly 20 per cent of total electricity con-sumption worldwide, and much of this occurs when the sun isshining. Energy use could be reduced dramatically with simpledesign techniques such as natural daylighting, mirrors and reflec-tive paints, and ‘light shelves’ – horizontal fins at windows that actas shading devices, reduce glare, and allow daylight to penetratedeep into buildings. Technology has improved to the point whereglass transmits light while reflecting unwanted heat. These tech-niques and materials not only offset some of the lighting load, theyalso lower the significant heat gains associated with lighting, reduc-ing air conditioning needs.

Energy demand can be reduced further with modern technolo-gies like motion sensors – which turn lights, appliances, ormachinery off when they are not needed – and energy-efficientbulbs and lamps. Conventional incandescent bulbs convert about10 per cent of energy to light and the remainder to heat. In contrast,compact fluorescent bulbs and light-emitting diodes (LEDs) use farless energy to produce a comparable amount of light while pro-ducing 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 significant amounts ofenergy. Better insulation, proper building orientation, and the useof solar heating and other techniques can dramatically lower energydemand and associated costs, as can reducing the scale of buildings.In developing countries, one of the most cost-effective ways toincrease thermal comfort for the urban poor is to install ceilingsbeneath their roofs in order to reduce heat loss; energy savingsfrom such programs in South Africa have exceeded 50 per cent.

‘Waste’ heat that is vented in conventional large-scale powerplants or in small systems like microturbines or fuel cells can becaptured for heating, cooling, or additional power generation. Suchcombined heat and power systems improve overall efficiency levels

dramatically. The Verdesian, a new building in New York City’sBattery Park, captures heat from a natural gas microturbine to producehot water, increasing overall energy efficiency to 80 per cent orhigher, compared with the 25–35 per cent efficiency of a typical fossilfuel power plant.

During hot months, space cooling is becoming increasinglyimportant to keep cities running. The concrete and asphalt junglesthat replace natural life absorb heat and raise urban temperaturesfurther, creating what is known as the ‘heat-island effect.’ InChina’s major cities, air conditioning accounts for 40 per cent ofthe public’s summer energy demand and is the primary cause ofpower shortages that began in 2003. And in Tokyo, a modelingstudy found that waste-heat emissions from air conditioning areresponsible for one degree Celsius of warming during the summer, exacerbating the heat-island effect. A similar study ofHouston, Texas, found that total waste-heat emissions wereresponsible for warming of up to a half-degree Celsius in daytimeand 2.5 degrees at night.

Another way to reduce energy demand for cooling is to topbuildings with reflective surfaces – such as white paint or metal shin-gles that act as radiant barriers. An Environmental ProtectionAgency-funded study that considered both cooling benefits andheating penalties of such ‘cool roofs’ found significant net savings inenergy use. Green roofs and walls reduce heat gain in summer andthey also insulate buildings from cold in winter. Temperatures onconventional roofs can be 50 degrees Celsius (90 degreesFahrenheit) 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 reduc-tions in the urban heat island effect are possible, with the addedbenefit of less smog. Green roofs also filter and retain storm water,reducing urban runoff problems, and create habitats for birds andrecreational space for people. The integration of intelligent designwith several of the efficiency measures described above can reduceenergy use to half or less than in a comparable conventional building.

Lighting accounts for nearly 20 percent of total electricity consumptionworldwide, and much of this occurswhen the sun is shining.

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Powering Cities Locally Cities can generate power locally in the following three ways:

1. SunshineWherever the sun shines, buildings can become mini-power orheating stations. Solar ‘photovoltaics’ (PVs) generate electricitydirectly from sunlight, often at precisely the time when powerdemand is greatest and electricity is most costly. PV technologyhas advanced to the point where it can literally be integrated intostructures – in roofing 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 gran-ite or marble. Building-integrated PV (BIPV) is now widely used inEurope and is spreading to other regions as well. The IEAestimatesthat BIPVs could meet nearly one fifth of annual electricitydemand in Finland, more than 40 per cent in Australia, and abouthalf of the total in the United States.

Solar thermal systems, which use the sun’s warmth to heatwater and space, adorn rooftops from Freiburg in Germany toJerusalem in Israel and can pay for themselves in just a few yearsthrough fuel savings. Shanghai and other Chinese cities are becominghotbeds for solar energy, driven by the need to reduce coal and oilconsumption. China now leads the world in the manufacture anduse of solar thermal systems.

2. Urban wasteAlthough cities have little land available for energy crops, theyhave an enormous potential resource for biomass energy: urbanwaste. New York City, for example, produces 12,000 tons ofgarbage per day. The waste must be shipped as far away as Ohio,and disposal costs the city more than $1 billion annually. In industrial-and developing-country cities alike, per person generation ofmunicipal waste is increasing with population and lifestylechanges. Due primarily to a lack of resources and disposal sites, asmuch as 90 per cent of the waste in some developing-countrycities is not collected; instead, it is burned or left to rot in thestreets, creating heavy smoke and fumes, water pollution, and disease.

But one person’s trash is another’s black gold: urban waste canbe used to produce everything from cooking fuel for individualhouseholds to grid-based electricity for office buildings and homesor biofuels for modern vehicles. Where waste does make it to landfillsites, methane can be extracted to generate electricity, reducingrelease into the atmosphere of a greenhouse gas (GHG) that is 21times more potent than carbon dioxide. Landfill gas produceselectricity in many U.S. cities, in São Paulo in Brazil, and in Riga inLatvia, and it meets nearly two thirds of power demand for lightingin Monterrey, Mexico.

Waste can also be treated in anaerobic digesters, which breakdown almost any organic material – from paper and yard waste to

Green Roofs for Healthy Cities: Questions for Steven Peck Interview by Karen Christensen

What is the mission of Green Roofs forHealthy Cities?

Our mission is to celebrate andencourage the transformation ofthe building industry, in all of itsmanifestations, into a powerful

force for sustainability within a generation.The integration of living, organic systemswith the lifeless elements of modern build-ing design is essential to achieving thistransformation – the ‘movement,’ if you will,towards a living architecture. Green roofsand green walls are proven systems thatprovide an unbelievably broad range ofsocial, economic and ecological benefits totheir owners and the broader community.After ten years, these technologies and theirnumerous applications continue to capturemy energy and enthusiasm.

How did you get involved in these issues?My background is in sustainable community >>

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water can provide some cities with much-needed energy. Tokyo hasinstalled 2.5 megawatts of wind turbines along its waterfront, andin May 2005 an electricians’ union installed the first commercialwind turbine in Boston, which will provide electricity for theunion’s regional training center. Cities along coastlines or largewater bodies can tap local resources from new directions, helpingto alleviate transmission constraints. The MiddelgrundenWindfarm off the coast of Copenhagen meets four per cent of thecity’s electricity needs and is the world’s largest cooperatively-owned wind power project.

Both New York and San Francisco have proposed projects touse marine energy for power, and some cities are literally tappinglocal water sources for cooling. Paris pumps water from the SeineRiver to run air-conditioning systems, and Toronto uses the deep,frigid waters of Lake Ontario for district cooling. Toronto’s systemhas enough capacity to cool 3.2 million square meters of officespace, or the equivalent of 100 office towers.

Although few cities will meet all their energy needs with distrib-uted renewable resources in the foreseeable future, some urban areasare already doing so. A new district with 1,000 dwellings in Malmö,Sweden, meets 100 per cent of its electricity needs with solar andwind 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, theyhave low-to-zero fuel costs, reducing exposure to fluctuations in fossil

garbage and municipal sewage – into compostable solids, liquidfertilizer, 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 percent of their monthly incomes on fuel for cooking. But low-cost,household-sized digesters fed with feedstock readily available inurban areas can displace dung or firewood, reducing pressure onlocal forests while providing families with a smoke-free and healthierenvironment. And a Tanzanian study found that biogas could savefive hours of household labour daily, giving women and childrenmore time for productive activities.

Many cities – including Frankfurt, Vienna, and Zurich – arealready converting waste to gas for energy, and in 2006, SanFrancisco launched a pilot project to produce power from dogwaste after finding that it accounted for nearly four per cent of theresidential garbage collected. Oslo, Norway, has perhaps the largestsystem in the world that uses raw sewage to produce space andwater heating: heat is drawn from the sewer and transferred to anetwork of water pipes that feed thousands of radiators and faucetsthroughout the city. New technologies can convert even inorganicmaterials – from hospital and industrial wastes to car tires – intoelectricity and transport fuels.

3. Wind and WaterAlthough the potential is limited in urban areas, even wind and

development. I spent more than a decaderesearching the barriers to improving com-munity sustainability, and the role of govern-ment investment in supporting new andemerging environmental technologies. WhenI was first introduced to the concept ofgreen roofs in 1996, it seemed too-good-to-be-true. Here was a technology – basicallyunknown in North America – that facedmany of the classic barriers to marketacceptance: lack of consumer awareness,lack of professional training, lack ofresearch, and a lack of public policy supportfor its implementation. Green roofs help usbuild more sustainable communities by mak-ing them more livable, reducing the burdenon public infrastructure, like storm sewers. Ifimplemented in sufficient numbers, they cansave millions of dollars on energy whilecleaning the air, providing food, allowing for

ecological restoration to protect plants andanimals and taking advantage of the manyrecreational opportunities associated withcurrently-wasted roof spaces.

Has the response in Canada been suffi-cient to date?We've been advocating for green roofs since1999, and we've achieved a lot: there arededicated green roof research facilities inVancouver, Calgary, Toronto, Ottawa, Montrealand Halifax, to name a few. What we have notyet accomplished is widespread acceptanceof the value of significant public investment ingreen roofs as a form of public infrastructure,similar to roads and bridges. As a nation, wedesperately need to find more cost-effectivemethods of revitalizing our urban infrastruc-ture. Green roofs have the distinct advantageof delivering multiple public benefits, including

energy efficiency, cooling the urban ’heatisland’ and reducing smog formation; but theyare still the ‘new kid on the block.’ Most of thepublic investment to date is coming fromcities such as Chicago, Seattle, Washingtonand Toronto. Senior levels of governmentneed to recognize that high-performancegreen buildings are one of the key approachesto dealing with the growing infrastructuredeficits in our cities. If one new building gener-ates more renewable power than it uses andsupplies it to the grid, cleans the air, harvestsrainwater, processes it own sewage and man-ages its own organic waste, for example, it isimpressive but not big deal: but if 500 or1500 buildings are designed to do that over adecade, you have enormous potential forinfrastructure savings. We say, let’s shift pub-lic resources from all three levels of govern-ment in this direction. >>

Green Roofs for Healthy Cities: Questions for Steven Peck (Cont’d)

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Janet Sawin, Ph.D. is Senior Researcher and Directorof the Energy and Climate Change Program at theWorldwatch Institute, an independent research organi-zation based in Washington, DC. Kristen Hughes is a

research associate and doctoral candidate at the Center for Energy andEnvironmental 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

fuel prices. They also have far lower impacts on air, soil, and waterand, as a result, on human health than conventional fuels and tech-nologies, and can provide a reliable and secure supply of energy.

In closingCities have an unprecedented opportunity to change the way theysupply and use energy. New eco-cities such as Dongtan in Chinaare leading the way, even as existing cities turn to technologiesrooted in the past – from adobe architecture to passive solar heating.

When complemented by conservation, more-efficient tech-nologies, and new decentralized, small-scale energy services, theseefforts can help cities confidently navigate the challenges aheadwhile reducing the impact of climate change. Done right, energytransformation in cities can be the doorway to security and vitalityin urban life.

What advice do you have for readers whowant to get involved?If you work in the building industry, activelywork to promote living architecture. Design-ers and installers can work towards becom-ing Accredited Green Roof Professionals, a

Selected Municipal Energy Targets Figure 1

City Target

Beijing Reduce energy intensity of the city’s economic output by 32 per cent between 2004 and 2010

Berlin Incorporate solar water heating into 75 per cent of new buildings

Copenhagen All new buildings must rely on district heating(electric heating banned)

Leicester, UK Reduce municipal building energy use 50 per cent from 1990 level by 2025

Melbourne Increase municipal use of renewable energy by 50 per cent from 1996 levels and private use by 22 per cent by 2010

Portland, Oregon 100 per cent green power for municipal government by 2010; all new city-owned construction to meet LEED Gold certification

Tokyo Renewables proposed to supply 20 per cent of total energy by 2020

professional designation that we are launchingin 2009; and there are courses on greenroofs and walls offered in every major city inCanada. If you are a consumer and you own abuilding, make sure that it is operating effi-ciently and make plans to install a green roofthe next time you replace yours. In theshort term, consider installing a green wall.If you are part of an organization that is build-ing new buildings, require that they are LEEDPlatinum – the highest green building ratingfrom the Canadian Green Building Council.Make sure that the financial model you areusing allows for longer-term paybacks ongreen building elements such geothermal and‘solar photovoltaic’ systems.

Looking ahead to the year 2020, what willsuccess look like for your organization?When green roofs and walls have become a

mainstream building practice in Canada andthe U.S., we will have gone a long way toachieving our goals. We need to be able tomeasure green roof and wall installation insquare miles instead of square feet. Eachyear we survey our members to determinethe square footage of green roofs installedand publish a ‘top ten’ city list. Right now,there are no Canadian cities on this list. By2020, I’d like to see three of the top tencities be Canadian.

Visit greenroofs.org for a searchable data-base of members, a Web-enabled Life-CycleCost Benefit Calculator and a searchabledatabase of research studies and polices.

Steven Peck is the founder and president ofGreen Roofs for Healthy Cities. For more,visit greenroofs.org

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To maximize happiness, consumers must accurately predict the emotional consequences of their options

and make choices based on these predictions.

by Claire Tsai and Christopher Hsee

HEDONOMICS IN CONSUMER BEHAVIOR

OR THOUSANDS OF YEARS, philosophers and theologistshave debated how to attain joy and avoid misery. Inrecent decades, the debate has expanded to includeconsumer 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

The following analogy illustrates the distinction betweenthese approaches: suppose a child loves wooden blocks and

possesses a set. He has played with them for a while, and becomesbored. How can he increase his happiness? One approach wouldbe to obtain more blocks; the other would entail finding a newand better way to combine the existing pieces and build moreenjoyable projects.

The first approach is most widely embraced by consumers inour society, who generally seek to earn more money to buy moreand more goods. The second approach is the focus of this article:it involves seeking to optimize the relationship between externalstimuli and happiness without having to increase the magnitude ofthe external stimuli. We refer to this approach as ‘hedonomics.’

Hedonomics would not be important if either of the follow-ing statements were true: first, that ‘happiness depends primarilyon the magnitude of a desired external stimuli;’ and second, that‘consumers fully understand the relationships between externalstimuli and happiness, and in making consumption decisions

F

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they are already maximizing their happiness.’ As we will show,both of these statements are false.

Hedonic EditingProspect Theory, developed by Daniel Kahneman and AmosTversky, was originally proposed to describe ‘choice under risk,’but the theory also has important implications for consumerexperiences. An individual’s experience with an external stimulusdepends not on its absolute magnitude, but on the differencebetween the absolute magnitude and some reference point. Apositive difference is felt as a ‘gain’ and evokes a positive experi-ence, whereas a negative difference evokes a ‘loss’ and a negativeexperience. Per Kahneman and Tversky, the negative experienceevoked by a loss is more intense than the positive experienceevoked by a gain of the same magnitude – a principle they havetermed ‘loss aversion.’

Building on Prospect Theory, researchers have proposed a setof strategies to maximize happiness termed ‘hedonic editing’:

Strategy 1: If a consumer has two good events to enjoy (e.g., din-ing out with a charming friend and watching a favorite video), sheshould enjoy them on separate occasions, because multiple gainswill yield greater total happiness if they are experienced separatelythan 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 toexperience them in close proximity, because multiple losses willyield less total pain if they are experienced as one integrated lossthan if they are experienced separately.

Strategy 3: If a consumer has a big/bad event and a small/goodevent to experience, she should experience them separately.

Strategy 4: If a consumer has a small/bad event and a big/goodevent to experience, she should experience them in close proximity.

Quantity and Value Most utility theories assume that more of a desired stimulus isalways better. For example, an airline passenger will always be hap-pier if she receives 3,000 bonus miles than if she receives 2,000

bonus miles. However, recent research suggests that whether con-sumers are sensitive to the magnitude (for example, amount, quan-tity, duration, probability, or mileage) associated with a stimulusdepends on at least two factors: evaluation mode and the evaluabil-ity of the relevant attribute.

The evaluation of any stimuli proceeds in one or some combi-nation of two modes: joint evaluation (JE) and single evaluation(SE). In JE, two or more stimuli are juxtaposed and evaluated com-paratively. For example, if a passenger receives two sets of bonusmiles from two different airlines, she is ‘in JE’ of these two bonus-es. Under SE, only one stimulus is present and evaluated inisolation; for example, when a passenger receives only one set ofbonus miles at a time.

Does 3,000 bonus miles always make a consumer happier than2,000 bonus miles? Not always. Passengers receiving 3,000 bonusmiles are not going to be happier than passengers receiving 2,000bonus miles if they do not compare the awards in JE. If passengersare in SE and if they are not familiar with the distribution or rangeof such promotions (i.e., mileage being an attribute low in evalua-bility), they will not be happier with the 3,000 miles.

Life often presents itself in SE. For example, most passengersdo not receive multiple sets of bonus miles from different airlinesat the same time. However, passengers often have to make pur-chase decision in JE: for instance, they simultaneously comparemany airline companies when planning a trip. Furthermore, con-sumers do not have much information about the range anddistribution of most product attributes. Thus, more of a good thingdoes not necessarily make consumers happier.

Hedonic AdaptationMany things consumers care about change over time. If a stimulusone cares about changes – for example, moving from a small apart-ment to larger unit – one will first experience a positive feeling andwith the passage of time the elevated feeling will fade away. Thisphenomenon is called ‘hedonic adaptation.’

Hedonic adaptation occurs for multiple reasons. One is basicpsychophysical adaptation: the longer we are exposed to a stimulus,the less sensitive we feel about it. For example, when a person firstimmerses his hand in 50 degree water, he will feel cold. After a whilehe will adapt to the temperature and no longer find the water cold.Another reason for hedonic adaptation is dilution of attention. For

If a stimulus we care about suddenly improves, we will first experience a positive

feeling, but with the passage of time the elevated feeling will fade.

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Obstacles to Maximizing Happiness

Following are eight types of consumptionbiases that serve as obstacles for maxi-mizing happiness.

1. Impact Bias When asked to predict the experiential con-sequence of an event (e.g., moving to a largerapartment), consumers often ignore thepower of adaptation and thereby overpredictthe duration and the intensity of the experi-ence. Impact bias can be attributed to twothings. One is ‘neglect of ordinization:’ whenan emotion-triggering event happens, peoplewill make sense of it and make the eventseem ordinary. Yet most people underesti-mate this ordinization effect. The second rea-son for impact bias is ‘focalism’: consumerspay too much attention to the focal event,overlook the dilution-of-attention effect andthereby overestimate the affective impact ofthe focal event.

2. Distinction BiasThis bias arises because consumers are in dif-ferent evaluation modes during prediction ver-sus consumption and they often overestimatethe effects of product attributes that can dis-tinguish one option from another. Predictionsare often made in joint evaluation (JE), andconsumption often takes place in separateevaluation (SE). For instance, prospectivehouse buyers typically compare alternativehomes in JE and predict their experiences.When they actually live in a home, they experi-ence that place alone in SE. If consumers donot realize the distinction bias, they may sac-rifice things that are actually important totheir consumption experience (e.g., the avail-ability of indoor parking) for things that are notas important (e.g., the difference between1,250 and 1,500 square feet).

3. Belief BiasConsumers may expect adaptation when itdoes not exist. For example, in one study,students believed that their liking for theirfavourite ice cream would decrease if theyhad it every day, but in reality their likingdid not decrease as much as predicted.Another common belief is that moreoptions are always better; but whetherthat is true depends on the size of thechoice set, the mode of evaluation, and thelevel of involvement.

4. Projection Bias Consumers often find themselves in differ-ent visceral (i.e. arousal) states. When individ-uals in one visceral state predict experiencesin another visceral state for themselves orothers, they often project their current stateinto their predictions. For example, if a per-son is full now, she will underestimate howmuch she will enjoy her next meal when sheis hungry again; and hungry shoppers at agrocery store may buy more items than theyneed and have planned to buy, unless theyare reminded of their grocery list.

5. Rule-based Choice Consumers may base their choices on fac-tors other than predicted experience. Onesuch factor is ‘decision rules’, which simplifydecisions and sometimes lead to optimalconsequences under certain circumstances.Once these rules are internalized, peopleover-apply them to circumstances wherethey do not lead to experientially-optimalchoices. An example of a decision rule is ‘don'tpay for delays.’ Consumers may intuitively rec-ognize the pleasant feeling of anticipationand predict greater happiness from a concertthat will take place in a week than a similar

concert that will take place tonight, yet theyare not willing to pay more for the concert in aweek, presumably because they want toadhere to the ‘don’t pay for delays’ rule.

6. Lay RationalismConsumers have a general tendency toresist immediate affective influence andbase their choice on factors they considerrational. For example, people have a tenden-cy to base decisions on ‘hard’ (objective andquantitative) attributes rather than ‘soft’(subjective and hard-to-quantify) attributeseven though the soft attributes have moreimpact on their happiness.

7. Impulsivity Consumers sometimes behave impulsivelybecause they mispredict the consequences.For example, some people regularly eat fattyfoods because they underpredict the nega-tive consequences in the future. But moreoften than not, consumers commit impulsivebehaviour even though they are keenly awareof its aversive consequences, but they cannotresist the temptation. Impulsive choosers failto base their choice on what they predict willbring 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 isusually not the outcome, but a ‘medium’ – aninstrument that they can trade for the desiredoutcome. For example, points for consumerloyalty programs and mileage for frequentflyer programs are both media. In decisionsinvolving a medium, consumers may maxi-mize the medium rather than their predictedexperiences with the ultimate outcomes.


example, after a person moves to large apartment from a smallerspace, she will first be overjoyed with the extra size, but beforelong, her attention will shift away from the house to many otherthings, 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 eventsthat cause the ups and downs of her daily life.

A third reason for hedonic adaptation is what has been referredto as ‘ordinization.’ Once an affective event happens, consumershave a tendency to rationalize it, make it seem ordinary, and therebydampen its affective impact. This can happen to both positive andnegative events. For example, if a bidder wins an auction for a

painting on eBay, he might think to himself, “It’s no surprise. I bida lot for it.” But if he was outbid, he might justify the loss by think-ing, “It wasn’t a very good painting anyway.”

Hedonic adaptation occurs mostly when the new stateremains stable, for example, when a person remains in the newapartment after moving or a person remains paralyzed after anaccident. However, many events we care about constantly changeover time – for example, gas prices, stock prices and body weight.

How do people react to such ongoing changes? First, ourmomentary experience with such changes depends on the direc-tion of the change: positive if the change is in the desirable

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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 ChoiceMany believe that having a choice is always better than having nochoice, and that having more choices is always better than havingfewer. In reality, neither is true.

Research shows that if consumers have to experience one of sev-eral undesirable options, they will feel less unhappy if someone elsemakes the choice for them than if they have to make the choice them-selves. For example, a consumer who is on a diet and can only eatmeals that are unappealing to her will feel better if someone else chosethe meal for her than if she has to make a choice herself, because mak-ing a choice among unappealing meals induces negative feelings.

Furthermore, when people make a choice themselves, theywill be less satisfied with that choice if they have many options tochoose from than if they have only a few options to choose from.Too many options can be de-motivating because they are toocomplex and involve too many tradeoffs for consumers to man-age. For example, shoppers would be less happy with thechocolate they chose if they had 30 truffles to choose from thanif they had only six options.

Having more than one option can reduce happiness, too. Thatis, if consumers are presented with one good option, they will behappy, but if they are presented with two good options, they willnotice the disadvantages of each option relative to the other andwill be less happy with either option. For example, if a consumerwins a free trip to Paris, she will be happy; if the consumer wins afree trip to Hawaii, she will also be happy. But if the consumer winsa free trip and has to choose between Paris and Hawaii, she may beless happy, because each option contains shortcomings comparedwith the other: Paris does not have Waikiki Beach, and Hawaii doesnot have the Louvre.

Finally, research shows that consumers will be less happy withtheir decision if they closely consider the options available to themthan if they do not. In most cases a consumer can choose only oneof the available options and has to forego the other options. Closedeliberations can prompt consumers to form an emotional attach-ment to all the options, including those they have to forego. Thus,

choosing one feels like ‘losing’ the others to which they alreadyhave some emotional attachment.

Cognitive Utilities Imagine that a person participated in a sweepstakes a month ago,and was just informed that she had won a three-day vacation toParis. What is the utility of this trip to her?

Intuitively, one would say that the utility is the happiness shederives from the vacation, which can be referred to as ‘consumptionutility’. But besides that, she experiences three other types of utility:

1. ‘news utility’ – the feeling she experiences upon hearing thenews that she won the vacation 2. ‘anticipation utility’ – the feeling she experiences whenanticipating the trip 3. ‘memory utility’ – the feeling she experiences when recallingthe trip afterwards

We recently conducted a study in which students were prompt-ed to report their momentary experiences five times throughout theduration of a class. The first time was about 15 minutes into the class(which established the baseline of happiness). The second time wasimmediately after the instructor announced that he would give eachstudent a KitKat to eat later in the class; it measured news utility.The third time was about 10 minutes after the announcement of thenews; it measured anticipation utility. The fourth time was rightafter the students had received the chocolate and were eating it; itmeasured consumption utility. The last time was some 10 minutesafter the consumption; it measured memory utility.

Compared with the baseline, the students reported the greatesthappiness when they heard the news, followed by when they ate thechocolate, and lastly when they anticipated and recalled the con-sumption. This study indicates the possibility for news to generateeven greater happiness than consumption.

Memory of past events can influence happiness in two ways.First, consumers may relive a positive (versus negative) experiencefrom their past and derive positive (versus negative) utility whenrecalling the past (consumption effect). For example, a person canderive pleasure by recalling the details about her last trip to Paris.Second, past experience can create a contrast effect or an assimila-tion effect on one’s current experience. Which effect will dominate

Consumers will be less happy with a decision if they closely consider the available options than if they do not.

20635 44-49 3/28/08 3:23 PM Page 48

M A K E A S M A RT I N V E S T M E N TInvest in Rotman and provide

today’s students with all

the opportunities that you

experienced and more.

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To make a secure gift of support to the Rotman Vision Fund online,

simply visit www.rotman.utoronto.ca/supportrotman.

Your tax creditable donation, large or small, will make a difference.

Join your friends and colleagues and invest in Rotman today!

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[email protected], or 416.946.3975.


depends on the context. If the past event is similar to the currentevent (e.g., a fancy French dinner versus a mediocre French dinner),the past experience will create a contrast effect; if the past event isdissimilar to the present event (e.g., a fancy French dinner versus amediocre movie), it will create an assimilation effect.

Intuitively, the primary source of happiness that a desirablestimulus (e.g., a chocolate bar or a vacation) brings is the consump-tion of the stimulus, whereas news, anticipation and memory are allsecondary. In reality, these cognition utilities may comprise a largeportion of the happiness – sometimes even larger than consump-tion. Consumption utility is like a light source, and cognition utilityis like its halo: without the light source, there will be no halo. Butwith the light source, the halo may be brighter than the source itself.

In closing Hedonomics challenges two commonly-held assumptions in eco-nomics: that maximizing a desired external stimuli equals maxi-mizing consumer happiness; and that what consumers choosereflects what makes them happy. A better understanding of these

topics can potentially increase consumer happiness withoutexpending more financial resources.

In the end, to create a good wooden-block project, a childneeds to accurately predict what a project will look like if he com-bines the blocks in a particular way, and combine the blocks basedon his predictions. Likewise, to achieve happiness, consumers needto accurately predict the affective consequences of their optionsand make their choices based on these predictions.

Claire Tsai is an assistant professor of Marketing atthe Rotman School of Management. ChristopherHsee is the Theodore O. Yntema Professor ofBehavioral Sciences and Marketing at the Universityof Chicago’s Graduate School of Business.

This is an excerpt of a chapter that appears in the Handbook of ConsumerPsychology (Routledge, 2008). For a copy of the full paper, e-mail [email protected]

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by Dan Ariely, George Loewenstein and Drazen Prelec

TOM SAWYERAND THE

CONSTRUCTION OF VALUE

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N A FAMOUS PASSAGE of Mark Twain’s novel Tom Sawyer, Tomis faced with the unenviable job of whitewashing his aunt’sfence in full view of his friends who will pass by shortly, andwhose snickering promises to add insult to injury. When hisfriends do show up, Tom applies himself to the paintbrush

with gusto, presenting the tedious chore as a ‘rare opportunity.’Tom’s friends wind up not only paying for the privilege of takingtheir turn at the fence, but deriving real pleasure from the task – awin-win outcome if there ever was one. In Twain’s words, “Tom haddiscovered a great law of human action, without knowing it –namely, that in order to make a man covet a thing, it is only necessaryto make the thing difficult to attain.”

There are no mysteries in what painting a fence entails. Hence,‘Tom’s Law’ challenges the intuition that whether a familiar activi-ty or experience is pleasant or unpleasant is a self-evident matter, atleast to the person participating in that activity. If true, Tom’s Lawwould pose a fundamental challenge to economics: in a worldwhere people don’t reliably know what they like, it cannot beassumed that voluntary trades will improve well-being or thatmarkets will increase welfare.

Recent research by psychologists and behavioural economistssuggests that Twain’s notions about human nature may be on themark, at least in some situations.

Testing Tom’s LawIn a set of experiments that document a phenomenon we havelabeled ‘coherent arbitrariness,’ we found that valuations ofgoods and experiences have a large arbitrary component; yet,

after one valuation has been made, subsequent valuations arescaled appropriately relative to the first.

In our first study we sold consumer products ranging in valuefrom $10 to $100 (computer equipment, wine bottles, boxes ofchocolate, books) to MBA students. The students were presentedwith one product at a time and were asked whether they would buyit for a price obtained by converting the last two digits of theirsocial security number (a random identification number) into adollar figure, 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 securitynumber is a random quantity, those who happened to have highsocial security numbers were willing to pay much more for theproducts. Students with social security numbers in the bottom 20per cent of the social security number distribution priced on averagea 1998 Côtes du Rhone wine at $8.64, while those with social securi-ty numbers in the top 20 per cent of the distribution priced onaverage the same bottle at $27.91.

If consumers’ valuations of goods are so malleable, why doesone observe stable demand curves in the marketplace? A secondaspect of our study provides a clue. If one looks across the differentgoods that were sold, it is evident that while absolute values weresurprisingly malleable, subjects did seem to have a sensible idea ofthe relative values of the different goods. After we made it clear tothe students which wine was superior (according to Wine AdvocateMagazine), all students priced the relatively-costly bottle of wine (a’96 Hermitage Jaboulet ‘La Chapelle’) higher than the average bottle

Consumer valuations of goods and services are much more arbitrary than providers of products and services may think.


I

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(a ’98 Côtes du Rhone). The students did not know how much theypersonally valued either bottle, as demonstrated by the impact ofthe arbitrary social security number, but they did know that thesuperior wine was worth more than the inferior wine, and theypriced them accordingly.

A researcher who looked at our data but did not know aboutthe social security number manipulation would conclude that theseconsumers were behaving perfectly in line with economic theory:the more valuable products were indeed priced higher than the lessvaluable ones. But the impact of the social security number manip-ulation shows that valuations, in fact, incorporate a high degree ofarbitrariness. Although the effect of the arbitrary social securitynumber on valuations was dramatic, one could argue that the resultcrucially exploited subjects’ uncertainty about what these goodswere worth, either to them or in the market (for resale perhaps).

We recognized that a stronger test would require a ‘good’ thatcould not be traded but that could be experienced, and hence fullyunderstood, before the valuation task. Our next experiment elicitedsubjects’ willingness to accept compensation in exchange for listen-ing to aversive sounds delivered to subjects through headphones.The benefit of using sounds is that subjects can be given a samplethat provides full information about the experience, while at thesame time their responses cannot be tainted by the market prices forsuch experiences (since there is no market for annoying sounds).

In one representative experiment, we told subjects that theywere about to hear an unpleasant sound played over headphonesand asked them to consider, hypothetically, whether they would bewilling to listen to the sound for 300 seconds in exchange for anamount that they composed from the last three digits of theirsocial security number (e.g., 287 = US$ 2.87). After hearing a sampleof the sound and making this hypothetical choice, subjects thenstated 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 minimumfell 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-and-a-half times as much to hear the 300-second sound as to hear the100-second sound, and half again more to hear the 600-secondsound. However, subjects with lower-ending social security numbersdemanded much less compensation than those with higher numbers.These results showed that individuals did not seem to have a pre-existing personal dollar value for ordinary products and experiences.

‘Good’ vs. ‘Bad’ ValuationsTaking these findings as a starting point, we set out to answer amore basic question: do people have a pre-existing sense ofwhether an experience will be good or bad? Tom’s Law suggeststhat they do not – that the exact same experience can be desiredor avoided, depending on context and presentation. Indeed, ourresearch indicates that individuals can be made to classify experi-ences as either ‘positive’ or ‘negative’ depending on whether thepreceding question asked them if they would pay or needed to bepaid for the experience.

The next experiment we conducted demonstrates the basiceffect of Tom’s Law by testing whether there are experiences thatindividuals perceive as inherently positive or negative. The studycomprised 146 students in an undergraduate Marketing class at theUniversity of California at Berkeley. At the end of class, respon-dents were told that in a week’s time, their professor would beconducting a 15-minute poetry reading from Walt Whitman’sLeaves of Grass. Half of the respondents were then asked whetherthey would be willing to pay $2 to listen to their professor recitepoetry; the other half were asked whether they would accept $2 to

Individuals do not seem to have pre-existing dollar values for ordinaryproducts and experiences.

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attend the recital. All respondents were then told that the poetryreading scheduled for next week was going to be free, and wereasked to indicate if they wanted to be notified via e-mail about itslocation and time. The goal of this question was to test whether theinitial hypothetical question affected whether respondents viewedthe experience as positive (meaning that they would like to attendif it was free) or negative (meaning that they would prefer not toattend if it was free).

The results showed that the poetry reading did not have greatappeal: only three per cent of the respondents were willing to pay$2 to listen to their professor recite poetry. However, most (59 percent) respondents were willing to endure the recital for $2. Moreimportant was the response to the second question: the percentageof respondents willing to attend the free recital was 35 per cent forthose who had first been asked to pay for the experience, but onlyeight per cent for those who had been offered cash to attend.

Our second experiment examined consistency within an indi-vidual across responses, showing that after one arbitrary responseis given, other responses follow in a seemingly coherent fashion.Half of the respondents in a large class at MIT were first askedwhether they would be willing to hypothetically pay $10 to listen totheir professor recite poetry for 10 minutes, followed by a requestto indicate their monetary valuations for one, three and six minutesof poetry reading. The other half were first asked the same question,only in terms of being paid for the experience.

After indicating their prices, respondents were asked similarquestions about their willingness to participate in a different studyon decision-making. Subjects who had been asked about their will-ingness to pay to listen to poetry were asked to accept $10 forparticipating in the new study for 10 minutes. Subjects who hadbeen offered compensation to listen to poetry were asked abouttheir hypothetical willingness to pay $10 for participating in thenew study for 10 minutes. Subjects were then asked to indicatetheir monetary valuations for participating in the new study forone, three and six minutes.

The evidence shows that valuations were strongly influencedby the initial question. Individuals in the pay condition were, onaverage, willing to pay for the experience. Individuals in the accept-payment condition, on the other hand, required compensation toundergo the same experience. Respondents consistently indicatedhigher sums of money for longer durations, whether it was a matterof paying for or being paid for the experience. These results showthat respondents did not have a pre-existing sense whether thepoetry 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 Tom’s Law holds evenwhen the random assignment of individuals to either the ‘pay’ or ‘bepaid’ condition is made transparent, addressing the concern that

the subjects might have taken the initial question as a cue about thequality or value of the poetry reading event. In this study, beforeproviding any response, subjects heard a one minute sample ofpoetry read by their professor. Direct exposure to a sample of theexperience should diminish the significance of any indirect cues.Second, the instructions made explicit that there were two differentconditions, and that the assignment to one or the other conditionwas random.

The experiment began with the professor announcing that in afew days he would be conducting a poetry reading from Leaves ofGrass. He read some sample verses from the book, then stated thatthe full reading would last 15 minutes. On the instruction sheet,subjects were asked to write down the last digit of their social secu-rity number. If the number was odd, subjects were asked to insertthe number into the sentence: “Would you attend the poetry read-ing for a payment of $…,” and then answered it with either a YES ora NO. If their number was even, they were asked to insert the num-ber into the sentence: “Would you pay $… in order to attend thepoetry reading,” and then answered with a YES or a NO. Both sub-jects were then asked a series of further questions to ascertain howmuch they would be willing to be paid to attend the recital, or payto attend, or whether they would prefer to attend for free.

On the initial question, a majority of subjects (63 per cent) werewilling to attend the recital if paid the dollar equivalent of theirdigit, but only 20 per cent were willing to pay that equivalent toattend. More importantly, the subsequent valuations of the readingwere strongly influenced by the initial question. Of those who ini-tially considered whether they would attend if paid, only nine percent were willing to attend for free, in contrast to the 49 per cent ofthose who had been asked to pay for the reading. Interestingly, inthis study the actual digit of the social security number had noeffect on valuations or on willingness to attend for free, after con-trolling for whether the digit was odd or even. It seems that themain impact of the anchoring question was to determine whetherthe subjects perceived the experience as positive or negative, nothow positive or negative.

The Phenomenon of Coherent ArbitrarinessPeople make a myriad of choices every day, ranging from the trivialto the profound: we decide whether or not to purchase a Big Mac,to smoke, run a red light, take a vacation in Patagonia, listen toWagner, work away at doctoral dissertations, marry, have children,live in the suburbs and so on. The apparent orderliness in thesechoices and their stability for a given individual encourages one tobelieve that such choices are firmly rooted in personal likes anddislikes, in fundamental values.

We suggest, in contrast, that correct directional responses tochanging incentives do not provide strong support for fundamentalvaluation, but can follow from the fact that people try to behave in


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Dan Ariely is the Alfred P. SloanProfessor of Behavioral Economicsat MIT’s Sloan School ofManagement and a visiting pro-fessor of Marketing at Duke

University’s Fuqua School of Business. He is the author of Predictably Irrational: TheHidden Forces that Shape Our Decisions (HarperCollins, 2008). George Loewensteinis the Herbert A. Simon Professor of Economics and Psychology at Carnegie-MellonUniversity and a founding father of the field of Neuro-Economics. Drazen Pralecis a professor of Management Science at MIT’s Sloan School of Management.

A longer version of this article originally appeared in the Journal ofEconomic Behavior & Organization (Vol.60), published by Elsevier.

a sensible manner when it is obvious how to do so. If earlier choicesare recalled, the next time a similar choice situation arises, decisionmakers will attempt to behave in a fashion that does not violateobvious rules of consistency. If one was willing to pay X$ for companyY’s stock yesterday, then today’s announcement of an unexpectedlyprofitable quarter should make one willing to pay more than X$.Such a sensible decision-making heuristic, however, tells us nothingabout whether yesterday’s valuation was reasonable.

The degree of coherence and arbitrariness in any set of choicesis likely to depend on many factors. Arbitrariness is enhanced byambiguity in a good or bad experience. We deliberately selected asomewhat ambiguous experience in the three experiments discussedabove; clearly, some experiences are unambiguously good or bad. Atthe same time, many of the most important decisions that peoplemake (about marriage, education, emigration, jobs and vacations)involve streams of heterogeneous experiences that are arguablyeven more difficult to assess and hence are even more vulnerable toarbitrary influences and conventions than our simple poetry-read-ing proposition. Is a vacation that includes peaceful hours ofreading on the beach, delicious meals, but also screaming children,money worries and stressful transportation a good thing or a badthing, on balance? This is a difficult question to answer.

In general, we should expect to see the greatest degree of coherencewhen an individual can look back on previous decisions, and makea choice that is consistent with preceding ones. These require-ments are regularly satisfied in a narrow range of decisions, ofwhich financial transactions are perhaps the best example. Even inhighly-rationalized financial markets, however, we have no assur-ance that the absolute level of prices are ‘sensible’. A stock’s value issupposed to reflect individual investors’ estimates about that com-pany’s expected stream of future earnings, appropriatelydiscounted, but estimates of future dividends are inherently uncertainand there is no agreed-upon discount rate. When we look at short-term fluctuations in prices, we do indeed see stock pricesresponding appropriately to good or bad news about individualcompanies or the economy as a whole. In the long-term, however,markets exhibit wide fluctuations that are completely out of linewith historical fluctuations in valuations. Day by day, investors cansee the coherence in short-term market responses, but nothing signalsclearly whether the market is over- or under-priced as a whole.

In closingCoherent arbitrariness violates some basic economic assumptionsabout how the ‘general equilibrium’ of an economy comes intoexistence. Modern Economics assumes that consumer preferencesinteract with ‘technologies’ and initial endowments to produce

equilibrium prices and production levels. However, this analysisfalls apart if preferences are themselves influenced by the veryequilibrium states that they are presumed to create.

Indeed, in the domain of economic decision-making, the mostpowerful anchors may well be the public parameters of the economyitself – the relative prices and scarcities of different commodities.By posting a price for a new product, for instance, a firm invitesconsumers to consider whether they would purchase at that price,replicating the anchoring manipulation we conducted in our exper-iments. If prices and other economic parameters function as ‘publicanchors’, then consumer tastes no longer exist independently ofprices but are endogenous to the economy. In that case, the equilibriumprice and production levels of the economy are no longer uniquelydetermined 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 thelevel of the individual: if preferences have a large arbitrary compo-nent, then even strictly-personal consumption choices byfully-informed individuals need not maximize welfare. Moreover,when people are uncertain about the quality of consumptiongoods, initial choices can have big effects on market outcomes: if asmall number of early diners arbitrarily choose new restaurant Aover new restaurant B, Acan end up packed and B empty. The scopefor such effects is enlarged to the degree that people are uncertainabout their own preferences. Our research suggests that the degreeof uncertainty may be very substantial, even when consumers haverelevant experience with the objects of choice.


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DESIGNING SUSTAINABLE RETAIL ENVIRONMENTS

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Considering a shopper’s context is the key to understanding their motivations and making green products and services relevant to them.

by Steve Bishop and Dana Cho


NOT THAT LONG AGO, the word ‘consumption’ was used to describe aninfectious disease. Today, it’s a powerful economic force that drivesour economy. ‘Green’ used to be a colour, but it too has taken onnew meaning, representing an increasing demand for a lifestyle thatdoes not compromise our environment. While these two forceshave traditionally been at odds, more and more consumers andretailers are showing that they can be aligned for the benefit of all.

We recently set out to explore the opportunities for environ-mental sustainability that exist at the very heart of any consumersociety: the retail space. What we found was an unexpected discon-nect between the retailers and consumers that are pursuingsustainability. Frustrated retailers claim, “I want to sell green prod-ucts, but my customers aren’t asking for them.” Others have tried,failed, and concluded that it doesn’t work. On the flip side, anxiousshoppers are saying, “I want to buy green, but there are too fewoptions available.”

Evidence supports both claims: 87 per cent of people say theyare seriously concerned about the environment, yet studies indi-cate that sustainability does not often factor in their purchasingdecisions. 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 aconsumer, I may understand the effects of chemical cleaners on ourwater supply and resolve never to buy them again; but when I’m atthe store with both kids, 30 minutes before dinnertime, and I needclean clothes before my in-laws arrive tomorrow, my impact on the

water supply is the last thing on my mind. Surveys like the one ref-erenced above provide valuable information on people’s opinions,but when those same people are placed in the context of their actu-al purchasing decisions, new motivations surface.

If a brand is the relationship between a business and its cus-tomers, the retail space is its most visceral conversation. By betterunderstanding what shoppers desire from green offerings and whatmatters in the context of their shopping experience – i.e. time andconvenience – products and services can connect with people in amore relevant way.

Some retailers have begun to address these issues. Wal-Mart,for instance, has made great strides by building a green dimensioninto its supply chain, and as a result, more green products aremaking it onto its shelves. Other retailers like REI have taken alead-by-example approach, either by making their retail spaceitself green, or by educating shoppers as to what’s available.

Such examples indicate valuable supply-side accomplishments.The bulk of the untapped opportunities, however, lie in makingsustainability desirable, on the demand-side – i.e. in the realm of con-sumers. Following are four latent opportunities for retailers andsome provocative ideas they can inspire.

1. Consider ‘Shopping Modes’ Not all shopping is equal. When people shop, they do so in one offive different ‘modes’ (see Figure 1). Needs and desires change witheach mode, and the mode a shopper assumes depends entirely on

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context. By considering shopping modes, retailers can begin toexplore latent and overlooked possibilities for sustainability. Forexample, the ‘Mission Mode’ – whereby shoppers want to get inand get out quickly – may not seem like a promising mode to startwith; but once we recognize that time is valued above all else bythis shopper, we can look at how sustainability might address that.For instance, could we eliminate the need to spend time and fueldriving to the store? Could green alternatives be placed in moreconvenient locations?

For ‘Background Shoppers’, retailers may push the benefits ofsustainability rather than removing the barriers to it. What ifshelves included cut-out sections featuring a green experience?Imagine a ‘morning shower’ cutout that features organic soaps, awater-saving showerhead, and non-chlorine bleached cotton towels.Background shoppers open to new ideas might try one or all ofthem. Supporting shopping modes puts people back in the centre ofthe equation. It gets beyond survey results and into solutions thathelp people take action.Questions for further exploration:

1. What modes do my customers exhibit and how mightsustainability 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 rarelydescribe a specific thing, or even a space: instead, they talk aboutcomplex, 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 ahotel: she talked about the time of day, the way the light was shining,the conversation, the music, and the service they received – allcontributing 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 weath-er into a memorable moment. Such moments inspire, and inspirationis important. Many retailers feel they need to educate shoppers abouttheir green efforts in order to connect with them. True, there are newdimensions to green that need to be communicated, but withoutinspiration, those educational messages can get lost.

A ‘local’ sticker on an avocado may inform that it is local, butis that enough to make someone want to buy it? How mightstores enable moments that inspire shoppers on the importanceof buying local?

Shopping Modes

Mission Mode: These shoppers are looking for something specific,and basically want to ‘get in, and get out.’ Anything that distractsfrom their mission is ignored. Time is valued above all else. Offeringnew information is met with impatience and shut down.

Restock Mode: For these shoppers, the level of emotional involve-ment is incredibly low. Shopping is about replenishing the basics:it's a commodity experience. Shoppers are on autopilot and resortto habits rather than new ways of engaging.

Background Mode: These shoppers use shopping to accomplishsomething more important. Shopping with friends is ‘background’ toconversation – the more valuable outcome. Purchases are inciden-tal, yet these shoppers are open to new ideas. On-site coffee andfood offerings enable this mode to flourish.

Celebration Mode: Shopping is an event for these shoppers, who areout to treat themselves and feel they deserve it. For them, shoppingis an opportunity for enrichment and exploration. This mode brings anopenness to new ideas, and even new stores. Temporary store eventsand limited quantity items attract this mode.

Beyond-the-Store Mode: Shopping is the physical activity, but themind is elsewhere. The imagination is already making the leap to theoccasion of use. Shopping for a specific event like a vacation or aformal party are examples. An immersive experience like the fittingroom makes space for this mode.

A ‘local’ sticker on an avocado may inform that it is local, but is thatenough to make someonewant to buy it?

Figure 1

Continued on p.60

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1.Shopper Recommendations: What ifshoppers could recommend green productsto each other right at the shelf? Handwrittenmessages at the moment of selection couldprovide both confidence in shopper’s deci-sions and feedback for retailers.

2. Third-Party Picks: What if retailers workedwith third-party green certification labels tocreate a ‘top picks’ shelf? Highlighting FairTrade one month and USDA Organic the nextwould raise awareness of both the productsand ways to evaluate choices.

3. Aisle Arrangements: What if aisles wereorganized by:• Environmental Impact: Making green

products easy to reach would make it easier for time-crunched shoppers to make more sustainable choices and morelikely for supportive social interactions with like-minded shoppers.

• Location of the Source: Tying the actual distance a product has traveled to its place-ment in the store would give shoppers a moretangible idea of the benefits of local products.

• Day-to-day Tasks: Mapping green products to a journey in the day-to-day lives of peoplewould increase understanding of the context of their use.

4. Editing Space: What if there was a dedicat-ed area for ‘editing’ your cart? In the same wayonline retailers make recommendations basedon purchases, checkout could be a place torecommend green products and allow shop-pers to swap their items for green alternatives.Shoppers might also put back what they don’ttruly need.

5. Impact Receipt: What if consumers couldreceive feedback on the environmentalimpact of purchase in printed on the back oftheir receipt? Figures might be comparedwith their last trip, the store average, or peo-ple in their zip code. Feedback inspires goalsand competition Can we create a goal ofimpact that customers can strive for?

6. Showoff: What if you could broadcast yourimpact score? Bowling alleys often displayhigh scores for their lanes. Imagine puttinghigh positive impact scores above checkoutaisles to celebrate green champions.

7. Green Lane: What if green champions weregiven access to an instant checkout lane?Rather than offer incentives to people with‘16 items or less, offer them to shoppers witha proven record of buying green, bringing theirown bags, or riding a bike to the store.

The Sustainable Shopping Experience: Store Interior

Other ideas:• Back Story Access: What if you could dig

deeper and find the sustainability back-story for every product on the shelf? Instead of cluttering the aisle with volumes of data, shoppers could access the green story as desired.

• Green Zone: What if prime shelf space were reserved for products with low car-bon footprint? Suppliers would make their bids for prime placement by creatinggreener products.

• Fitting Room: What if you could ‘try on’ all sustainable products in-store? Testing helps shoppers answer the first question they often have about green products: ‘Is itas good?’

• Lose the Aisle: What if retailers presentedonly one of each product, which shoppers would scan and pick up at the door? The need for shopping carts, maintenance, andreplacement would be negated and pack-aging could be minimized.

• Experience Moments: What if ‘green’ was presented as an experience rather than hard-to-understand instructions or specs? A ‘howto wake up to a green world’ experience might feature coffee, exercise and otheractivities supported through sustainable products.

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8. Microclimates: What if store environmentswere controlled by a dynamic biosphererather than a conventional HVAC system?Temperatures controlled by plants, airflowand sunlight connect the shoppers to naturalsystems that support them.

9. Parking Privileges: What if priority parkingwere offered to carpoolers or shoppers whowere green in other ways? There's nothingbetter than rewarding green action with time-saving perks.

10. Village Model: What if the produce sec-tion were a community garden or greenhouse?

Providing fresh produce and compostingwaste celebrates local and provides shopperswith a sense of pride and ownership.

11. Staple Delivery: What if weekly stapleswere mailed to your door? Fitting regularitems like eggs, laundry detergent, and tooth-paste into a regular delivery stream mightreduce trips to the store and make visitsmore engaging.

The Sustainable Shopping Experience: Store Exterior

Other ideas:• Status Flag: What if the storefront project

ed its green status? Displaying figures on energy generated, CO2 saved, and local pro-duce sold would communicate values peo-ple 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 exam-ple, might inspire shoppers to buy more pro-duce and adopt a healthier diet.

• Store v. Depot: What if the store was also amaterials depot? Stores could double as central collection centers for recycled items.

What if aisles reflected the number of miles the items traveled?Local avocados might be placed closer to cash registers, while thoseimported from Mexico are placed across the store. What if an out-door environment celebrated local and seasonal foods? Great effortgoes into fabricating unnatural and uniform experiences in thestore; an entirely different section inspired by natural systems mayin turn inspire shoppers and reconnect with the seasons and betterunderstand the value of local.

Creating possibilities for ‘moments’ allows shoppers to learnfor themselves. Sustainability is a concept that is still new to theretail space: engaging people on this topic will take moments ofunderstanding 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 possibilityfor ‘moments’?

2. How might that section inspire more sustainable lifestyle decisions?

3. What kind of sensory experiences might reconnect shopperswith the natural world?

3. Enable CommunityShopping is a social activity, even when we shop alone. In a con-nected world, opinions and last-minute requests are just a call ortext message away. Having been marketed to constantly, today’ssavvy shoppers seek trusted advice: opinions from friends, or evenstrangers, are often what matters most in decision-making.

To build trust, many retailers pursue transparency. By tellingtheir stories and making data about sustainability available in thestore, the hope is that shoppers will be better able to makeinformed decisions that match their values. The intent is good, butthese efforts can often overwhelm, even cripple decision-making.

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Steve Bishop is a global lead for sustainability atIDEO. In this role, he applies design thinking tothe issues of sustainability for clients as well asIDEO itself. Dana Cho co-founded the SmartSpace practice at IDEO. This practice creates

user-centered experiences for retail, hospitality and health care clients. Before join-ing IDEO, Dana practiced as an architectural designer.

Drawing credits: Emi Fujita and Dana Cho

Say I’m buying a pair of jeans and deciding between one brandmade from organic cotton and another made in the U.S. Literatureon each product documents two compelling, yet complex stories.How do I know what is most relevant and decide which is the moresustainable choice? It’s no wonder that a passer-by with an opinioncan be more persuasive than all the information in the store.

Elephant Pharmacy builds trust and community by goingbeyond data and offering workshops where shoppers can learnfrom experts and, more importantly, each other. Community pro-vides safety in numbers, disrupts old habits and inspires bold newbehaviors. Why not enlist the community to enable transparencyand greener decision-making? Questions for further exploration:

1.How might we enable people to find out more and share with others?

2.What benefit does community offer local suppliers over chains?3.How might we connect expert shoppers to novices?

4. Help ‘Make it Mine’ Shoppers are not always ‘at’ the store: with a specific occasion inmind, they may physically be there, but mentally they are at theoccasion itself. Assuming a ‘Beyond-the-Store’ mode, shoppersfrequently add a healthy dose of imagination and envision howtheir lives might be different with the potential purchase.

Fitting rooms are one of the best expressions of this opportuni-ty area. Yes, they help shoppers better evaluate fit, but moreimportantly, they provide an opportunity to imagine stepping intothe office or having brunch on the weekend in new clothes. Fittingrooms help personalize the product and better understand how itfits into our lives. IKEA brings the fitting room to the showroomfloor, illustrating how different products fit in mom and dad’s officeor in junior’s room. Providing ‘fitting-room abilities’ for sustain-ability would go a along way in bridging the disconnect withshoppers. It is often difficult to imagine what a more sustainable

lifestyle would be like. By making space for shoppers to explorepossibilities and seek relevance, retailers can help can shoppersaspire to new positive behaviours.Questions for further exploration:

1.What if we merchandised sustainability the way IKEA merchandises 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 closingWe have presented a new perspective on the retail space – onethat puts people first and engages them in new ways. Building arelationship with shoppers based on values such as sustainabilityhas impact beyond the storefront. Values go home with them:they are there when they read about climate change, and they’rethere when they decide where to go shopping.

Down the road, when a brand becomes known for the values ithas defined for itself, the relationship evolves to fill an importantrole as a trusted advisor. When dealing with complex issues like sus-tainability, we need as many trusted advisors as we can find.

By making space toexplore possibilitiesand seek relevance, retailers can help shoppers aspire to newpositive behaviours.

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WHEN I BEGAN MY ACADEMIC CAREER in the mid-1960s, the primaryfocus of marketing research was consumer marketing. Even then,however, most of my contemporaries recognized that the coreprinciples of consumer marketing could be modified and appliedto business-to-business interactions for goods and services, as wellas to the sale of raw materials to industrial buyers. Despite someobvious parallels between them, in the early development of thesefields it made sense for consumer and industrial marketing toadvance independently.

Unfortunately, my contemporaries and I were so successful inseparating consumer and industrial marketing that we managed tocreate separate silos. The two fields have matured significantlysince then, and the environment has changed so dramatically thatwe cannot continue with this separation. The lines between con-sumer and industrial marketing are now blurring in five important

ways, which I will describe, along with their implications forrethinking our approach to Marketing.

1.The blurring of B2B and B2C The lines between business-to-business (B2B) and business-to-consumer (B2C) marketing are blurring. In recent years, eBay hasbecome one of the planet’s largest retailers, but without any storesor display shelves and without holding any actual inventory.Instead, it serves as a massive ‘virtual flea market’ for buyers andsellers. These customers may start out small but then emerge asindustrial sellers and buyers as their volumes increase. Large cor-porations such as Sun Microsystems, recognizing the ‘perishable’nature of their products, have begun to sell merchandise directlyon eBay’s auction platform. There are multiple business partnersinvolved in the sale process, such as companies involved in bill

The time has come to develop new mental models that reflect the complex inter-linkages between modern consumers and business. by Yoram Wind

BLURRINGTHE LINESWHY IT’S

TIME TO RE-THINKMARKETING

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payment, escrow and shipping, and customers lead the way in cre-ating new services such as automotive sales, so that when a catego-ry reaches a critical mass of items, eBay then creates a new sectionin its virtual store. The flourishing of small businesses around theglobe in recent years has further blurred the lines. The needs ofsmall businesses overlap with those of individuals, a fact that isexploited by companies such as Staples or Home Depot, whichcater to both markets, selling office supplies and building materialsto students and homeowners as well as offices and contractors.And while Costco is primarily viewed as a B2C operation, some 40per cent of its members are actually small businesses.

2. The blurring of value chains Hong Kong-based Li & Fung manufactures apparel and otheritems through a flexible, virtually-configurable network of suppli-ers across many different countries: a network of seven factories infive countries that is created to deliver an order for 100,000 shirtson one day might be very different from the one used a week later.Relationships are configured ‘on the fly,’ with Li & Fung as the con-trolling hub of a dynamic network. Because the relationshipsbetween the firms involved are flexible partnerships, there appearsto be little traditional marketing involved: Li & Fung typically con-tracts for no more than 70 per cent of its partners’ capacity toensure their independence and exposure to new ideas from othercompanies. This example is consistent with the new concept ofmarketing, which is moving toward managing strategic partner-ships and positioning firms between vendors and customers in thevalue chain with the aim of delivering superior value to customers.A proliferation of such strategic alliances is blurring the bound-aries between firms.

When Apple set up its iTunes store, it brought together a setof recording companies with content and customers who wantedto download their 99-cent tunes. It was a stroke of genius in

connecting the desire of producers to have an effective market fordigital songs and the desire of consumers to have an easy way topurchase and share digital music files. At what point does industri-al marketing occur in a continuously-reconfigured value chain,with consumers at its core?

3. The blurring of relationships with customers With the emergence of online communities, opportunities for cus-tomers to collaborate with one another and directly with compa-nies have increased enormously. Firms are finding ways to tap intocustomer insights, so that innovations that once flowed throughB2B channels now percolate out of communities that involve bothcustomers and firms.

MIT’s Eric von Hippel and his colleagues have found that themajority of significant product innovations in many industries areinitially sparked by ‘lead users’ and later refined by companies. Thismeans that while companies have traditionally looked to their ownlabs or to partners for ideas, an equally-important source of innova-tion can be their relationships with their own customers.Peer-to-peer networks are taking on increasing prominence in manyareas. For example, high net-worth individuals, tired of the hard sellof wealth management firms, have created networks to share finan-cial advice and ways to manage their money with one another. Theyexchange ideas and offer advice, as well as making investmentstogether or obtaining group discounts on services and products.Open source software and the Wikipedia online encyclopedia areother examples of how people have come together in grassroots net-works to develop new products.

In addition to trust building through marketing initiatives andthe selling power of real performance, we also have peer-to-peerrating systems, whereby buyers rate sellers after each interaction(and sellers can also rate buyers), offering buyers a cumulativescorecard for assessing a specific seller. The importance of peer-to-

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peer interaction is also seen in ‘referenceability:’ recent studies havefound that a customer’s willingness to refer another consumer to acompany, and to act as an advocate for that company, is the clearestsign of customer satisfaction. This creates a shift from a ‘transac-tional focus’ to a focus on building relationships with customers.

4. The blurring of functions within the firm Through electronic data interchange, companies such as Procter& Gamble and Wal-Mart have transformed their relationships byconnecting retail shelves and inventories directly to manufactur-ing. This has blurred the lines not only between firms but betweenoperations, marketing, sales, IT, finance and other functions with-in the firm. These relationships would seem to bypass some mar-keting issues in a traditional sense, but they also raise new chal-lenges for industrial marketing: How are these relationships devel-oped in the first place? How do new entrants break in? In a certainsense, this is a classic example of the ‘straight rebuy’ that we talkedabout in the 1960s, with a direct computer link between the twocompanies. But these links have proven to be much more robustand interactive, bridging disciplinary silos.

5. A blurring of products, services, and customer experience Businesses are increasingly based upon knowledge networks,which presents a very different set of challenges for companies. Incontrast to the industrial-market focus on finding raw materialsand turning them into finished products (i.e. adding value throughmanufacturing), the focus today is on adding value through knowl-edge. Where purchasing raw materials is a procurement and mar-keting challenge, finding knowledge is much more of a humanresource challenge encompassing all the management disciplines.

Rethinking Our Mental ModelsMental models play a powerful role in shaping our perception and

actions in any field. As the world around us changes, failure to chal-lenge and rethink our models continuously will hold us back. Atthe same time, we must recognize that every new mental model weadapt can come with its own set of ‘blinders’. Following are nineimportant concerns that new marketing models must address.

1. Expand the focus from buyers to stakeholders Since business decisions are affected not only by customers butby end consumers, distributors, suppliers, employees, share-holders and others who are all heterogeneous, marketing con-cepts and approaches should not be restricted to buyers butshould apply to all stakeholders. With the increasing pressurefor corporate social responsibility, it is clear that companiesneed to develop strategies – including marketing strategies –that address the needs of all stakeholders. Thus, industrial mar-keting decisions need to take into account the impacts on endconsumers and other stakeholders. These cannot be consideredin isolation if the company is to understand and manage the fullimpact of its strategic decisions.

2. Recognize new forms of relationships and empowered consumers Whether firms like it or not, new technologies have empoweredconsumers, leading to a shift in the relationship between compa-nies and customers. Alvin Toffler has referred to this trend as theemergence of the ‘prosumer’ – a blend of producer and consumer.This empowered consumer, who is often involved in developing orcustomizing products and services, behaves more like an activebuyer in an industrial market. Instead of buyers and sellers, we seemodels of co-producers, where the customer is not a passive recip-ient but an active collaborator. We have seen similar shifts in indus-trial relationships. In this environment, instead of merely provid-ing marketing messages, firms must provide tools for customers to

In contrast to the industrial-market focuson finding raw materials and turning theminto finished products, the focus today is

on adding value through knowledge.

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For most companies, branding is about posi-tioning, advertising, packaging, and catchylogos and slogans. That is no longer enough.Branding in today’s marketplace is about thetotal experience a customer has with yourproducts or services. It is about enticingcustomers, gaining their trust, and makingthe experience so pleasant that they areproud of their choice and will tell othersabout it.

Recently, I was in the market for a vehiclethat would be safe and meet the needs ofmy busy wife and children. We narrowed thechoice to two vehicles. I travel a great deal,so when one dealer promised that in theevent of a breakdown he would pick up thevehicle immediately and take it in for servic-ing, my wife was sold.

For the first two months, my wife toldeveryone how much she enjoyed the vehicleand appreciated the security in the dealer’sguarantee. She was a walking brand builderfor that manufacturer. But the first time thevehicle needed service, the dealer failed to

keep his promise. He didn’t arrange forimmediate pickup, nor did he schedule theservice appointment promptly. With that sin-gle incident, the dealer decimated the posi-tive feelings my wife had towards his brand.

Today’s consumers are not a happy lot andthey won’t 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-home-cooked offerings. Today, if the food isn’t on the table in five minutes or less, it’s not fast enough.

• Starved for affinity relationships: When consumers are short on time they are short on relationships. Many new retail for-mats – from coffee shops to destination restaurants – play up the need to belong.

• Jaded and sceptical: Today’s marketplaceoffers customers unprecedented choice. They know that in many categories of goods and services, they can buy lower-cost but high-quality private-label brands

that will meet their performance require-ments. In the trade-off between cost and quality, the perceived status and confidence associated with buying a name brand isn’t 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 underper-forming suppliers.

Now more than ever, companies cannotafford to forget that the customer’s expe-rience is an integral part of branding. Wecall this chain end-to-end learningbecause the customer is learning who andwhat we really are. They’re learning aboutus based on what we do, not what we say.That empirical experience is indelible – sowe’d better be sure that we know whatwe’re teaching them.

The challenge of managing a customer’sexperience comes from the fact that it hap-pens out on the front lines of the company. >>

Build Your Brand – But Don’t Forget to Deliver an Experience by George Stalk


create their own products and services. Dell, for example, allowsconsumers or industrial buyers to customize their products.Companies can use the Internet to provide buyers with searchengines and tools that give them the comparative information, anddecision aids that help them make optimal buying decisions.Customer relationship management (CRM) must be augmentedwith ‘customer-managed relationships’ (CMR), whereby customersare recognized as being in the driver's seat. This is a very differentrelationship between buyer and seller, and entails a different role forMarketing. American Airlines used this approach in developing itsSabre reservation system, empowering agents with a platform tosearch and maintain relationships with many different airlines.

3. Re-examine the role of outsourcing and traditional ‘make-buy’ decisionsOne of the most significant changes in the global business envi-ronment has been the rise of low-cost manufacturing in locationssuch as China and the emergence of business process outsourcingin places like India. The increased technological sophisticationand size of these markets have fundamentally transformed thenature and scope of business relationships. For example, a compa-ny with a service centre in Bangalore might be interacting with aclient firm’s end customers, so the partner carries part of the B2Crelationship even though the outsourcing relationship would becharacterized as a B2B interaction. The development of global

markets and the expansion of multinational firms have alsochanged the practice of industrial marketing. It can no longer beassumed that marketing functions – including research, newproduct and service development and even sales – are best per-formed by the firm itself. Forward-thinking companies are mov-ing to ‘hybrid marketing systems’ that combine direct sales forceswith diverse channels, deconstructing their vertically-integratedvalue chains and creating a value network based on strategicalliances ranging from outsourcing of various functions to co-branding, co-promotion and co-marketing.

4. Bridge disciplinary silos Vertically-integrated firms often deal with consumer marketingand industrial marketing in different parts of the organization. Weneed to bridge the walls between the marketing functions (such ascustomer service and sales) and marketing and other business func-tions (such as operations and finance). This is critical given thatmost marketing decisions are interrelated and, in turn, affect andare affected by the other functions. For example, is an electronicdata interchange relationship the domain of marketing, operationsor IT? The answer is, all three.

5. Recognize the importance of brand equity Brand equity is an increasingly important driver of firm decisions.But building brands can be very expensive, so companies are looking

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Frequently, managers who are makingmajor decisions on new investments orprocess redesign have little idea of theend-to-end impact those decisions willhave on the customer experience. Oneclient has created a series of videosdemonstrating its target customer experi-ence. These videos are shown not only tomarketing managers, but also to the sys-tems developers who are building the sup-port infrastructure that will enable theexperience. No written list of systemsrequirements can ever substitute for thevisceral understanding that people developwhen they see and hear the customer’sexperience with the product.

Brand relationships are not confined to con-sumer products. They exist with hospitals,taxi companies, cleaners, garages, airlines,restaurants, and more. The strength of abrand experience is inextricably linked toevery aspect of buying and using a product,not just to the inherent performance of theproduct itself.

consumer distemper to service calls andproduct returns? Can you measure the eco-nomic implication of fixing these problems?

5. What is the dollar value of delivering anexperience that consistently produces ‘brandboosters’ and eliminates ‘brand blasters’?

Brand management is at a turning point.As the cacophony of the marketplaceescalates, only those brands that deliverwill succeed. Increased advertising invest-ment alone won’t move the sales needle:instead, refocus your brand managementon the outcomes that matter most – thosethat affect the lives of your customers.

Before launching that next advertisingcampaign or promotion, ask yourself howyour investment decisions affect the cus-tomer experience, and if everyone – fromsenior executives to counter clerks – isaware of how much the brand's value hingeson the quality of experience you deliver.Here are some questions to consider:

1. Can you describe the end-to-end experi-ence (learn-buy-get-use-pay-service) thatdifferent customer segments experience?

2. Could you present it in a video foremployees?

3. Do you have specific measures that trackyour ability to overcome the dissatisfactions(such as long waits for delivery and repairs orinaccuracies in orders and billings) cus-tomers encounter?

4. Can you map the ripple effects of prob-lems from misleading marketing claims to

George Stalk is senior partner andmanaging director of BostonConsulting Group of Canada Ltd.and an adjunct professor ofStrategic Management at theRotman School of Management.


at ways to leverage brands across consumer and industrial markets.Companies such as Canon, Hewlett-Packard, Dell and IBM, aswell as some pharmaceutical and financial firms, have successfullybuilt meaningful brands across B2B and B2C markets, finding thatbrand building in one market pays off in the other.

6. Unleash the power of technology Web-based platforms for interaction are transforming relationshipsbetween buyers and sellers in both consumer and industrial mar-kets. The rise of blogs, for instance, has changed the flow of com-munications to include B2C, C2B, B2B and C2C, and increasedtheir informality, frequency and intensity. We are also seeing a con-vergence of communications across different channels. Google hasbecome the ubiquitous search engine, replacing the ‘push’ of mar-keting messages with the ‘pull’ of searches for information, even asit creates a powerful, unconventional advertising platform for busi-nesses. Given these changing channels, communications increas-ingly reach both B2C and B2B buyers.

6. Shift from a transactional focus to ‘the total customerexperience’ Companies in both industrial and consumer markets are startingto focus on dimensions beyond product-feature functionalityand price. Some are even bundling products with services andconcentrating on shaping the total customer experience – from

pre-purchase to purchase to use to post-purchase disposal. This isshifting the dominant logic of Marketing from one based on eco-nomic models that were applied to manufacturing and tangiblegoods to a logic focused on intangible resources and the co-cre-ation of value and relationships. This shift away from traditionalindustrial transactions leads to deeper and more complex relation-ships between companies, corporate customers and end users, aswell as new revenue models.

7. Design business models for the developing world Eighty-six per cent of the world’s population is in developing coun-tries and we need new approaches to reach them. C.K. Prahaladhas shown that with new models, even low-income segments canbe profitable as companies discover a “fortune at the bottom of thepyramid.” But these markets require rethinking business and rev-enue models, product and service offerings, channels and relation-ships more than ever. For example, ITC created electronic hubs insmall villages across India, providing information and trading plat-forms for rural farmers. This satellite-based network links thefarmers to pricing information for agricultural products, marketsand suppliers, transforming the process of rural farming whileenriching the lives of the farmers (who are both business peopleand consumers). The opportunity to build a B2B market acrossIndia in this way could not have been recognized or achievedthrough the approaches used in developed countries. The emerging

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markets of Asia and other parts of the world present tremendousopportunities, but also challenges in forging relationships withcompanies with different cultures and business practices. Cross-cultural acquisitions, alliances and other relationships are requiredto succeed in these markets, but they also pose distinctive chal-lenges and present new risks. Have we changed our view of mar-keting to reflect this global reality?

8. Rethink the role of market research The increased complexity of the business environment requiresmore effective marketing research and modeling approaches, yetcritical business decisions such as mergers and acquisitions areoften made with no marketing input at all. Equally disturbing is thefact that many decisions are being made on non-projectable, non-generalizable focus group interviews or convenience-based sam-ples. It is critical to develop more effective data mining and otheranalytics as part of a ‘decision support system’ as well as marketingresearch and modeling tools. We are seeing increased rigor andinnovation in this area such as internet-based conjoint analysisstudies and increased use of adaptive experimentation. To helpmanagers make better decisions, companies are using a variety oftools such as simulations and game theory to allocate resourcesand prioritize marketing and business strategies.

9. Rethink metrics and dashboards With increasing attention being paid to the ROI of marketing, wemust rethink the measures we use to track and evaluate theseinvestments. New-and-improved ‘dashboards’ should not only

monitor marketing effectiveness of the firm toward its clients andprospects, but also track key indicators of the client’s customers.You might, for example, need to track a company’s share of wallet,account profitability and growth with business customers and thecorresponding measures of the effectiveness of the company withits end customers.

In closingThe breakthroughs made in business and industrial marketingover the past few decades have allowed companies to harness thepower of new concepts and tools in their interactions with oneanother. It is now time to build on this foundation by employingbroader thinking that embraces both consumer and industrialmarkets, as well as mental models that better reflect the increas-ingly complex inter-linkages between consumers and business.

Yoram (Jerry) Wind is The Lauder Professor and professor ofMarketing at the Wharton School of Business. The co-author ofCompeting in a Flat World: Building Enterprises for a Borderless Worldand The Power of Impossible Thinking: Transform the Business of YourLife 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 ofBusiness & Industrial Marketing, published by Emerald.

Cross-cultural acquisitions, alliancesand other relationships are required tosucceed in developing markets, butthey also pose distinctive challenges .

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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

Idea Exchange

70

74 Barry Schwartz on why less is more

77 Alex Steffenon Worldchanging

80Nicola Morrellion design thinking for social responsibility

83Marion Nestle

on why food companies will never place health first 85Stuart Bowdenon white-roofs in Toronto88

David Lewis on the New Consumers

91

Sridhar Moorthyon advertising repetition and quality perceptions

9497 Mathis Wackernagle

on our collective environmental footprint

Seth Godinon the ‘post-consumption consumer’

Pankaj Aggarwalon ‘anthropomorphosis’

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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 NorthAmerica is that as people acquired more and more wealth,they used it to acquire more ‘stuff.’ In the last few years it hasbecome apparent that we have way more stuff than we need,but not enough time to enjoy it. This is the quandary of thepost-consumption consumer. She really doesn’t need any-thing else: once you have 1,000 (or 10,000) songs on youriPod, another one isn’t worth much to you, because you’renever going to be able to listen to it anyway. So the problem isthat we are now in a world where the best consumers – noteveryone, but the best consumers – already have more thanenough stuff. What they need is help getting more out ofwhat they’ve got.

//// Questions for:Seth Godin

The marketing guru and best-selling authorexplains why ‘average’ is punished in today’s

marketplace and how to effectivelyreach the ‘post-consumption consumer.’Interview by Karen Christensen

Q&A

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In 2002 you declared that being a ‘Purple Cow’ (i.e. beingremarkable in your field) was the new requirement for anysuccessful company. Have enough products and servicesrisen to the challenge?I’m 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 aregoing to choose to talk about, because you can’t buy attentionany more. People will only give their attention to those whoearn it. In many segments of our society we’ve seen organizations,non-profits and politicians take that advice to heart and buildthings that people choose to talk about. We’ve seen evidenceof how this works with Amazon, Starbucks and Jet Blue; andwe also see it with that YouTube ‘star of the moment’ who getsfamous for 15 seconds and then goes away.

What is the best way to get the attention of today’s jadedconsumers? Does traditional advertising stand a chance?I think firms need to go right to the ‘edges’ and find a smallgroup of people that is desperately interested in what theyhave to sell; and they have to be producing something thatoverwhelms these consumers with its greatness, its functional-ity or its price. Secondly, treat people with respect – which isalways in short supply. In my experience, this combinationleads to things that people choose to talk about.

Clearly, the mass market is dead. I’ve been saying that forseven years, but now even the mass media agrees with me.We’re seeing it in the decline of newspapers, in the eventualdeath of general-audience magazines and the softening of theTV market. There isn’t one brand – not one – launched in thelast ten years that has become a ‘hit’ because of televisionadvertising. Commercials used to be a minute long, sometimestwo. Now there are radio ads that are less than three secondslong. It’s not an accident that things are moving faster and gettingsmaller: there’s just too much to choose from. What you’ve gotto do is sell to the people who are listening to you: create storiesthat spread, from the converted to the skeptical.

How has the Internet changed modern marketing? The single biggest change is also the easiest one to overlook,mostly because it’s so obvious: every organization now has theability (and probably the responsibility) to deal directly withthe world – with customers, prospective customers and thoseimpacted by their actions. No more middlemen. The presi-dent of a bank isn’t used to hearing from a customer who isabout to lose her house; a retailer in Tucson isn’t used to hear-ing from a potential customer in Nebraska; this direct connec-tion 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 ofmarketing to people who want to be marketed to. This asset isvaluable enough to build an entire business around, and itupsets traditional power structures in just about every industry.More important, it leads to the idea of ‘no insulation.’ Wheneveryone was playing by the same rules, when all suppliersrelied on insulation in order to maintain margins and keepthroughput efficient, it was a terrific system. But as soon asone player in the industry can use a direct connection to theend consumer, the rules change for everyone.

British rock band Radiohead recently bucked the system bygoing straight to its consumers (via the Web) and lettingthem determine what to pay for its latest record. In one weekthey sold 1.2 million albums for an average of $6 each. Willthis 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 manipulativeploy, but it was a tactic nonetheless that said, ‘isn’t it inter-esting that this platinum record group is going to let you, theconsumer, pick your own price?’ That was remarkable in andof itself. The music itself wasn’t remarkable; the way theywere selling it was. I don’t think this is a scalable, reliable wayto grow your business, because the next time someone doesit, no one is going to pay attention. People paid attentionbecause it was novel.

The asset that can be built online is permission: the privilege of marketingto people who want to be marketed to.

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The mistake that Radiohead made is, they’ve now got overa million people who have said ‘here’s my e-mail address, I’dlove to hear from you;’ they had the opportunity to curatemusic for that group – not to focus on bringing out entirealbums, just releasing one song at a time for that group, andmaybe finding other musicians that they could introduce tothem. They could be figuring out how to work with their con-sumers on their touring schedule so that, instead of being atthe whim of promoters, their audience could figure out whatvenue they want to see them in. They could basically haveturned the entire pyramid upside down. I have no doubt thatthis is what the musicians of the future will do.

Explain the importance of setting up your customers ‘to beright and to feel right.’Customers do not want to admit when they’re wrong. Theyhave the power and privilege of shopping anywhere they want,and they tell themselves a story about the wisdom of theirchoices. 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 astory about being ‘smart’ and ‘right’ and ‘insightful.’ Marketerswho make it easy for people to tell themselves that storyalways do better.

You recently said that ‘bundling’ was the glue that heldtogether almost every business and organization, but that itis harder than ever to do because “The world just got unbun-dled.” Please explain.Take this magazine, for example: it’s a bundle of articles thatyou want to read and articles that you don’t; of ads that youwant to look at and ads that you don’t; but because it’s all bundledtogether, you have to take in the whole thing. What Googleand the Internet do is relentlessly unbundle everything, so thatif you want to read just one article on, say my blog, you do aGoogle search to find it, and that’s all you read. You don’t haveto look at any ads; you don’t have to read anything you don’twant to read. The end result is that if you are dependent onbundling, you won’t be able to do it for much longer.

You have noted that in today’s marketplace, “average ispunished,” as evidenced by the fact that Google only iden-tifies “the last inch of the reach – the exceptional areawhere the [most] value is.” What are the implications forfirms and consumers?If you only have a few SKUs or you’re still doing mass market-ing, you need to be average because you’re trying to reach theaverage people with average stuff. The problem now if you’rean average person is that average is in the middle, and no oneis in the middle anymore: the people who are choosing to payattention are on the edges. You can’t grow by being average,because no one is seeking that out. If on the other hand youare trying to grow, you need to satisfy the unsatisfied: and theydon’t want average.

So even ‘average consumers’ are no longeraverage consumers?Well, that’s not true. There are plenty of people who buyLevi’s jeans because they don’t want to spend any time thinkingabout ‘what’s the jean of the moment?’ It’s just not worth theirattention. So they buy the typical jean. The problem is, youcan’t grow by doing that. My point is not that average is goingaway, but that average cannot grow any further.

“Worldviews are clumpy.” Please discuss.If you present 1,000 people with a direct-mail offer or a speechfrom a candidate or a book cover, a bunch of them – not justone, but a good number of them – will take you up on it. Thatbunch all believes that ‘carbs are bad’ or ‘corporations are evil’or ‘the NDP should be in power.’ Before being exposed tomarketing, they already have a biased set of beliefs or a ‘world-view.’ 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 theNational Rifle Association are way more likely to own a pickuptruck, for instance. Insights like this are useful because ifyou’re a marketer, once you identify a popular worldview andyou can see what ideas ‘clump’ around it, you can bring yourmessage to more than just one person at a time.


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Seth Godin is the author of some of the best-selling marketing books of thelast decade, including Meatball Sundae (2007); Small is the New Big (2006), and All Marketers are Liars (2005), all published by Portfolio. His blog (seth-godin.typepad.com) was ranked the #1 Business Blog by AdAge in its rankingof the World’s Top 150 Blogs. He holds an MBA from Stanford and wascalled ‘The Ultimate Entrepreneur for the Information Age’ by BusinessWeek.


You believe that modern marketing is about helping con-sumers 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 livein a very complicated world. The goal for marketers is to focuson what people believe in and then work to tell them storiesthat add to their worldview. Stories are necessary to deal withthe deluge of information we face every day. Consumers covetthings that they believe will save them time or make themprettier or richer. Truly great stories succeed because they areable to capture the imagination of large or important audi-ences. Make no mistake: if you fail to tell stories that spread,you will become irrelevant.

What are some of the characteristics of a great consumerstory?First of all, a great story is true – not because it is factual, butbecause it is consistent and authentic. Consumers are toogood at sniffing out inconsistencies for a marketer to get awaywith a story that’s just ‘slapped on.’ Next, great stories make apromise: they promise fun or money, safety or a shortcut.Either the promise is bold and exceptional, or it’s not worthlistening to. Great stories are trusted: trust is the scarcestresource we’ve got left. No marketer succeeds in telling astory unless he has earned the credibility to tell it. Great storiesare also subtle: the less a marketer spells out, the more power-ful the story becomes. The best marketers understand thatallowing the consumer to draw her own conclusions is farmore effective than just announcing the punch line. Great sto-ries don’t appeal to logic, but they often appeal to our senses:the design of an Alessi teapot talks to consumers in a way thata fact sheet about boiling water never could.

Great stories are rarely aimed at everyone. Average peopleare good at ignoring you – they have too many different pointsof view about life and are by and large satisfied. If you need towater down your story to appeal to everyone, it will appeal tono one. Runaway hits like the LiveStrong fundraising braceletstake off because they match the worldview of a tiny audience –and then that tiny audience spreads the story. Most of all, great

stories agree with our worldview. The best stories don’t teachpeople anything new: instead, they agree with what the audi-ence already believes and make the audience feel smart andsecure when reminded how ‘right’ they were in the first place.

Let’s say I pick up a can of Fancy Feast Gourmet Cat Food:it’s much more expensive than regular food, it smells bad, andthe portion is tiny, but I buy it anyway, because my worldviewas a cat owner is, ‘I want to take good care of this little creaturethat 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?A meatball sundae is the unfortunate result of mixing twogood ideas that don’t go together. A ‘meatball’ is a commodity,an average product for average people, like a mass market itemmade in a factory. We all need meatballs, and many of us makemeatballs for a living. The sundae toppings, on the other hand– the whipped cream, the hot fudge – are all of those fancytools 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, ifyou put them on your meatball, you’ve got trouble. The mistakethat many people make is they rush onto the Internet; they sayto their IT people and their marketing team, ‘get me some ofthat new marketing stuff! Let’s just put it right here on top ofour brand of beer or books or charities.’ But it doesn’t work,because there’s a collision between what the new marketingdemands and what ‘meatballs’ can provide to consumers.

Great stories succeed because theyare able to capture the imagination

of large or important audiences. Makeno mistake: if you fail to tell stories that

spread, you will become irrelevant.

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The title of your latest book is The Paradox of Choice. Whatdoes this mean?Everything we have learned from economists and marketerstells us that the more options you give people, the better offthey are. If people aren’t interested in the new options, theycan ignore them; if they are interested, so much the better. It’swhat economists refer to as a ‘Pareto improvement.’ Theparadox is that it turns out not to be true. You can add optionsand have some really bad effects: you can paralyze people sothat they don’t choose anything; and you can induce people tomake worse choices. In an effort to simplify a choice, they maybase their decision on things like brand and price, which arenot necessarily the most important things. And even if theymanage to avoid paralysis and choose well, they are more like-ly to be dissatisfied with their selection if they’ve chosen froma large set of options than from a smaller set.

How is it that our culture of abundance may actually bemaking us more passive and isolated as consumers?As options get added – cell phones, dishes at a restaurant,items in a supermarket – many people find the decisions simplyoverwhelming. They react by either retreating – that is, choosingnone – or by becoming passive, treating life as a conveyor beltof offerings from which they pick without thinking very care-fully about what they’re trying to achieve and what will satisfythem. It just becomes too hard a problem to solve. Here in theU.S., there was a study of 401(k) voluntary retirement plansthat found that the more mutual fund options your plan pro-vides to employees, the less likely they are to participate.

//// Questions for:Barry Schwartz

The author and professorexplains why in manycases, less is more.Interview by Stephen Watt

Q&A

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When people don’t participate, often they are passing up sig-nificant matching money from their employer, but it’s just toodifficult to know which mutual fund to choose. You’ll decidetomorrow; of course, tomorrow is no different from today, soyou end up not choosing.

Despite the ‘choice overload,’ why is it that so many peopleactually enjoy shopping?People may enjoy shopping as a recreational activity. Thequestion is, do they actually buy anything? And do they buymore when they are confronted with abundance than withlimited options? If one day you put out a display of 24 jams ina fancy food store, and another day put out only six jams, you’llfind that more people come to the display when there are 24jams. All of that bounty is attractive: it’s what people like, it’swhat they want; however, one tenth as many people will actu-ally buy the jam when faced with 24 varieties. What this sug-gests to me is that if you were confronted with two stores, andone had everything and one didn’t, you’d go into the store thathas everything, thinking that you’re more likely to find whatyou want and have a satisfactory experience – but in fact, you’dbe more likely to walk out of the store empty-handed.

In other words, sometimes less is more.Most of the time, less is more. The only area in life wherethat’s not true is in politics. In the U.S., people have too-fewoptions when it comes to electing their political leaders. But ineverything else, they have far too many options. It makessense to me that there should be two kinds of dental floss and40 political parties, instead of 40 kinds of dental floss and twopolitical parties.

How can consumers avoid the paradox of choice?One thing that is quite important is to learn to be satisfiedwith ‘good enough.’ In my book I make a distinction betweenbeing a ‘maximizer’ – that is, always looking for the best – andbeing a ‘satisficer,’ which means looking for something thatmeets your standards. If you are a satisficer, there’s a sense thatall these other options become irrelevant, because you’re lookingat options one at a time, and as soon as you find one that meetsyour standards, you choose it. When there are many options,you’re more likely to find one that meets your standards, butyou don’t feel compelled to do an exhaustive search. You cango to a restaurant with a thousand dishes, and you just start at

the top and work your way down. As soon as you find some-thing you like, you pick it, and it doesn’t matter that there are800 that you haven’t even considered yet.

The second thing you can do is just arbitrarily limit thenumber of options you investigate. For instance, visit twostores, no more; or four Web sites, no more; and then just pick.This is not an easy thing to do, particularly when it comes toshopping online. It’s so easy to check out just one more Website, and before you know it, you’ve blown an entire night lookingfor a $20 item. If you have an iron discipline and stick to therule 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. You’re looking tobuy a digital camera? Call a friend, ask her what she has and ifshe likes it, and if so, buy it. Even if your friend is not an expert,chances are that you’ll end up with a good-enough digital camera,and you’ll find it in minutes instead of weeks.

You’ve said that the equation of freedom with choicemight be a culturally-specific concept. What is freedom,if not choice? In our society, it’s almost impossible to imagine freedommeaning anything other than choice. And it’s true that youcan’t be free if you have no choice. Choice is necessary to befree, but it doesn’t follow that the more choice you give people,the freer you make them. It’s possible to have a view that freedom,rather than being defined by limitless choice, instead meansliving life the way you think it ought to be lived – that is, beingable to do the right thing, and acting according to a set ofmoral or religious standards. Being free to live as a good personis not the same as being free to self-actualize. The idea that youcan and should find your sense of self through your consumerdecisions is a mistake. In fact, it’s a colossal waste of time andenergy, and one that, at least some of the time, will be self-defeating. If you look at enough alternatives, when you finallychoose, you will end up dissatisfied, even when you’ve madethe right choice. Everything suffers from comparison if you doenough comparing.

Many see the Internet as a blessing in making available analmost infinite diversity of cultural products and nichemarkets for these products. What’s your opinion?Prior to The Paradox of Choice, I wrote a number of books, none

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watch FOX-TV, for example, and they become more and morerabid in their conservatism, until you can forget any hope inmoving to a common policy that involves progress. A goal suchas ‘providing health insurance for Americans’ becomes harderto realize as people become more polarized in their views. Thiscombination of polarization and inaccuracy strikes me as badfor democracy.

What measures could companies put in place to capitalize onyour insights about consumer psychology?If you’re a Web-based retailer, the critical thing is to personalizewhat gets presented to each visitor. Take advantage of theuser’s history with you; hide the 2.5 million products you actuallyhave, and show the 20 that your user is actually likely to beinterested in. Look at the success of Netflix and Amazon:using user information to tailor choice sets for individual con-sumers has enormous potential, and ought to be doable withoutenormous heavy lifting. In brick-and-mortar environments,you have to pay a lot of attention to organizing what you’ve gotso that people can go through a hierarchy of decisions. Youprovide the choice of a front-loading washing machine versusa top-loading washing machine, and so on, until you finallypresent three washing machines. It’s possible to structurewhat you have available so that people can interrogate themselvesto find what they want. Make an effort to organize goods intocategories so that the choice set is less overwhelming.

A good tagline for a retailer would be, “We don’t have every-thing, we only have the things you need.” This is the visionyou’re buying when you shop at a boutique store. The implica-tion is this: ‘we have saved you an enormous amount of time andtrouble by doing the hard work, and now you can be sure thatanything you see in this store is of good quality and is what youneed.’ You pay a premium, but some people are willing to paythat premium to spare themselves the time and torture of mak-ing complicated consumer decisions. The same idea holds innon-retail environments.

of which sold particularly well. They were published and aftersix months, disappeared off bookshelves. But now, thanks toAmazon.com, they’re available again. Because of the Internet,books and other cultural offerings with modest or almost non-existent followings can continue to have a life for months andyears – essentially indefinitely. The companies that sell theseproducts make money on selling products that, individually,are unpopular. This is a fantastic development from any angle:it’s good for the seller, good for the producer of culture, andgood for the consumer who has unusual taste.

The problem is that as the choice set gets larger and larg-er, people end up getting pushed to the peak of thedistribution. There are just too many things out there tobecome informed about. You can niche-market, but then youare depending on some entity to serve as a filter. For examplethere’s somebody – somebody in the know – who’s telling uswhich avant garde music is worth listening to. The filteringmechanism works as long as you can trust the filters: thosedoing the recommending have a tremendously important rolein defining contemporary culture, but they need integrity andto be genuinely interested in giving good advice, rather thanjust showing off the latest products.

The Internet has also opened the floodgates when it comesto news, information and opinions. Is this a triumph for egali-tarianism or too much of a good thing?It started out as a triumph for egalitarianism, but now I havegrave doubts. There is no quality control when it comes tonews and opinions, and I would hazard a guess that about 98per cent of the content out there is false. You’re on your ownin the jungle when trying to ascertain which stories are basedon actual information and which are invented. Once that startsto happen, it’s no longer worth looking at alternative sourcesof news and opinion.

Another consequence of the opening of the floodgates isthat it makes it too easy for people to go through life never havingto encounter an idea that they disagree with. This is anabsolute disaster. Sometimes when you are forced to hearsomething you disagree with, it actually changes your mind,because you see that there is another side to the story. It doesn’thappen a lot, but it happens. And it’s a way to get people withdiverse views to forge some mode of co-existing, whereprogress can be made and compromises identified. As far as Ican tell, those days are gone. People who are already conservative

Barry Schwartz is the Dorwin Cartwright Professor of Social Theory andSocial Action at Swarthmore College. The author of several books includingThe Paradox of Choice: Why More is Less (Harper Perennial, 2005), his articleshave appeared in The New York Times, USA Today and Scientific American.

Choice is necessary to be free, but it doesn’t follow that the more choice yougive people, the freer you make them.

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The level of consumption that defines the North Americanlifestyle is both unsustainable and widely emulated. Whathope is there in creating a prosperous planet withoutdestroying the earth?There are a few things that should give us hope. First of all, weknow that it’s possible to produce the goods and services wewant with much less energy. There are countries that usemuch less energy to produce the same number of goods as theU.S. and Canada, for instance, and they enjoy the same degreeof economic growth. We also know that at least the theoreti-cal limits of energy efficiency are nowhere near in sight. Evendoing things more or less the way we do them now, but moreefficiently, can greatly reduce the environmental and climateimpacts of our lifestyles.

When you look at our lifestyles as delivery mechanismsfor certain kinds of happiness – for feelings of security, well-being and good experiences, the ability to have strongrelationships with others, and a certain amount of materialsatisfaction – you find they’re really inefficient delivery sys-tems. Most people in North America are reporting that theyknow fewer people than they used to; depression rates are up,and more people are saying that they don’t think their kids’futures will be better than their own. There is evidence thata version of North American prosperity – the upper middleclass suburban lifestyle – is bad for your health: it tends tomake you overweight, it makes you spend more time in traf-fic, which drives up your stress levels and increases thechance that you’re going to die in a car accident. For the firsttime, even counting the increased pollution and slightly-increased crime rates of cities, it’s now safer to live in a citythan in the suburbs.

//// Questions for:Alex Steffen

The author and co-founder of worldchanging.com talks about ‘innovation

diffusion’ and the significance of the year 2030.Interview by Stephen Watt

Q&A

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We also have a trend-monitoring service. We look at some ofthe trends being reported in media stories and academicreports, and discuss how they might be applied in new ways toexisting or emerging problems. The third thing we do is origi-nal research and thinking about how different packages ofinnovations might actually add up to different futures. Insome ways, we are the world’s foremost ‘green futurism outfit.’

Explain the significance of the year 2030 as an ecologicalmilestone.Between now and 2030, we are going to have to replace mostof our material civilization in North America. About half of allthe built environment is going to be retrofitted or built anew;most of the car fleet will turn over; almost all home applianceswill need to be changed; a great number of physical goods willhead to the landfill. We will have to address the infrastructuredeficits that both the U.S. and Canada have built up over time.An enormous amount of building, manufacturing and creatingwill be urgently required. If we want to meet the kinds of dead-lines that scientists are telling us we have in terms of climate andother environmental issues – by reducing our greenhouse gasesby at least 80 per cent by 2050 for example, and diminishingour impact on the oceans and other ecosystems – we need tohave a working model, and be pretty far ahead in deployingthat model of a much more sustainable life.

The pressure to create a sustainable lifestyle is most urgenthere in North America. When most of the world thinks aboutprosperity, it does not think of Italy: it thinks about NorthAmerica, and the U.S. in particular. Even though the U.S. hasrecently gone through a rough patch, we still have a majority ofthe world’s researchers, many of the world’s finest academicand scientific institutions, and an enormous cultural belief inthe value of innovation. We have many tools that are unique orat least uniquely concentrated that could allow us to make pro-found changes more quickly than elsewhere. At the same time,more than any nation on earth, the U.S. is responsible for thecurrent greenhouse crisis. We have created about 30 per centof carbon alone, directly. Add to that the goods and services

In the next 20 years, as we start to completely rebuild oururban environment – which is going to have to happen fordemographic reasons – we can decide to rebuild it on a compactdevelopment model, by creating walkable urban communi-ties. Many of us would like to spend less time in our cars, tohave more immediate community around us, to be able to walkto shops or take our kids to school: these are things that areworth money.

There are also ways of changing delivery mechanisms toallow us to reach the same satisfaction levels with much lessecological overhead. Netflix, for example, is a movie rentalcompany that delivers by mail, removing the need for a store-front and for customers to make repeated trips to the store.Another example is modern car-sharing. If you live in a denseurban area, you can locate a car nearby your home, reserve itby phone, use a swipe card and drive away within a matter ofminutes. Like cars, power tools require vastly more energy toproduce than they do to use: the average power drill getsused between six and 20 minutes in its entire lifetime. Thereare now rental services, clubs and libraries that allow peopleto share power tools. If we’re smart about it, we may figureout how to be more prosperous, healthy and happy than weare today, while having an ecologically-appropriate impacton the planet.

You’ve stated that many of the tools and techniques forimproving our environment already exist, and are simply inneed of better publicity. How does your organization fitinto this?At Worldchanging, we do not design products, develop land,build energy grids or actually make anything. What we do isreport other people’s good work, work that is often not wellknown, and relay that information to our readership, via a staffnetwork that is working on the cutting edge of a number ofdifferent fields. We think of it as ‘innovation diffusion,’ ratherthan PR. People don’t need to merely hear about these ecolog-ical innovations, they need to understand them – why they areimportant and why they are helpful and valuable to the user.

Many of us would like to spend less time in our cars, to be able to walk to shops ortake our kids to school: these are thingsthat are worth money.

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that are created elsewhere for U.S. consumption, and the wayU.S. companies are responsible for manufacturing standards inother countries, and our influence becomes profound.

No developing nation is going to accept the idea that theirpeople need to live in poverty perpetually because Americansmessed up the environment. So it’s up to us to set the example.If we are serious about building a planetary movement to createa ‘bright green’ sustainable society, a society of equity andsustainable prosperity, we need to be at the vanguard inachieving change. Fortunately, we have the motive, the meansand the responsibility to lead and to create a whole new modelof sustainable prosperity.

Those encountering Worldchanging for the first time mightbe struck by your unusually positive tone: rather than blam-ing business for the current state of affairs, you view theenvironment as a growth opportunity. Please explain.If it’s true that we’re going to have to replace much of ourmaterial civilization in the next few decades, then every singlebit of work is going to have to be done by someone, and they’regoing to want to make a profit while doing it. Some companiesare not going to be good at doing this work, and they will ceaseto exist or at least suffer hard times. There will be huge oppor-tunity in all sorts of fields. Not just clean energy and cleantechnology, where a lot of the money is going now, but alsogreen buildings, new models of transportation, product-servicesystems such as car-sharing: there will be multiple avenues forpeople to make a profit by swapping the bad things we’redoing now for superior products, services and delivery mecha-nisms in the future.

Beyond that, once we’ve achieved these advances, there isgoing to be another business opportunity in selling, licensingand promoting the new model to the rest of the world. If wecreate a model of sustainable prosperity, people will embrace itbecause it simply makes sense. If you had to make a choicebetween expensive, dirty prosperity, or efficient clean prosperity,any sensible person would pick the latter. There is tremendouspotential in the direct opportunity to create sustainable pros-perity, and in the opportunity to replicate that success globally;I would say unimaginable potential, in fact – unlike anythingwe’ve seen since World War II.

What current trend or initiative has you most excited?At Worldchanging we see so many amazing things, but per-haps what captivates me the most is the cultural shift towardknowing and telling your ‘back story.’ This entails explainingeverything that happens in the production and delivery of agood or service – from when it’s made to after it’s discarded bythe consumer, everything other than the actual use of theobject. The reason why back story matters is this: it’s difficultto make informed decisions about the kind of goods and serv-ices you want to consume if you don’t have all the informationabout them. In the last few years, we’ve seen an explosion of

An award-winning writer, editor and futurist, Alex Steffen is co-founderand executive editor of WorldChanging.com, a popular Website that servesas a clearinghouse of information and articles about environmental sustain-ability. He is also the editor of the companion book Worldchanging: A User’sGuide for the 21st Century (foreword by Al Gore). He coined of the term‘bright green’ to describe innovative, future-focused sustainability work.

citizen activism, as well as corporate leadership and legislativeincentives, 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. Othershave been less dramatic, but nonetheless have had profoundresults. There are certification systems emerging aroundeverything from sustainable wood and fair-trade coffee to eth-ical banking practices. This is just the tip of the iceberg, andthe movement will grow exponentially as more people gainaccess to greater tools and information.

Traditionally, corporate communications is supposed tobe a one-way sales pitch. PR was designed to gloss over anyimperfections a company might have; it was thought that aproduct’s origins were of no business to the consumers. Thencame a few high profile publicity disasters, including thoseinvolving Kathie Lee Gifford on the one hand, and Nike, onthe other, and companies started to say, “Look at us. Weintend to do better.”

Instead of the old one-way conversation, you’re seeingmore companies embrace their back story as a way to acknowl-edge where they’re imperfect, show how they’re trying tochange, and at the same time educate the consumer about whytheir product is better than the competition’s. Patagonia andNau are two outdoor clothing and lifestyle companies thatactively reveal how they make their clothing, what it’s madefrom, how it’s shipped, how it’s designed and why, and whataspects are not as ethical or green as they would like. In doingso, they’re winning even greater trust from the consumer.

The shift toward transparency provides terrific leverageto propel companies that are truly trying to do the right thing.Consumers aren’t looking for perfect – but they are lookingfor a company they can rely on. The shift toward transparen-cy also supports the work of people in your company who areaccountable for your environmental and social action. We’veseen that as companies strive for superior design and efficien-cy, they quickly become better at it: it’s a steep but rapidlearning curve.

In the next few decades, we are going to see tremendousmarket pressures based around energy, environmental andsocial issues. As awareness of these issues continues to grow,and higher standards of efficiency and transparency becomeembedded in the economic structure, companies that areunable to keep up will find themselves disadvantaged. Thosethat make the change early, on the other hand, will leap aheadof the competition.

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MORE THAN 35 YEARS AGO, IN HIS SEMINAL BOOK

Design for the Real World, Victor Papanek statedthe designer’s responsibility for creating socially-and ecologically-responsible products, tools, andcommunity infrastructures. It would be another

20 years before a study by the Dutch government suggestedthat a 90 per cent reduction of the global ecological impactwould be needed by 2040 in order to preserve a sufficientamount of resources for the next generation.

The Dutch report also issued a strong warning againstexpanding the western development model to developingcountries. Despite this warning, to date the expansion of marketsinto new regions has been largely based on the expansion ofwestern resource-intensive consumption patterns andlifestyles. From an environmental point of view, this impliescatastrophic medium- and long-term consequences.Furthermore, a socio-economic perspective suggests theuninteresting scenario of a global society ‘flattened’ by west-ern countries’ consumption models. Unfortunately, manycorporations have preferred to pursue short-term and market-oriented strategies and continue to ignore such warnings.

Rapid globalization has only added fuel to the fire. In thelast few years the rise of sleeping economic giants such asChina and India has focused the debate about globalizationonto more tangible questions, including the relocation of workactivities and the emergence of evident social inequalities.Anti-globalization movements have emphasized the social

inequalities caused by the relocation of work, but such inequal-ities are not solely related to different geographical areas of theworld; even within western countries, the high levels of unem-ployment caused by this phenomenon are causing the gulfbetween social classes to increase, generating new and serioussocial problems.

The current situation demands solutions of high social andcultural value. It is time for designers, together with profes-sionals from a variety of areas, to address these complex issues.

Revising Market-Driven LogicThe 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 indus-trial production, has changed the most common private andpublic aspects of our lives: tasks that in the past we could han-dle by ourselves or within our social and family networks (our‘informal economy’) are now performed by something (a prod-uct) or someone else (a service).

This ‘relieving logic’ has led to a progressive passivation ofconsumers: given a problem, a solution is offered for a price,thus relieving the customer of any physical work or responsi-bility. Customers, in this logic, represent problems expressedin the form of a set of needs. Often, their involvement is notrequired for the definition of a solution: very little participa-tion is needed, and very few skills. This logic is very expensive,not only because it requires monetary transactions, but also

/// Point of View:Nicola Morelli

ACHIEVING SOCIALLY-RESPONSIBLE SOLUTIONS VIA

DESIGN THINKING

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because it compromises the customers’ future capability offinding their own solutions to everyday problems. I would goso far as to say that this logic is disabling people, because itdeprives them of the capability to solve problems. It can alsoundermine social relationships as it replaces personal links andsocial networks with technological products or services.

Shifting to a more-enabling logic has wide implications, asit entails a new approach to social problems that empowersboth social and individual capabilities. The revision of the tra-ditional market-driven logic must, in other words, be carriedout parallel to the revision of the idea of ‘social quality.’

Social quality has been defined as the measure of citizens’capability of participating in the social and economic life oftheir community in ways that improve both their individualwealth and the conditions of their community. This definitionemphasizes two aspects of social quality: the first concerns cit-izens’ capability to be an active part of a process of valueproduction. Social quality increases when more citizens areable to participate and contribute to the creation of value relat-ed to the needs of the individual as well as the community. Thesecond aspect concerns the citizens’ capability to be an activepart of the community: social quality increases when more cit-izens are able to participate and contribute to the developmentof their own community.

Hence, social quality implies the inclusion of those parts ofthe society (especially in developed countries) that are other-wise excluded by social life, and those communities (mainly indeveloping countries) whose consistency is undermined bypoor socio-economic conditions, which limit the individual’srange of possible actions to a mere fight for subsistence.

A New Role for BusinessAll of these phenomena are signals of a change towards a dif-ferent conception of the social role of business. The firstrequired shift is from the provision of products and services tothe organization and support of local networks of stakeholders.The second shift is from the provision of finite solutions (prod-ucts or services) – which often relieve people of their owntasks and responsibilities – to the provision of semi-finished‘platforms’ that include products and services and enablepeople to create value according to their individual needs.

In other words, companies must become organizers ofvalue creation, shifting their role from principal actor in theproduction system to co-producer of value. This contextual condi-tion implies a new role for the designer: in these situations,designers will no longer be required to produce finite solu-tions, but rather scenarios, platforms and operativestrategies to enable them to co-produce their own solution.

Although the demand for new solutions is becoming moreand more pressing, most of the actors involved have very littleknowledge about designers’ skills. The image of the designer asa ‘creative decorator’ remains the dominant reference, andrarely are designers considered as potential contributors toaddressing the demands being made on our society. The publicperception of design agency must be revised; and at the sametime, industrial designers must learn a new language andacquire new operative tools in order to function in this context.

A New Design Agenda Today’s most evident social problems are characterized by asense of urgency and a complex plot of critical conditions.They often emerge in areas that are not covered by market-driven policies, and public intervention is often unable to providevalid solutions. In this context it seems quite difficult to talkabout industrial design, especially when the design activity isframed in the traditional context.

The industrial culture, however, has generated an operativeparadigm to operate production and consumption processeswithin the traditional industrial production paradigm. Thisculture can provide several interesting insights regarding howto produce solid and sustainable solutions, i.e. solutions thatnot only address an individual need, but also empower individualsand other social actors (service providers, institutions) togenerate new social quality.

The solution to problems that cannot be addressed by globalproduction must be solved by mobilizing individual knowledgeand skills. Examples abound of innovative solutions produced bythe creative attitudes of local communities. Although such solu-tions are intrinsically placed in their geographical and culturalcontext, the design discipline can help by proposing organiza-tional structures, products and services that can be used indifferent contexts to solve similar patterns of needs.

Companies must become organizers ofvalue creation, shifting their role from

principal actor in the production systemto co-producer of value.

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We are currently facing an epochal shift that is similar tothe shift from handicraft to industrial production. The crafts-man’s production was based on implicit knowledge, whereasindustrial design made such knowledge explicit and clearlytransmittable across time and space. Industrial manufacturerswere therefore able to create economy of scale, optimizationof resources and a clear subdivision of roles. A similar processof industrialization, applied to the complex system of interac-tions at the local level, could capture and transform part of thetacit knowledge at the local level in order to activate thisknowledge in a platform that can support a set of systemicsolutions that address individual needs.

At this point, however, some critical differences emergebetween the early industrialization process and the logic ofco-produced solutions. These new solutions are based on peoplerather than machines: they are not processes that can be fullydescribed or controlled through codified sequences ofactions. They are based on social interactions and a systemicnature. Any ‘prescriptive description’ of such complex solutionscould be easily demolished by the arbitrary or unplannedinterference of individual behaviour. Furthermore, people usedifferent languages and cannot communicate by means of onetranscendent and unequivocal language.

Platforms must be built that support and organize modularstructures in which the competencies and roles of differentactors are specified. On the basis of such platforms, differentcombinations (‘architectures’) will be possible, which alloweach individual actor to generate an economy of scope.Designers are in a privileged position to work within this con-text because of their attitude towards planning interactions(objects, services, or events) and finding a balance between thetechnologically possible (an engineering approach) and thesocially desirable (a user-oriented approach). It is time toembrace Design Orienting Scenarios (DOS).

Design Orienting Scenarios The aim of DOS is to generate visions of the future that willsubsequently orient operative design decisions. DOS arequite different from the more commonly used term Policy-Orienting Scenarios (POS), which tend to characterize theeffects of various political decisions on a plurality of individualchoices by using one or more global visions of society. DOStend to show the effects of single decisions by a group ofactors on the focused system through one or more visions ofthis particular focused system. POS tends to be used by thepublic or private sector to assess and show possible effects ofdifferent policy alternatives, while DOS are used by singlesocial actors or a small group of actors to orient their ownfuture and build appropriate solutions.

Design-Orienting Scenarios are aimed at generating a plu-rality of hypotheses, involving local actors, possible users andother stakeholders in the development of the scenarios. Theuse of a narrative structure supports communication betweenstakeholders with different cultural and technical back-grounds. A structured process based on brainstorming sessions

with all the actors and some well defined evaluation criteriaenables the stakeholders to generate a set of semi-finishedsolutions that can be further developed.

Contemporary designers are very familiar with the con-cept of product platforms. Industrial production is oftenstructured by platforms, which organize production systemsaround subsystems generating flexible configurations fromwhich different products and families of products can be gen-erated. When used in the new context and for generating newco-production systems, platform architectures can beobserved from different perspectives. An overall view, forinstance, may provide indications of the front and back officeof a system (i.e. the parts of the system that are visible or invis-ible to the final customers) as well as describe flows ofinformation, goods and money.

In closingThe recent radical shift in the social role of business has alsochanged the role of designers. Both companies and designerswill no longer be proponents of a particular set of products orservices to passive users, but rather facilitators in a system ofvalue co-production.

Consumers who were once passive receivers of services willbecome active co-producers and co-designers. The intrinsiccharacteristics of ‘enabling solutions’ imply that actors aremobilizing hidden or sleeping skills, competencies and capa-bilities, which, once activated, can generate new solutions.

The traditional disabling (and product-centred) approachoffers very few opportunities to improve living conditions ofunderserved populations. In the traditional industrial context,designers worked on gaps or deficiencies in social groups.When the result of a designer’s work was a product, the efficacyof the solution depended on the product’s lifespan. In the newcontext, designers should instead work on customers’ capabil-ities and consider them as resources, rather than ‘problems tobe solved’. In this sense, design becomes a facilitating tool forsuggesting to people ways of satisfying their own needs.

The challenges proposed by global issues demand radicalchanges in industrial production, as well as in public institu-tions and welfare systems. Today’s consumers are no longeractors external to the value chain, but rather part of a value-creation constellation. If the question of social sustainabilityis framed in this context, new opportunities will emerge thatcan propel us towards new territories to explore with a design-oriented approach.

Nicola Morelli is an associate professor at the School of Architecture and Design at Aalborg University in Denmark. His blog can be found atnicomorelli.wordpress.com

A longer version of this article appeared in the Autumn 2007 editionof DesignIssues, a journal founded by the School of Art and Design ofthe University of Illinois at Chicago.

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IN A SEMINAL PAPER WRITTEN nearly 30 yearsago, SUNY Binghamton Professor EmeritusPhilip Nelson proposed a distinctionbetween two types of consumer goods andoffered a theory of advertising based on this

distinction: ‘Search goods’ were defined as products whosequality consumers can ascertain before purchasing (e.g., cloth-ing, furniture, jewelry), while ‘experience goods’ were definedas products whose quality the consumer cannot determineuntil after buying and experiencing the product (e.g., foods,books, detergents).

Nelson argued that advertising claims for experience goodsare uninformative to the consumer because consumers cannotverify these claims before purchasing the product. Advertisingspending for experience goods, however, is informative becauseconsumers can rationally infer that products that advertisemore are of higher quality than those that advertise less. Bycontrast, for search goods, Nelson argued that advertisingclaims are informative – because consumers can verify theseclaims before purchasing the product – and that no furtherinformation is needed from (or provided by) the advertisingspending level.

The essence of Nelson’s theory is the idea that for experi-ence goods, consumers should rationally infer that onlyhigh-quality products would spend significantly on advertising,because only high-quality brands can count on obtaining a sig-nificant number of repeat purchases. Low-quality brands

pretending to be high quality will be ‘discovered’ to be poor valuesafter the first purchase, will not generate repeat purchases, andso cannot justify matching the high-quality firm’s advertisingexpenditures. For search goods, on the other hand, advertisingcopy will be directly informative, and advertising spending hasno signaling role to play.

Despite its compelling logic, several questions may beraised about the applicability of Nelson’s theory in the realworld. First, consumers may not be able to assess advertisingspending levels, especially comparatively, between brands.Advertising budgets are not printed on ads, so it is difficult forthe average consumer to tell whether brand X is spendingmore or less than brand Y. Moreover, advertising invariablyinvolves hidden costs – e.g., the time devoted to developingand testing advertisements, about which consumers have verylittle information.

Second, consumers may not be able to observe qualityeven after using a product. This difficulty arises not onlybecause 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 testinglaboratory, which can compare several brands simultaneouslyunder controlled conditions.

Third, advertising spending in the real world is often tied tomarket size or share, rather than quality. For example, the brandsrated highest in quality by Consumer Reports are often not theproducts with the highest market share. And finally, why should

/// Faculty Focus:Sridhar Moorthy

ADVERTISINGREPETITION ANDQUALITYPERCEPTIONS

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firms use advertising spending to signal product quality whenother, 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 adifferent light. Whereas Nelson minimizes the importance ofthe ad itself, marketing practitioners place a great deal ofimportance on it. Much time and effort is spent on craftingmemorable ads, and creativity is the currency on which adagencies are evaluated. The industry works under the assumptionthat advertising claims and brand associations have significanteffects on product perceptions – even for experience goods. Infact, if anything, advertising claims might be even more effectivein shaping perceptions for experience goods because of theambiguity of experience.

In the marketing view of advertising, there are at leastthree ways in which advertising can shape consumers’ percep-tions of product quality:

• by providing information about product quality • by increasing the consumer’s 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 toaddress all three simultaneously.

In a recent study, my Rotman colleague Scott Hawkins andI set out to test Nelson’s theory against the marketing view. Weexposed Canadian consumers to ads from an Italian magazinefor brands that they were not familiar with. Because the brandswere not familiar, the consumers didn’t come armed with anypreconceptions about their qualities. They could, however,infer the products’ qualities from the ad campaigns themselves.

We manipulated whether subjects had to a) spontaneouslypick up advertising frequency by actual exposure to a campaignor b) whether advertising frequency information was providedto them. For Nelson’s theory to have any external validity, ofcourse, consumers ought to be able to infer advertising spendinginformation spontaneously while an advertising campaignunfolds; but for Nelson’s theory to have internal validity, itought not to make a difference how the spending informationis given to subjects. By contrast, the theories comprising themarketing view are explicitly theories about physical exposureto advertising. This is the basic tenet behind our study.

We examined four product categories, two of which areclassifiable as search goods and the other two as experiencegoods. Nelson makes different predictions depending onwhether a product is a search good or an experience good, butfor the marketing view, this difference is less important.

What we found is that it does make a difference how adver-tising spending information is conveyed to subjects: whenad-spending information is embedded in the physical repetitionof ads, perceived quality increases linearly with repetition; butwhen advertising spending information is embedded in state-ments of ad repetition, perceived quality has an ‘inverted U’relationship to repetition, with no linear trend. Moreover, wefound similar effects of repetition in all product categories.

Our research indicates that it matters how advertisingspending information is communicated to subjects. Subjectsrespond more to advertising repetition – in the sense of chang-ing their perceived quality judgments – when they are actuallyexposed to advertising than when advertising frequency infor-mation is provided to them as an abstract number. On the otherhand, it doesn’t seem to make much difference whether theproduct being advertised is a search good or an experience good.

Our results suggest that the ad itself is a critical variablemediating the response to repetition. Subjects in our studyliked an ad more after repeated exposure to it, and seemed totransfer this liking to the product being advertised, raising itsquality rating. We also found evidence of ‘mere exposureeffects:’ increasing ad exposure led to increasing familiaritywith the brand, which then led to increased perceived quality.

In closingIn the conventional view of advertising, as described in Marketingtextbooks, the effectiveness of advertising is a function of itscontent (the message), execution (how the ad conveys themessage), and frequency (how often a consumer sees the ad).The advertising-spending level enters the picture only in serviceof these three factors. Our findings offer evidence in supportof the marketing view.

Nelson’s theory offers a radically different view. It arguesthat how advertising works depends on whether the productis a search good or an experience good and that the marketingview applies only to search goods. For experience goods, theonly thing that matters is the advertising spending level – or,for that matter, any ‘wasteful’ spending – not content, execu-tion, or frequency.

Marketing professionals ought to be reassured by our find-ings. As practiced in the real world, advertising claims coverboth search and experience attributes. Ad agencies have existedfor a long time, and every year firms channel billions ofadvertising dollars through them. These practices would behard to explain if advertising did nothing more than signal thewillingness to ‘burn money.’

Sridhar Moorthy is the Manny Rotman Professor of Marketing at theRotman School of Management.

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You have noted that around 320,000 food and beverageproducts are currently available, and that an average super-market carries 30,000 to 40,000 of them. Is it possible to bean ‘informed consumer’ in such a crowded market?Not without a lot of work, and that is precisely why I wroteWhat to Eat. I spent a year in supermarkets trying to answerevery question I could think of to help people figure outhow to make reasonable choices in what has become animpossible situation. The bottom line is this: you have topick your issues. Supermarkets provide a vital public serv-ice, but they are not social service agencies. Their job is tosell as much food as possible. Every aspect of store design –from shelf position to background music – is based on mar-ket research. This research shows that the more productscustomers see, the more they buy, so a store’s objective is toexpose shoppers to the maximum number of products thatthey will tolerate viewing.

The nutrition labels on food products can be confusing; whatshould we be looking for?I devote two chapters to this in my book – one for nutritionfacts, and one for ingredients. I believe the ingredients listactually tells you more about the real nutritional value of foodsthan the ‘facts’ part. My rule, only somewhat facetious, isnever to buy foods that have more than five ingredients. Themore processed a food is, the more ingredients it is likely tohave and the lower its nutritional quality. Fresh and somefrozen foods have only one ingredient: carrots, apples, broccoli,beans. The most important thing I’d change on food labels isthe calories. The FDA proposed five years ago to requirepackages likely to be consumed by one person to display the

//// Questions for:

The NYU professor andauthor on nutrition labels,dietary supplements, andwhy food companies will

never place health first.Interview by Karen Christensen

Q&A

Marion Nestle

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total number of calories on the front panel, rather than listingcalories per serving, which makes the calories appear lowerthan they are. Unfortunately, this proposal has disappearedwithout a trace. The packaged food industry loathes the idea,as you can imagine.

If you want to get more of a specific nutrient, is it betterto take a dietary supplement or to eat foods containingthat nutrient?Unless you have been diagnosed with a vitamin or mineraldeficiency and need to replenish that nutrient in a big hurry, itis always better to get nutrients from foods, the way natureintended. I can think of three benefits of whole foods as com-pared to supplements: you get the variety of nutrients – vitamins,minerals, antioxidants, fiber, etc. in that food – not just theone nutrient in the supplement; the amounts of the variousnutrients are balanced so they don’t interfere with each other’sdigestion, absorption or metabolism; and there is no possibil-ity of harm from taking nutrients from foods, whereas highdoses of certain single nutrients can be toxic. High doses ofsingle nutrients can actually make things worse, as has beenshown 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 areresponsible for the obesity epidemic: “They turn people intoconsumers of aggressively-marketed foods that are low innutritional value, and of cars, TV sets and computers thatpromote sedentary behaviour.” Shouldn’t people takeresponsibility for their individual health?Of course they should, but how can they in an environmentthat is set up to encourage sedentary behaviour and overeating?We have so much research now that shows that even the mostresponsible people (me, for example) eat more calories than weneed when presented with large portions of food, more often,in more places. We need to create a food environment thatmakes healthier eating the default instead of what we have now.

The obesity epidemic is about much more than individualwillpower; what are some of the other factors?America’s obesity rates began to rise sharply in the early 1980s.Sociologists often attribute the ‘calories-in’ side of this trendto the demands of an overworked population for conveniencefoods – prepared, packaged products and restaurant mealsthat usually contain more calories than home-cooked meals.But other social forces were also at work: the arrival of theReagan administration in 1980 increased the pace of industryderegulation, removing controls on agricultural productionand encouraging farmers to grow more food. Calories available

per capita in the national food supply (the amount of food pro-duced by farmers, plus imports, minus exports) rose from 3,200a day in 1980 to 3,900 a day two decades later. The early ’80salso marked the advent of the ‘shareholder value movement’on Wall Street. Stockholder demands for higher short-termreturns on investments forced food companies to do every-thing they could to expand sales in a marketplace that alreadycontained excessive calories. Food companies figured out howto find new sales and marketing opportunities. They encour-aged formerly-shunned practices that eventually changedsocial norms, such as frequent between-meal snacking, eatingin public places and serving much larger portions. The resultsspeak for themselves.

Are you surprised by the current media backlash againstunhealthy eating? Where do you think it will lead, if anywhere?I wouldn’t call it a backlash, but I do think it’s terrific thatmore and more people are concerned about how food is pro-duced, marketed, and consumed and want healthier options tobe more readily and cheaply available.

In The Omnivore’s Dilemma, Michael Pollan says that if ‘weare what we eat,’ then we are corn. What is your take on the‘cornification’ of our diets?Unfortunately, it is congressional policy to make commoditieslike corn and soybeans as cheap as possible. These foods arefine when eaten unprocessed, but they are the basis of virtuallyall cheap junk foods. The corn issue may soon be moot, nowthat so much of it is being grown to feed cars, not people.What we put into our mouths affects not only our health butthe environment, the economy and our future. That’s a lot ofresponsibility for the average consumer. Can we handle it? AsI said earlier, people have to pick their issues. Solving all theworld’s problems is a lot to ask of any one food. Choices ofhealthier, more environmentally sustainable foods will encouragemore of such foods to be produced and made available.Those are important steps. It doesn’t have to be ‘all-or-none;’sometimes what is possible and doable is good enough.

Recent advertisements by PETA and the Humane Societystate that eating meat has a worse effect on climate changethan cars do. Isn’t that a bit extreme?I have seen lots of calculations of the causes of global warming.Most are based on complicated mathematical models that I’mnot qualified to assess. One thing is certain: we have a lot morepeople, 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


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“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 beingso greedy about it. Make it easier for people to choose healthierproducts and to eat smaller portions. Things as simple as thosemight help a lot. Oh yes. And it would surely make my life morepleasant if they would stop making personal attacks on critics!

As a nutrition professor, you must be constantly asked for asimple formula for healthy living. Do you have one?My advice is simple: eat less, move more, eat lots of fruits andvegetables and whole grains, and don’t eat too much junk food.‘Eat less’ means consume fewer calories, which translates intoeating smaller portions and steering clear of frequent between-meal snacks; ‘move more’ refers to the need to balance calorieintake with physical activity; eating fruits, vegetables and wholegrains provides nutrients that aren’t available from other foods;and avoiding junk food means to shun foods of minimal nutri-tional value – highly-processed sweets and snacks laden withsalt, sugars and artificial additives. If you follow these precepts,other aspects of the diet matter much less. I love to eat andhave a terrific time following my own advice. Enjoy!

Foods, because we didn’t have any real supermarkets beforethese stores came in. But all food companies face the samedilemma: they have to increase sales every quarter in a foodenvironment that provides twice as much food as the popula-tion needs. The job of food companies is to sell more food,not less. Whole Foods does it well. Wegmans does too, and itis privately held so it can do some things that Whole Foodscan’t. Food companies are not social service agencies. Theyare businesses, and their primary concern is to producereturns for investors.

In a recent paper called ‘When the Chips are Down: TheRelation between Stress, Social Support and FoodProduct Attitudes,’ researchers found that stress leads tounhealthy food choices. What is your advice for stressed-out consumers?Teach your kids how to cook and sit down together and havea lovely dinner.

You’ve had the opportunity to see first-hand how food com-panies and food trade organizations attempt to influencedietary advice. What has surprised you the most?How single-minded and relentless food companies are aboutfighting anything that might adversely affect their bottomlines. Even if they wanted to, they could not place health first.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 havesaid that these meetings usually end with them asking you;

Marion Nestle is the Paulette Goddard Professor of Nutrition, Food Studiesand Public Health at New York 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 IndustryInfluences Nutrition and Health (University of California Press, 2002). Read herblog at whattoeatbook.com.

• To reduce your weight by a pound of fat a week, eat 500-fewer calorieseach day.

• Carbohydrates and proteins have about four calories per gram; food fatscontain more than twice as much: nine calories per gram. A teaspoonholds about five grams.

• Alcohol is metabolized in a way that promotes accumulation of fat in theliver, leading to the proverbial ‘beer belly’.

• An adult expends about 100 calories for every mile walked or run; ittakes nearly three miles to burn off the calories in a 20-ounce soft drink.

Figure 1

In 1959 Ancel and Margaret Keys offered the following familiar andstill-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 refined sugar.• Good diets do not depend on drugs and fancy preparations.• Get plenty of exercise and outdoor recreation.

Figure 2Prof. Nestle’s Weight-Loss Tips Old Advice Still Holds True

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SAS Canada’s Senior VPof Operations and Financetalks about the white-roofed ‘green beacon’ his

firm has built east of Yonge Street indowntown Toronto.Interview by Karen Christensen

Fouryears ago, SAS Canada announced that it was committing$30 million to the development of an environmentally-friendlyheadquarters for its Canadian operations. Why did youdecide 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 down-town Toronto were continuing to increase, so we looked at buy-ing a facility. We were surprised to find that there was a hole inthe Toronto market: we could actually own 123,000 square feetin downtown Toronto for the same price as renting one floor atour then-current location at King and Bay Streets. The onlycatch was that we’d have to move east of Yonge Street.

We chose a location at the intersection of King andOntario Streets, and when we got to the design stage, welooked at ideas that made good common sense from the stand-point of conserving energy and controlling ongoing operatingcosts. We took a long term view – a 10- to 15-year horizon.While the initial costs involved in constructing a green build-ing are higher, we realized that if we did things a certain way, wecould save money in the long run.

Describe some of your building’s ‘green’ features.The building was designed by Norr Limited Architects &Engineers to respect the neighborhood and pedestrian traffic.Its elevations were designed to be as transparent as possible toreduce visual ‘mass’, and the ground floor was recessed at thecorner of King and Ontario to create a wider sidewalk andstreetcar stop. Our top three floors have a central atrium andskylights that allow natural light to flow down the centre ofthe building, which places every workstation within four

//// Questions for:Stuart Bowden

Q&A

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metres of a source of natural light. Floor-to-ceiling windowson two sides of the building give all workstations at least oneexternal view. The eight-floor cast-in-place concrete structureis made largely with post-consumer or post-industrial recycledmaterial. Overall, we set out to use 30 to 50 per cent less energythan a building of comparable size.

Describe how your building recycles natural resources.Our roof is the inverse of a traditional peaked roof, so that itcaptures rainwater. We duct the water into the basement,where we retain it in 10,000-gallon tanks that we use to flushtoilets throughout the building. In an average year we harvestapproximately one million litres of water, which allows us toput less strain on the city’s infrastructure. It also puts lessstrain on the city in terms of accommodating storm waterrunoff; the city has actually put in guidelines subsequent to usbuilding our headquarters that require new developers to pre-vent rain water from running off their properties. It’s a very sim-ple system, but it works really well.

Last winter a city water main feeding our building burstduring a deep freeze. Anecdotally, we would normally have hadto shut the building down because it took a day and a half forthe city to fix it. But because we were harvesting rain water, ourtoilets were working during the entire period and we were ableto bring bottled water in; so from a preparedness standpoint itallowed us to have a backup when the city’s system failed.

Describe your journey to ‘LEED certification.’LEED is the Leadership in Energy and EnvironmentalDesign green building rating system. It’s a rating system that isthe accepted benchmark for green buildings in the U.S. LEEDCanada is an adaptation of the U.S. system that is tailoredspecifically for Canadian climates, construction practices andregulations. It is run by the Ottawa-based Canada GreenBuilding Council. The SAS Building is registered under theU.S. LEED program simply because we registered for LEEDwell prior to LEED Canada being created.

LEED helps companies’ measure usage of what they call‘commodities,’ including electricity, water and gas. It helpsguide you in certain directions and provides a scorecard totrack what you’re doing in terms of the systems you put into abuilding and the potential savings you might realize. One dayduring the design process, one of our senior managers saw ourplans and said to us, “Do you realize that we’re heading along

the path of the LEED frame-work?” Most of us had no ideawhat that was, but we allagreed that greener choicesmade good economic sense, sowe looked into it and realizedthat if we invested a little bitmore incrementally, we couldbecome Toronto’s first LEED-certified commercial officebuilding. The fact that wecould marry our businessobjectives with environmentalobjectives made good business sense and started to spill overinto our design process. For example, initially we looked at cre-ating a white roof that would allow us to stand out on theToronto skyline to our large customer base in the downtowntowers. Later we realized that this would also make sense froman environmental standpoint: using a white roof to reflectheat and keep the building cool as well as reduce the ‘heatisland effect.’

The LEED process involves computer based modeling,and ours indicated that we could save up to 30 per cent overallon energy costs. To date, we have exceeded that target by asmuch as 10 per cent.

While you aren’t yet certified, your headquarters is the firstcommercial office building in Toronto to be ‘LEED registered.’Please explain.LEED is a very long process, and we are on our way to beingcertified. For us it has become part of what we are bringing tothe city – of our commitment to the community and SAS cul-ture. Some people look at LEED certification as being altruis-tic, but there is actually a lot of common sense to it from acommercial standpoint, and not only in terms of cost savings.If you step back and look at it from a landlord’s point of viewand 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 outsidetenants. When we told the real estate experts that we weremoving east of Yonge as opposed to west of Yonge, they told us,“nobody will go east; you’re only going to get X$ for your officespace.” As a new landlord, their reaction was concerning, but

Some people look at LEED certification as something altruistic, but there is

actually a lot of common sense to it from a commercial standpoint.

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businesses, so our objective is to provide a positive influenceas we all move forward.

We also work with some of the businesses on Queen StreetEast to raise money for various charitable activities. We’ve heldsoccer tournaments, golf tournaments and marathon races toraise money. This drive and attitude of wanting to help is sim-ply part of our corporate culture.

It’s been said that when a company places an emphasis on‘thinking green’, it rubs off on employees. Have you found thisto be the case?Definitely. In addition to their involvement in the fundraisingactivities I mentioned, our employees have become muchmore engaged in ‘wellness issues’ since we moved, and Ibelieve this is due in part to the features we’ve put into thebuilding. For instance, we offer indoor bicycle racks toencourage people to ride their bikes to work, and to accom-modate this we’ve put in shower and changing facilities. Wealso have running teams that go running every day atlunchtime. This type of behaviour can be encouraged by one’sphysical surroundings.

What is the business case for going green?The key thing to recognize is that you will be adding costs inthe beginning, but you are building long-term value. Toooften when a business person looks at a project, they look atit solely on a cost basis. Cost is important, of course, but youhave to spend money to make money; you must invest, and ifyou do it correctly, you will build value. The day we returnedthe keys to our former office and opened up our facility, wehad a return of 375 per cent per square foot, which is huge.From a commercial leasing perspective, our return on rents isin excess of 20 per cent. Most business initiatives – particular-ly new construction developments – cannot boast these sortsof numbers.

we emphasized that we were bringing a new proposition toprospective tenants: a double ‘A’ class green building east ofYonge Street, which had never been done in Toronto.

Almost immediately out of the gate, we got twice the goingrental rate, so there was 100 per cent premium to our tenantson the fact that we were green. We have just finished leasingthe building and the actual net rents paid are in excess of threetimes what we were told we would get in the beginning, so themarket obviously places a value on this type of facility. It’s beena ‘win-win-win’ situation from an environment standpoint,from a cultural standpoint and from a commercial standpoint.

You were SAS Canada’s first employee in 1986. From anemployee’s perspective, how does your new building com-pare to your former location at King and Bay?SAS has always had a very low turnover rate; we tend to retainpeople for many years. But we were quite concerned when wemoved away from King and Bay, because it is ‘ground zero’ asfar as commuter transportation is concerned. We feared thatwe’d lose people, so we spent a lot of time with our staff tounderstand what their needs were. As a result, when we movedwe put in a shuttle bus between Union Station and our facility,which our tenants can use as well. I’m pleased to say that wehave not lost one staff member due to our change in location.On the contrary, because of what we have done and continueto do, there is a great sense of pride, because our employeeshelped put this place together. Each individual basically ownsa piece of ‘cultural equity’ in what we have accomplished.

In addition to setting an example with your building, SAS hasmade investments to improve the local community. Pleasedescribe this initiative.We’re an organization that likes to engage our stakeholders,so very early on in the building process we engaged the com-munity and sought their feedback. The east end of Torontohas had a negative stigma attached to it. What we have doneis to say, “We may be ‘big business,’ but we’re a little differ-ent; we’re interested in working with your community andsupporting the people who live here.” So far we have provid-ed funding to the city to allow for new park benches, newly-planted trees, an ice rink and soon, a new playground. We’rein that community every day, and our staff supports the local

Stuart Bowden is a director and senior vice president of Operations andFinance at SAS (Canada), a subsidiary of North Carolina-based SAS, theworld’s largest privately-held software company and the market leader inproviding business intelligence software and services that create enterpriseintelligence. SAS (Canada) recently celebrated 25th anniversaries with RBC,Bell Canada, CIBC and BMO.

Cost is important, of course, but youhave to spend money to make money. If you do it correctly, you will build value.

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IN THEIR DAILY LIVES, people often see humanelements in non-human forms and events.For instance, who hasn’t looked at a cloud for-mation – or the moon – and seen a human facein it? This tendency to ‘anthropomorphize’

pervades human judgment. People even sometimes attributehuman goals, beliefs, and emotions to animals, for example,when they interpret the dynamics between two birds as reflect-ing the loving attention of newlyweds.

We see human characteristics not just in nature, but inartifacts as well: we may view our car as a ‘loyal companion,’going so far as to name it; and people often argue with and scoldmalfunctioning computers, engines or gadgets. Products aresometimes seen as having an underlying ‘defining essence’analogous to a genetic code, or features of their makers orowners that have been transferred during production or use.

Several explanations have been offered for our tendency toanthropomorphize. One is that doing so comforts us by providinga form of relationship or companionship. This view seesanthropomorphism as following from wishful thinking: peoplewho wish to have more relationships in their everyday livesmay use products to fill that void. A second explanation is thatpeople anthropomorphize to make better sense of the worldaround them – that we use what we are familiar with (i.e. ourknowledge of ourselves) and ascribe human-like characteristicsto events or entities to better account for outcomes and thingsthat we know less about.

The result of this tendency to anthropomorphize is thatproducts that can be humanized are often seen as stronger can-didates for long-term business success. Marketers encourageanthropomorphization by imbuing products with distinct‘personalities’ that can affect their perceived credibility andfoster relationships. In some cases, they go so far as to design afully-anthropomorphized representation of the brand – forexample, Mr. Peanut, Tony the Tiger, and the Michelin Man;in others, they present the product itself in human terms. Forexample, 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 ableto anthropomorphize different objects with equal ease. Theliterature suggests that the ability to anthropomorphize maydepend 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 theperception of ‘humanity:’ things that dart about quickly maybe seen less as human and more like insects, whereas thingsthat move very slowly, such as clocks, may seem to lack humanity.The human-like pace with which iRobot’s Roomba vacuumingrobot moves may be why some consumers dress it up in cos-tumes and others have bought a second Roomba so that theirfirst one will not be lonely.

IS THATCAR SMILING

AT ME?

/// Faculty Focus:Pankaj Aggarwal

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Objects that are shaped somewhat like people are morelikely to be anthropomorphized. For instance, the shape of aCoca-Cola bottle is more easily anthropomorphized than acan of Coke. Other features that signify humanness includefacial features, sounds/voices, intentionality, imitation, andcommunication ability. Marketers also encourage consumersto think of products in human terms by referring to them withthe personal pronouns ‘he’ or ‘she’ instead of ‘it;’ by describinga product in the first person instead of the third; and by referringto a ‘product family’ instead of a ‘product line.’

‘Accidental anthropomorphism,’ which involves seeingparts of the product as being human-like due to a ‘chance con-figuration’ of components (as in seeing a face in the clouds) canraise the evaluation of a product merely because the feature isperceived as unique or appealing. The positive effect of thesecomponents might become even stronger if people’s attentionis drawn to these surprising, human-like features. In contrast,calling attention to design features that lead to only partialanthropomorphism may undermine the positive evaluation bychanging the evaluative schema from human qualities to thoseof an engineered object.

Schema-Congruity TheoryI recently conducted research with Ann McGill of theUniversity of Chicago, focusing on the form of anthropomor-phizing whereby efforts to anthropomorphize go beyondmerely suggesting that a product is human to suggesting aparticular type of person – for example, a spokesperson, afriend, or an old flame. In such cases, we posited, the specificfeatures of the product might affect the perceived fit of theproduct with that social category. Our primary questionsinvolved whether such presentations affect the evaluation ofthe product, and if so, how?

Central to our study was the hypothesis that anthropo-morphizing affects evaluations through ‘schema-basedprocessing.’ The term schema was first used to describe “anactive organization of past reactions, or of past experiences.”More generally, a schema is a stored framework of cognitiveknowledge that represents information about a topic, a con-cept, or a particular stimulus, including its attributes and therelations among the attributes.

Past research suggests that evaluations of a new productmay depend on the level of congruity between that product’sfeatures and the ‘category schema’ in which it is presented. Theinfluence of congruity has been attributed to the transfer of

affect (i.e. emotion) from the schema to the object and to cog-nitive experiences of satisfaction or frustration in perceivingthe fit between the object and the schema that carry over tothe evaluation of the object.

Although research also suggests a moderate ‘incongruityeffect’ (in which an item that is moderately incongruent with theschema is liked more than items that are highly congruent orhighly incongruent with the schema), recent findings suggestthat such effects do not occur when consumers are knowledgeable.

Our research tested a simple relationship between schemacongruity and product evaluation. The prediction examined inour first two studies was that ‘greater congruity between featuresof a product and an activated human schema leads to more posi-tive evaluations’ (in the absence of strong category affect to thecontrary.) In a third study, we explored the role of category affectby examining the effect of the match of a stimulus with humanschema associated with strong negative versus positive affect.

In each of our studies, a human or an object schema wasactivated by encouraging participants to think of the productas being either a) like a particular type of person or b) like anobject. Next, a new product was presented with a feature thatwas more or less congruent with that particular humanschema. Our first study used a ‘car’ as the target product andmanipulated the shape of the front grille to create a feature (a‘smile’ and a ‘frown’) that fit either well or poorly with the acti-vated human schema of a spokesperson. Since spokespersonsare associated with smiles and not frowns, a ‘smiling’ car wouldbe congruent to the spokesperson schema while a ‘frowning’car would be incongruent.

Our second study used a different product category, bever-ages, and relied on the sizing of four bottles to manipulatecongruity with the activated human schema – either different-sized bottles suggesting a human ‘family’ or all same-size bottlessuggesting a ‘product line.’ Same-sized bottles presented as a‘family’ would be incongruent with the activated schema of thehuman family. In our third study we used the sizing of two bot-tles instead of four to manipulate congruity with the activatedhuman schema of ‘twins.’ Further, we use a positive (twins) and anegative (‘evil twins’) version of this human schema to examinethe role of category affect beyond congruity with the schema.

Our Findings Our research supports Schema-Congruity Theory as theunderlying theoretical basis for explaining consumers’ evalua-tions of anthropomorphized products. Although the schema-

A ‘schema’ is a stored frameworkof knowledge that representsinformation about a topic, a concept, or a particular stimulus.

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congruity model was first proposed by researchers in the early1980s to offer insight into the match between products andtheir categories, we found an application for the model in atotally new context: as a mechanism for understanding thecomplex phenomenon of product anthropomorphism.

Our studies revealed that the ease with which products canbe anthropomorphized by consumers depends on the schemain which products are presented and the presence or absenceof product features that are human-like. This ability on behalfof consumers to see a product as human in turn affects theirevaluation of that product. Products that are presented ashuman but which lack human features are evaluated less positivelythan products that are presented as human and which havehuman-like features.

Our third study provided an additional nuance to ourunderstanding by showing the two different ways in whichschema-based processing influences consumers’ evaluations ofa product: participants in this study were more likely to anthro-pomorphize the product when its features were congruent withan activated human schema. When marketers encourage consumers

to anthropomorphize a product, consumers bring to mindtheir ‘schema’ for the type of person suggested, and the productis evaluated in part by how well its features fit with that schema.For example, participants evaluated a product that was anthro-pomorphized as ‘evil twins’ less favorably compared to theproduct anthropomorphized simply as ‘twins.’

Consumers commonly evaluate marketing stimuli by com-parison to categories instead of proceeding in a piecemealattribute-by-attribute fashion. Efforts by marketers to anthro-pomorphize products may be viewed as shifting the categoryof evaluation from product to human and, more specifically, toparticular human categories such as ‘friends,’ ‘helpers,’ ‘families,’or ‘spokespeople.’ Perceived congruity with an activatedhuman schema – due to the application of the affect stored forthat schema – may therefore affect the evaluation of products.Schema congruity can be used as a theoretical basis forexamining the effectiveness of marketers’ efforts to anthropo-morphize their products.

Our findings indicate that the overall evaluation of a productis influenced both by the degree of satisfaction from seeing the‘fit’ between the product feature and the activated humanschema as well as by the ‘affective tag’ associated with thatschema. This reinforces the cautionary point that anthropo-morphizing a product leads to more-positive evaluations onlywhen the type of person brought to mind is associated withpositive feelings.

The frequency with which marketers rely on presentationaldevices to humanize their products suggests a general beliefthat such efforts are useful, leading not just to more salient rep-resentations but to more appealing ones as well. What wefound, however, is that humanizing a product does not alwayslead to more positive evaluations, and it can actually lead toless-positive evaluations.

Anthropomorphizing a product leads to more-positive evaluations only when the type

of person brought to mind is associated with positive feelings.

Pankaj Aggarwal is an associate professor of Marketing at the RotmanSchool of Management. His paper, “Is That Car Smiling at Me? SchemaCongruity as a Basis for Evaluating Anthropomorphized Products,” co-written with University of Chicago Graduate School of Business ProfessorAnn McGill, appeared in the December 2007 issue of the Journal ofConsumer Research.

a. Lexus with a ‘smile’.

b. Lexus with a ‘frown’.

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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 identifythe three shortages of the New Consumer as time, attentionand trust. People have very little time to spend on makingshopping decisions; their attention span is quite short, simplybecause they have so little time; and quite often they are quitedistrustful of advertisers, journalists, government, or anyauthority you can name.

Accordingly, one of the great demands from the NewConsumer is a measure of authenticity. They like products tobe unique and original, to help them stand out as individuals.Sigmund Freud spoke of ‘the narcissism of small differences,’and we find that phenomenon in the kinds of items that areconsumed by this group. They advertise their taste and wealthin subtle ways; the man in the street might not recognize thesesubtle signs, but the New Consumers don’t care about the manon the street. They care about their peers who will recognize,for example, that their BMW is badged in a certain way, thatthe suit they’re wearing has lapels with unusual stitching, thatthe watch on their wrist is a Patek Philippe, or that their penis a Mont Blanc rather than a Bic. They see these items as abadge of membership.

What factors have led to the rise of the New Consumers andgiven them such influence over the marketplace?One factor has been the rise in disposable income, or at least

The author and neuro-marketer on how to targetthe New Consumer.Interview by Stephen Watt

//// Questions for:David Lewis

Q&A

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very distrustful. If you have a brand that is trusted, you mustdevelop every conceivable process to ensure that trust is main-tained. Once customers start to mistrust you, it is much harderto win back their faith than it was to earn it in the first place.

You’ve written that “the purchase of products and serviceshas largely replaced religious faith as a source of inspirationand solace.” Please explain.The U.S. is still a religious nation, particularly in the southernstates, but in most developed countries, including the U.S.,people seek sanctuary in their wealth, and believe that it willprotect them from most ills. They believe they can buy them-selves out of trouble, and to some degree, it’s true: you can buya house in a fairly quiet, low-crime suburban neighbourhoodwhich may protect you from some of the crime faced by peoplein inner cities. I’m not the first writer to suggest that a lot ofmodern malls are ‘cathedrals to consumerism,’ where peopleworship at the altar of the newest thing. We’re seeing a bigdecline in church attendance here in the UK, as well as a bigdecline in charitable giving. People find it more interesting togo out and buy things for themselves, and ‘shopping therapy’ is amajor source of consolation.

What is ‘neuromarketing’ and how has it contributed to yourideas about New Consumers? Neuromarketing is essentially a scientific attempt to find outwhat’s going on in the brain in response to advertising or buyingdecisions. It’s the adaption of techniques that were developedfor medical studies, which looked at the way the brain reacts tovarious external stimuli. Two methods are used: fMRI, whichdraws a picture of the brain based on where the blood is flow-ing, and QEEG, which draws a picture of the brain based onwhat electrical activity is going on at the time. This is a newdiscipline; the term itself is only a few years old.

Before Neuromarketing, you probed your consumersthrough surveys and focus groups, in which people are asked tocomment on a product or advertisement. These techniques arequite good, but they have three major drawbacks. First, peopleoften don’t really know how they feel about something.

access to easy credit. These days you can live your dream evenif you can’t afford your dream. Rising house prices make peoplefeel richer, as do reductions in the price of many items due toimports from the Far East. The spread of the Internet hasmade it possible to do comparison shopping, to roam theworld from the security of your own home and get the bestpossible price. The rise of consumerism is a driving force inour society and is becoming a central role in our being. Thebelief now is that you can shop yourself out of trouble: globalwarming will disappear if we all go out and buy energy-savinglight bulbs, or our health will be perfect if we buy organic food.While such measures may make a slight difference, the mainphenomenon here is that consumerism itself has become theultimate goal.

How can retailers, service-providers and advertisers turnknowledge of the New Consumer into commercial advantage?There are two kinds of shopping: ‘doing the shopping’ and‘going shopping.’ Doing the shopping means buying householditems and other products that you have to buy but generallygain no pleasure from doing so. That’s core shopping, in whichthe consumer is largely driven by an attempt to find the bestpossible price. The growth area lies in going shopping, whichstarted as far back as the Victorian era, when the great depart-ment stores in the big cities opened up. They were palaces ofpleasure, with libraries, gymnasiums and swimming pools. Inthat era and ever since, people have treated shopping as aleisure activity, in much the same way as they might go to themovie theatre. In that sense, shopkeepers are in the entertain-ment business, and they should make their shops as entertain-ing as possible. Entertaining consumers means paying atten-tion to everything from the aroma used in the shop, to thelighting and the width of the aisles. It’s a science of trying toturn a shopping mall or store into a theatre. And just as thestaff at Disneyworld are seen as the ‘cast,’ so should retail staffthink of themselves as the cast in a Hollywood film.

When it comes to targeting New Consumers in particular,retailers and producers of consumer goods should bear inmind the mantra of time, attention and trust. This group is

In developed countries, people seek sanctuary in their wealth, and

believe that it will protect them from most ills.

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Second, they may lack a vocabulary to turn their thoughts andfeelings about something into words. Third, they will often lieto avoid seeming foolish or expressing an opinion which iscounter to the rest of the group. What they say is not necessarilywhat they mean. With Neuromarketing techniques, yoursubjects don’t have to say a word, and you can still tell whetherthey like something or not, and how much attention they’repaying. It’s not a reconstruction of their thoughts and feelings;it’s what their brain is actually doing at that time. So it gives youa deep insight into how people respond in different situations.

How does Neuromarketing actually work?In the U.S., the most popular method of Neuromarketing isfMRI – Functional Magnetic Resonance Imaging. In thistechnique, people are exposed to a stimulus – an advertise-ment, for example – while lying in an fMRI scanner, whichthen measures changes in the blood flow system to look atthose areas of the brain which are most active. So if the area ofthe brain associated with short-term memory was active, youmight assume that what’s being seen or heard was being con-solidated into a working memory. This technique has drawbacks:it’s very noisy and requires you to lie very still as the image isbuilt up by a computer. It’s very much a laboratory or clinic-bound technology. You can’t have people walking through ashopping mall while inside an fMRI scanner.

The other main technique is Quantified ElectroEncephelography (QEEG), which has been around since 1928and allows you to read electrical activity in the brain. Youattach sensors to the side of the head, and then compare elec-trodes to see what kind of electrical activity is occurringroughly in that region of the brain. You can see, for example,whether the left or the right side of the brain is more active, orthe power or amplitude being generated by the brain, and thefrequency of the brain activity.

The advantage of QEEG is that the equipment can be thesize of a paperback book, and can store data up to 30 hours.You can wire your subjects and send them into pretty muchany situation: the world is your laboratory. The downside isthat it’s not spatially very accurate. What you’re reading in aparticular part of the brain could be five or six centimetresaway from the electrode. So while the reading is very accuratein terms of time, it is not accurate in terms of space. However,the software to interpret the electrical data is becoming rap-idly more sophisticated.

Is it really possible to ‘eavesdrop’ on the mind of the con-sumer? And if so, isn’t this cause for concern?Many of the claims made for and against Neuromarketing havebeen over-hyped. The brain is a vastly complicated organ whichwe really don’t understand. The increasing amount of light beingshed on the brain merely serves to emphasize the amount ofdarkness that still remains. What you can currently tell about thebrain’s workings is limited; however, the current state of knowl-edge is expanding at a huge rate. In my discipline, there aresomething like 40,000 papers published each year on the topic.

In ten years time, we may start to worry about eavesdrop-ping on the mind of the consumer: while it may always beimpossible to read minds, it may become increasingly possibleto control people’s minds. As it stands, you can’t read people’sminds, or discover a ‘buy’ button, but you can tell things in verybroad terms. With QEEG, which is the technology I’m mostfamiliar with, you can detect levels of attention quite well, suchas whether or not someone is attending to what they’re seeing,hearing or doing, and you can tell in a broad sense whetherthey’re approaching or withdrawing from the experience. It’s auseful tool and it will become increasingly useful, but it’s not atthe moment a Rosetta Stone that will translate the thoughts ofa consumer into concrete statements about their responses.You have to be careful about going beyond the insights that thedata can reliably provide.

Financial decisions, especially judgments about of economicreward, were once thought to be the domain of rationalthought. Now it seems that the emotions play an importantrole. Please explain.All the research we’ve conducted suggests very strongly thatmost consumerism is based on an emotional response, not anintellectual one. The intellectual response is an after-the-factjustification for a decision that was made below the level ofconscious awareness. Branding and advertising that appealsstrongly to the imagination is likely to be more successful,because we buy on impulse. The conscious regions of the brainare like a public relations officer, trying to explain the behaviourof the company on the basis of misinformation or too littleinformation. We act from an emotional response and thenexplain it to ourselves or other people by creating an intellec-tually-reasonable narrative.

There’s a saying that the stock market is motivated byeither fear or greed. We’ve seen evidence of that emotionalismin the recent sub-prime difficulties. People respond very emo-tionally to money, however much they would like to thinkthey’re making logical and informed decisions. Very often itcomes down to making guesses based on a gut feeling. Mostinvestors are making decisions based on emotions and areswayed by the latest headline or remarks by a media pundit.Obviously some people are sharper than others. WarrenBuffett is an example of someone who has been extremelyfortunate in his financial decisions. He does use a lot of reasonand doesn’t allow himself to be swayed by emotions. But he isan exception.

British author and broadcaster David Lewis is director of research anddevelopment at the Mind Lab International Ltd., a neuroscience researchestablishment based outside Brighton, England. His books include The Soulof the New Consumer (Nicholas Brealey Publishing, 2001). He is a charteredmember of the British Psychological Society and a fellow of the Institute of Directors.

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While still a graduate student at the University of BritishColumbia, you created the concept of the ‘EcologicalFootprint’ with Professor William Rees. Please define it.An Ecological Footprint is the equivalent of an ‘ecologicalservices account:’ in much the same way that your bankaccount indicates how much you spend and earn, ecologicalfootprints indicate how much land and resources are taken upby your consumption of food, fibre and energy. Think of it as‘ecological accounting.’ If you believe in the need for sustainabledevelopment, you are likely an advocate of the EcologicalFootprint. The notion of sustainable development is based onthe recognition of global limits; if there were no limits, we shouldhave accelerated development. Implementing sustainabledevelopment depends on understanding how much of theplanet is occupied by people. This is what the Footprint measures:how much of the regenerative capacity of the biosphere is beingused by people? Are we using nature faster than it can renew?

Of course, some people prefer to believe that the Earth’sresources are not finite, and they do not seem to mind burningthrough resources and have a merry time doing so. People whodeny the existence of resource constraints should spend some oftheir vacation time in Haiti to test their assumptions. Perhapsthey will be able to put their belief to rest that human innovationwill always generate resources faster than people can use them up.

The ecosystem is notoriously complex and difficult toreduce to simple mathematical equations. How is it possi-ble to reliably measure a person, product or organization’secological impact?Any model is always a simplification. It’s like checking a sickperson with a thermometer: if we measure a temperature of 39degrees Celsius, we don’t know exactly what’s going on, but do

//// Questions for:Mathis Wackernagel

The co-inventor of theterm Ecological Footprinton the dangers of runningan ‘ecological deficit.’

Interview by Stephen Watt

Q&A

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When our government officials startto sweat as much about ecologicaldeficits as they do now about unemployment or balance of trade,genuine action will emerge.

know that something is wrong. In the same way, the EcologicalFootprint doesn’t measure exactly how ecosystems work andall the impacts, it just indicates that overall, if we take morethan what nature can regenerate, we have a problem. We canmeasure how much wood is growing compared to how muchwe harvest, or how many fish are replenishing compared to thenumber that are caught, or how much carbon dioxide is beingemitted compared to how much nature can sequester. We maynot be able to perfectly know all the intricacies, but overall, wecan 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 knowmore about future trends than we want to know. The problemis not uncertainty, but that we are not even willing to actadequately on issues where we have certainty. For example, weknow that humanity’s CO2 emission is growing faster thaneven the worst-case scenario of the Intergovernmental Panelon Climate Change. What more than that do we need to know?

In the past few years we have seen environmental concernsmove from the ideological fringe to the mainstream, andnowadays even big business appears to be getting in on theaction. What has inspired this change?In recent years, ecological constraints have become more visibleand 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 fish-eries, especially in Canada, is another prominent example ofthe genuine costs of transgressing ecological limits. Unlike thefisheries or cities, most businesses can move around to avoidbeing hurt by an environmental collapse. It’s becoming clear,however, that ecological limits are no longer just theoreticaland far away, but are real and imminent. When the sustainabledevelopment concept entered the world stage with the 1987Brundtland Report, it still made sense to link such developmentwith the concern for future generations. But we have lost 20years since then, and we are starting to realize that sustainabil-ity is about present generations, here and now.

Changing attitudes about sustainability is one thing.Changing behaviours is another. What steps are beingtaken by your organization to influence public policy andbusiness practices?Our intermediate goal is to have ten countries adoptEcological Footprint regulations within the next three years.Regulations alone will not immediately change behaviour, butonce our government officials start to sweat as much aboutecological deficits as they do now about unemployment or bal-ance of trade, genuine action will emerge. We have the proto-types for the needed solutions: we know how to build low-energy housing and green cities, we know how to turn arounddemographic growth – we just don’t yet understand that it’s inour best interest to aggressively accelerate sustainability.

As businesses, we can either wait for governments to putregulations in place, or we can anticipate these changes from abusiness perspective. The pioneer businesses will gain in com-petitiveness, while dinosaur companies that miss out onpreparing themselves will lose out. In the past, business andecological concerns were seen as conflicting or even antitheticalto business interests, while these days it’s generally understoodthat it’s good business to be environmentally-friendly, if onlyfor the sake of saving on your energy bills and reducing costlywaste. The new reality will hit us one way or another, whetherthrough higher prices or disruptions, or aggressive policy shifts.As we introduce higher resource taxes or energy prices andincreasingly run into ecological constraints, pioneer companieswith an effective sustainability strategy will win out against thedinosaurs and thrive in a resource-constrained world.

An interesting example is Wal-Mart, which has recentlyannounced a number of green initiatives, at least on a trialbasis. The company’s business model is essentially married toan incredibly resource-intensive lifestyle: its primary market isthe suburbanite who likes to shop and drive a lot. Further, thecompany as a whole has an incredibly long supply chain,reaching into areas like China, which themselves are runninginto severe resource shortages. Wal-Mart is starting to recog-nize that its business model is utterly dependent on a way of

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life that can no longer be sustained. Oil price increases, forexample, cascade very quickly down the Wal-Mart food chain.Hence, it’s an absolute necessity for it to be on the leading edgeof resource efficiency if it wants to prevail.

Wal-Mart has also told its suppliers it wants to switchentirely to MSC (Marine Stewardship Council) fish within acouple of years. These are fish that come from certified,sustainable fisheries. Such environmental initiatives go beyondmere public relations: they help the company’s 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 wherewe start to significantly reduce our impact on the biosphere?The problem of over-consumption is linked to the enormousexternalities we are allowing, and even encouraging, as a soci-ety. To cite just one example, a recent study examined the eco-nomic value of bird conservation and found that $100 of eco-nomic value was generated for every dollar invested in con-serving bird species and habitat. You might then wonder whywe’re not running with all our money to invest in bird conser-vation, since there’s such a huge return. The reason is that thereturns are shared by everybody, not just the person whoinvests. It’s the same problem with climate change. The costsof emitting carbon dioxide are barely borne by the emitter,but are spread widely among the population. This is what’sknown as the ‘Tragedy of the Commons.’ Worse, we still haveenormous and perverse subsidies allowing people to defercosts onto third parties, and governments are reluctant tointernalize 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 thatnature imposes, or do you want to make life a little more com-fortable by choosing your limitations now, yourself? It dependson the wisdom of countries, and the extent to which they’rewilling to recognize ecological constraints and deal with them,or just let nature take its brutal course. We can take greatcourage and hope from how quickly the climate debate hasspread through our society. There has been a huge swing inpublic opinion in the past two years: even magazines likeThe Economist, which had been ardent critics of the climatechange debate for decades, are suddenly acting as if they hadbeen on the side of the environment all along.

The next U.S. administration will be better at addressingenvironmental concerns than any in the past. Every candidateon both the Republican and Democratic sides has a fairlyaggressive climate change policy. You could say these are justempty words compared to the actions that are needed on theground; however, changes start with words and end in deeds.

Is this change coming quickly enough to turn things around? It’s hard to know. There are still huge opportunities that would

allow us to live within the means of our planet within a reasonabletime, but huge investments are also needed in such areas asfamily planning and a much more compact urban infrastructure.The question is, how long will it take to change our thinking torecognize that the environment is not just a nice green fieldthat you drive your car through, but the physical capital uponwhich we all depend?

There’s still a huge knowledge deficit, even amongsteconomists. Most first-year Economics courses still celebratethe virtue of expanding economies and accelerating resourceconsumption rather than focusing on how we can live withinthe limited means of nature’s resources. The biggest deficit wehave is this knowledge and cultural deficit, and we continue toteach many of the wrong messages.

How do you maintain or even shrink the world’s environmentalimpact as the middle class continues to grow and levels ofconsumption rise in developing countries?In poor countries, ecological constraints tend to be felt morekeenly, since resources are less available. Ecological constraintshave forced such countries to have smaller footprints. That’sthe least-favourable path – to be forced into resource conser-vation. The better path is one that is chosen proactively andguided by fair- and widely-supported policy. As an individual,my big Ecological Footprint doesn’t hurt me at all; it’s easierto be rich and use all the resources in the world than it is toconserve. Of course, such wanton consumption of resources isnot possible to replicate globally. We have a collective, world-wide problem. If all people around the world consumed at thelevel of Americans, we would require five planet Earths tosustain us.

Over time, nations will start to realize that running an eco-logical deficit will create a severe handicap for them, especiallyas more and more people around the world fight to use ourexisting resources. Nations and cities hurt themselves by usingmore than what’s available, and it’s in their interest to bekeenly aware of how much natural resources they have andhow much they use. The era of sustainable development is herewhether we like it or not: the question is how quickly we willadapt, at what pain and at what cost? The earlier we embracesustainability, the earlier we turn things around, the cheaper itwill be to achieve the transformation, and the more sufferingcan be avoided.

Mathis Wackernagel is executive director of the Global Footprint Networkand co-inventor of the concept of the ‘Ecological Footprint,’ He has con-tributed to works on sustainability including Our Ecological Footprint:Reducing Human Impact on the Earth, and WWF International’s Living PlanetReport. In February 2008, he participated in a Statistics Canada colloquiumwhere he lobbied for Canada to become one of the ten pioneeringFootprint countries.

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News BriefsSPRING 2008

New Rotman Family Gift SupportsProsperity Research

A NEW GIFT BY THE LEAD BENEFACTORS of the Rotman School ofManagement will contribute significantly to the study of juris-dictional advantage and prosperity in a newly-establishedresearch centre. The donation of $18-million by Sandra andJoseph Rotman was announced in December at a dinner cel-ebrating the naming of the Lloyd and Delphine MartinProsperity Institute in honour of the parents of Dean RogerMartin. The Institute was established earlier this year by alandmark $50-million grant to the Rotman School by theProvince of Ontario.

As previously announced, renowned urban theoristRichard Florida is the inaugural academic director of theInstitute. Prof. Florida, who joined the Rotman School last Julyas a professor of business and creativity, is well known for hiswork on competitiveness, demographic trends, and culturaland technological innovation.

“The Rotman family was visionary in its initial support ofthe School and we are delighted that they are reinvesting tohelp us develop a world-class Institute to compliment theinternationally-recognized research and teaching taking placehere,” says the Dean.

Under Roger Martin’s leadership, in nine short years theRotman School has emerged as a global innovator in businesseducation, says Joseph Rotman. “To demonstrate our immenserespect for Roger’s ongoing contribution and impact, Sandraand I decided to pay tribute to his family by naming theInstitute after his parents. The research conducted at the Lloydand Delphine Martin Prosperity Institute will enable businessleaders and policy makers to implement the strategies neededto ensure Canada’s future prosperity.”

“Sandra and I are thrilled to be involved in an initiative thatwill benefit the collective prosperity of Canadians and con-tribute to the School’s global reputation for thought

leadership,” he adds. “The naming of this Institute expressesour gratitude for an individual who has displayed the rare abil-ity to transform business education with his vision. Roger hasbeen, and continues to be, the key driver in making many of ourdreams come true.”

Ten million dollars of the new Rotman gift will go towardsthe activities of the Institute, which will be housed in a newly-constructed expansion of the Rotman School. The expansion– which has become necessary to accommodate the School’scontinued growth – is expected to open in 2011, and will alsobe the home to other Rotman research centres and programs.The remaining $8 million will support various projects includ-ing the University of Toronto’s undergraduate Commerceprogram, offered jointly by the Faculty of Arts and Scienceand the Rotman School; the School’s award-winning maga-zine; the new building fund; and ongoing academic researchactivities at the School.

In 1993, Sandra and Joseph Rotman made a gift of $3million towards the construction of a new home for the U ofT’s business school, which opened in 1996. In 1997, theymade an additional gift of $15 million, and the School wasaptly re-named in Joseph Rotman’s honour. Since the initialgift, the School’s reputation for innovation and excellencehas grown steadily. – KEN MCGUFFIN

Joseph and Sandra Rotman with Dean Roger Martin.

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untary action is a more realistic and promising path, accordingto Tom Heintzman, president and co-founder of BullfrogPower. In a January 16 presentation at the Rotman School,Heintzman discussed the “The Importance of VoluntaryAction in Addressing Climate Change” as part of the RotmanBusiness of Green Speaker Series.

According to figures provided by the Inter GovernmentalPanel on Climate Change, Canada needs to achieve nearly a100 per cent reduction in CO2 emissions if it is to do its partin keeping the world’s temperature from rising over twodegrees Centigrade in the next few decades (the general con-sensus is that any greater temperature rise would causeecological catastrophe). Unfortunately, Canada does not havea strong track record of achieving its targets through volun-tary action, says Heintzman. “Since the Mulroney era, we havemade a series of commitments to reducing CO2 and nonehave worked. Our levels of carbon dioxide have actually continued to rise.”

DISCUSSIONS OF THE ENVIRONMENT

usually focus on such large-scalesolutions as a carbon tax forindustrial emitters of air pollu-tion, or a cap-and-trade systemfor exchanging CO2 credits. Yetsuch regulatory systems are dif-ficult to apply to end users likeresidences and small businesses,who in Canada make up 70 percent of the market for electricalpower. For such consumers, vol-

Tilting the Balance in Favour of Greener Electricity

Tom Heintzman

Desautels Provides FurtherSupport for Integrative Thinking

THIS PAST NOVEMBER, one of Canada’s leading supporters ofbusiness education donated $10 million to the RotmanSchool of Management. The gift by Marcel Desautels,president and CEO of the Canadian Credit ManagementFoundation, will support the ongoing initiatives of theDesautels Centre for Integrative Thinking, bringing histotal gifts to the Rotman School to a remarkable $31 mil-lion. His earlier donations founded the Desautels Centreand supported student scholarships.

The new gift will help the School further develop theDesautels Centre by hiring additional faculty and staff, pursu-ing curriculum development in the Rotman School’sundergraduate, graduate and executive programs, and support-ing research projects and conferences. It will also support theconstruction of a new building for the Rotman School. Theproject, which received $50 million in funding from theProvince of Ontario, is scheduled to open in 2011 and willhouse the Desautels Centre for Integrative Thinking.

“We are honoured that Marcel has continued to support ourvision for the future of business education,” says Dean RogerMartin. “From our first meeting, Marcel understood the ideasand concepts of Integrative Thinking and, as an astute entrepre-neur, he saw how Integrative Thinking can benefit business.”

Since its launch in 2002, the Desautels Centre has quicklygained an international reputation through its work on under-standing and teaching Integrative Thinking. Integrativethinkers build models rather than choose between them. Their

models include consideration of numerous variables and cap-ture the complicated, multi-faceted causal relationshipsbetween the key variables in any problem. Integrative thinkersare able to creatively resolve tensions without making costlytrade-offs, turning challenges into opportunities.

“The world of business education has been fundamentallychanged for the better by the emergence of IntegrativeThinking,” says Desautels. “I am delighted with the progressthat the Rotman School has made under the leadership of RogerMartin and Desautels Centre Director Mihnea Moldoveanu.”

Since the initial Desautels gift in 2000, the Rotman Schoolhas redeveloped the curriculum for its MBA programs, addingboth required and elective courses. Integrative Thinking mod-ules have also been added to the Executive MBA and OmniumGlobal Executive MBA programs and to the School’s executiveprograms. Additional details are available online at rotman.utoronto.ca/integrativethinking – BY KEN MCGUFFIN

//// News Briefs

Dean Roger Martin with Marcel Desautels

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Rotman Grad Takes Loblaw into the Future

CANADA’S LARGEST RETAILER,Loblaw Companies Ltd. hasexperienced growing painsover the past year as it seeks tocentralize its managementand streamline its operations.On Jan. 15, Mark Foote (MBA’91), president and chief mer-chandising officer of Loblaw,spoke to Rotman Professor of Operations Management

Philipp Afeche about the company’s transformational oper-ating strategy in a session of the Rotman Operations StrategySpeaker Series.

With 1,690 supermarkets and 130,000 owners and employ-ees, and operating under a variety of regional banners, Footesays that Loblaw’s greatest strength is the diversity of its retailofferings, which allows it to find a niche in any market, fromdiscount to upscale. “Our decentralized structure also meansthat our various stores have been allowed to operate fairly inde-pendently, and with the ability to respond flexibly to marketdemands,” he says.

In recent times, however, Loblaw’s sheer size and complex-ity have prevented it from keeping up with newer competitors,such as Wal-Mart, that are more adept at achieving supply-chain efficiencies. “We have answered the challenge by

reorganizing and consolidating our operations: buying andpricing are now done centrally, for instance – and by movingfrom a ‘storage model’ to a ‘flow model,’ so that inventoryarrives at stores on a just-in-time basis.” By bypassing a distri-bution centre and shipping products directly from suppliers,“the company aims for lower prices, fresher products, andhopefully, a better customer experience,” he says.

To smooth the transition, better channels of communica-tion have been established with member stores, allowingowners and managers to report back on the pace of change andto alert the centre when problems arise. “We make expecta-tions clear, we plan from the perspective of what a store canactually do, and we recognize that God gave us two ears andone mouth for a reason,” he says.

The company has also drawn on its information technologycapabilities to introduce new inventory systems that better trackthe price and sales of its products. “There’s a saying that you can’tfix what you can’t measure, and what you measure fixes itself,” hesays. “By four o’clock on a Friday afternoon, we know our pricecompetitiveness in every banner, every region and every singledepartment, against everybody we compete against.”

Throughout its transformation, Loblaw has maintained itsfocus on product development, an area where its strengths areunrivalled – witness the success of the No Name andPresident’s Choice brands – and maintained its traditionalproduct categories of food, house and home. According toFoote, while the company’s operations and management struc-ture has changed, its core strategy remains the same. “What isdifferent is not what we do, but how we do it,” he says. “Thethings that made this company successful in the past will makeit successful in the future.” – BY STEPHEN WATT

Mark Foote

however, are the subsidies used by the provinces to keep thecost of electricity well below its actual cost of production. “Aswell as serving as a drain on the public purse, these subsidiespromote the wasteful use of energy and undermine attempts todevelop greener, more capital-intensive sources of electricitysuch as wind and solar power,” says Heintzman.

Bullfrog Power aims to tilt the balance in favour of greenerelectricity by requiring its customers to pay for electricity at itstrue cost, and using the price difference to re-invest in renew-able energy sources like wind power and low-impact waterpower. As Heintzman sees it, his company is just part of a waveof innovative firms that are springing up to answer the publicdemand for greener choices. “I don’t think Canadians want tobe the second-highest per capita emitters of CO2 on the plan-et,” he says. “With investment in renewable resources, Canadacan be a leader once again in environmental issues, for our ownpride and our place in the world.” – BY STEPHEN WATT

The carbon tax and cap-and-trade system have beendevised to prevent such backsliding by adding an element oflegislative muscle to countries’ conservation efforts. Yetbecause of the complexity of administering such regimes, theytend to be applied only to the ‘final emitters’ of carbon such asheavy industry. According to Heintzman, the vast majority ofenergy users – residential consumers, people using personaltransport, freight companies, services and so on – “will not beregulated under any conceivable system.”

General awareness of climate change has grown exponen-tially in the past few years, he notes, creating a strong appetitefor smaller-scale environmental solutions. “People interestedin shrinking their individual carbon footprint have embracedsuch measures as reducing waste and buying greener products:higher performance standards for cars, lighting and appli-ances have also made it easier to square personal consumptionwith conservation.”

Hindering efforts to shrink the national carbon footprint,

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Alumnus Creates Lasting Legacyfor International Students

FOLLOWING THE SALE of naturalresource giants Inco, Alcanand Falconbridge, and amidstgrowing concerns about the‘hollowing-out’ of corporateCanada, Richard Haskaynehas become a vocal proponentof the need for ‘NorthernTigers’ – Canadian corporate

champions that can compete on the world stage. The formerchairman and CEO of Home Oil, TransCanada Pipelines,MacMillan Bloedel, and Fording Inc. shared his insights fromthe front lines of corporate leadership in an October 29 presen-tation at the Rotman School.

According to Haskayne, recent anxieties about Canadaselling out to foreign masters are not entirely unwarranted.“Do you think Vancouver is the same without MacMillanBloedel?” Haskayne asked of the Canadian forestry compa-ny sold to U.S.-based Weyerhaeuser in 1999. “When thehead office goes, its support network goes with it, and thecommunity as a whole suffers.”

By his own admission, Haskayne has been involved in morehigh profile corporate transactions than perhaps any other busi-ness leader in Canada. His book Northern Tigers: Building EthicalCanadian Corporate Champions calls upon Canada’s corporateleaders to build more home-grown giants to replace those thathave been acquired or absorbed. Haskayne defines a Northern

Tiger as a company that is “headquartered in Canada and com-petitive on a worldwide basis, and does not need the support ofthe government for its existence.” He points to EnCana, one ofthe largest natural gas producers in North America, as a success-ful example of a Canadian public company that has equalled oroutscaled its rivals.

Just as important as achieving scale is the need for NorthernTigers to cultivate a particularly Canadian model of governanceby avoiding some of the excesses that have plagued corpora-tions south of the border. He points to failed giants WorldComand Enron as examples of what can go wrong when businessethics are in short supply. “There’s an innate greed in the corpo-rate world and we may have fed it by pushing the whole ‘pay forperformance’ mandate, regardless of the actual numbers. Thewhole free enterprise system is based on good ethics and goodprinciples. Once corporate ethics begin to break down, the sys-tem starts to fail.”

He worries that the trend toward skyrocketing executivecompensation may be making its way across the border. “In ear-lier times, there was a rule of thumb that the average CEO madesomething like 40 times the salary of the average employee. Nowit’s closer to 300 times,” he says. Haskayne takes his role in cor-porate governance seriously, and thinks others in his positionshould as well. “It’s a lot more work than just going to four to sixmeetings a year. You need integrity and the ability to express anindependent opinion: you need the guts to stand up to the CEO,”he says. “If you don’t do your homework and keep your ear to theground, you’re not going to be an asset to the business.”– BY STEPHEN WATT

Haskayne on ‘Northern Tigers’

LAST SEPTEMBER, nineinternational stu-dents at the RotmanSchool received sig-nificant financial sup-port for their MBAstudies thanks to a generous alumnus

who has chosen to remain anonymous. Through planned giv-ing, this donor and his estate have changed the lives of stu-dents for generations to come, with a $1.4 million endowedgift to create the International Student Fellowship at theRotman School of Management.

The donor was the son of a barber who emigrated toCanada. Growing up, he wanted to follow in his father’s foot-

steps, but his father insisted on his son’s education. Heearned an Engineering degree and built a stellar career withthe work ethic he learned from his father. Years later, hereturned to the University of Toronto as an adult student topursue a Master of Commerce (the precursor to the RotmanMBA). He eventually became president and later chairmanof one of Canada’s best-known corporations, living to the ageof 90. For generations to come, the Rotman School will say“congratulations and good luck,” on his behalf through theInternational Student Fellowship.

At the Rotman School, planned giving plays an impor-tant role in building scholarships and opportunities inteaching and research. Gifts at any level can make a differ-ence and there are a number of ways you can choose to give.If you would like to receive more information on planning agift to the Rotman School, please contact MichelleOsborne, director of gift planning, at 416.978.3811 (toll-free:1-800-463-6048), [email protected], or visitwww.giving.utoronto.ca/plangiving. – BY CATHERINE RIDDELL

Richard Haskayne

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Martin Ossip Scholarship Established

IN JUNE 2007, a first-of-its-kindscholarship was established at theRotman School through a $1 mil-lion gift to The Martin OssipEndowment Fund: The MartinOssip Scholarship at the JewishFoundation of Greater Torontowill be awarded to one or moreRotman MBA students each year

who demonstrate outstanding contributions to the Jewishcommunity and/or who exemplifies ethics and values consis-tent with traditional Jewish faith.

“The Martin Ossip Scholarship is one of the largest schol-arships available at the School,” says Dean Roger Martin. “Itwill grant deserving students the freedom to complete theirMBA without carrying the financial burden of student loansand will help the School attract even more of the brightest stu-dents from around the world.”

The award was established by David Ossip, founder andpast-president and CEO of Workbrain and his brother AlonOssip, executive vice president at Magna International, inhonour of their father Martin. The first scholarship will begranted in 2008 by an awards committee headed by theRotman School.

“The Rotman School is one of the world’s finest businessSchools,” says David Ossip. “We couldn’t think of a betterplace to honour our father and help support the next genera-tion of business leaders.” – BY CATHERINE RIDDELL

“THE PROBLEM WITH THE ENVIRONMENT isactually a design problem with our econo-my,” says Andrew Heintzman, presidentof Investeco, the first investment firm inCanada to be devoted exclusively to envi-ronmental companies and sectors. “We

need a redesigned economy that encour-ages people to behave better environmen-tally.” On November 21, Heintzman and hiscolleague Greg Payne visited the RotmanSchool to share their vision as part of theRotman Business of Green Speaker Series.

The growing climate change crisis isdue in part to the failure of our economic

system, which encourages short term consumption over longterm investment, says Heintzman. “Our environment is subsi-dizing our lifestyle and our economy. We are drawing-downresources that took millions of years to create in order to sup-plement current consumption.” Short term thinking isrewarded both in politics – where governments often plan nofurther than the next election – and in business, where corpo-rate leaders are encouraged to achieve results on a quarterly oreven monthly basis.

While no silver bullet exists to avert an environmental cri-sis, many tools and technologies can help to reverse orsignificantly diminish climate change. “Pollution reduction –through the use of scrubbers on coal plants, industrial emissionscleaning and waste water treatment – is already big business,

worth around $200 billion a year. Now that the era of cheap oilis over, renewable energy sources such as solar and wind powerare becoming increasingly attractive.” Finally, techniques ofenergy efficiency and conservation are “probably the most eco-nomically-viable solution to the climate crisis,” says Payne.

The environmental industry is expected to grow to $2.5trillion by 2030, up from $300 billion today. The cost ofbuilding an eco-friendly global infrastructure by that time isestimated at five per cent of current global GDP, or 25 percent of current global investments. “As any economist willtell you, investment on this scale means massive savings,”says Payne. “But we’ve been heading in the opposite direc-tion in the past few years. The idea of foregoing consumptionfor the sake of savings and investment has been lost in ourconsumer culture.”

As the boom-and-bust cycle of the past century hasdemonstrated, however, the economy is more than capable ofshifting gears and reinventing itself to develop new priorities.“We think the current volatility in the credit markets is a signthat the current cycle is getting ‘long in the tooth,’ and we’relooking forward to seeing what the next cycle will be,” saysPayne. “Where is capital going to be needed in the future?We’re pretty sure it will be in the environmental sectors.”

The push for change will ultimately come from the grass-roots, from voters electing environmentally-friendlygovernments and from consumers having their say in thecheck-out lines. “The cash register is the daily voting booth indemocratic capitalism,” Heintzman points out. The goodnews is that our current level of affluence has put the greenrevolution within reach. “We are relatively rich, our politicalsystem is stable, and our health and social security systems areat least functional,” he says. “It’s important that we don’tsquander this opportunity.” – BY STEPHEN WATT

Mobilizing Capital for theEnvironmental Economy

Andrew Heintzman

Greg Payne

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FOUR PROFESSORS shared the 2007 Roger Martin and Nancy LangAwards for Excellence in Research and Teaching, which wereannounced in January: Opher Baron and MarcelRindisbacher were co-winners of the Award for Excellence inResearch while Profs. Walid Hejazi and Tom McCurdyshared the Award for Excellence in Teaching.

Opher Baron is an assistant professor of OperationsManagement who received his BSc and MBA degrees from theTECHNION, Israel Institute of Technology and his PhD fromMIT’s Sloan School of Management. His main research interestsare queuing models and their applications and facility locationmodels. He has been published in Operations Research, EuropeanJournal of Operations Research and Manufacturing and ServiceOperations Management, amongst others.

Marcel Rindisbacher is an associate professor of Financewho holds a PhD from the University of Montréal and an MScfrom the London School of Economics. His research interestsinclude optimal portfolio policies, stochastic volatility models


Schulich Shares Life Lessons

ENTREPRENEUR AND SELF-MADE

billionaire Seymour Schulichhas made a second career out ofsupporting post-secondary edu-cation, and is often placed in amentorship role by studentseager to share in his businesswisdom. Inspired by them, theco-founder of Franco-NevadaMining Corporation and chairof Newmont Capital has writ-

ten a book called Get Smarter: Lifeand Business Lessons that captures his decision-makingapproach toward everything from marriage to closing a deal.On November 2, he visited the Rotman School to discuss thebook and the insights he’s gained over his 42-year career.

Looking back to his early years, Schulich recognizes he wasnot quite as smart or accomplished as he believed at the time:“At 20, I knew that I knew nothing; at 30, I knew nothing butthought I knew something, which was dangerous,” he says. “Anyexperience, whether marked by success or failure, becomes pos-itive if it can be used to add to our base of knowledge.”

One of the best pieces of advice that Schulich receivedwas from his father, who told him, “Never assume that people

aren’t watching you at work.” The truth of the warningreturned to haunt him when, during a summer job at a pharmaceutical company, he was fired for putting his feet upon the desk over the lunch hour. Another setback came whenhe failed university, ending his ambition of becoming achemist. However, both failures turned out to be blessings indisguise, as they led to a promising position as an oil analyst ata small brokerage firm at age 25.

In 1968, Schulich joined the newly-formed Beutel,Goodman and Co., a Toronto-based investment-counselingfirm, as an oil analyst. He is still vice-president emeritus ofthe company, now one of the largest pension fund manage-ment firms in Canada. He and an office-mate, PierreLassonde, also teamed up to form Franco-Nevada andEuro-Nevada, public companies that bought royalty inter-ests in junior gold exploration companies in the Nevadaarea. In 2002, Franco-Nevada merged with NormandyMining Limited of Australia and Newmont MiningCorporation, creating the largest gold mining company inthe world.

Despite his success, Schulich says his needs remain relative-ly simple. He drives an 11-year-old car, lives in a 30-year-oldhouse, and manages to find the time to read one book a week(“2,500 to date”). Schulich credits much of his success to hiswife, who “raised the family,” he says – and his business partners,whose honesty has saved him from making a number of badinvestment decisions. “The most valuable thing an emperor canhave is someone to tell you when you have no clothes.”– BY STEPHEN WATT

Excellence in Research andTeaching Rewarded at Rotman

Seymour Schulich

From left, Profs. Hejazi, McCurdy, Rindisbacher and Baron

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20635 69-112 4/2/08 7:13 PM Page 106

and market games with differential information. His work hasbeen published in the Journal of Financial Economics, Journal ofBanking and Finance, Management Science and The Journal of Finance.

Walid Hejazi is a professor of International Business whoteaches in virtually all of the Rotman School’s programs and isregularly lauded by his students for his teaching abilities. Prof.Hejazi’s research interests focus on the interaction betweenglobalization and economic growth and he advises the govern-ments of several developing countries on the formulation ofoptimal fiscal policies.

Tom McCurdy holds the Bonham Chair in InternationalFinance and is a professor of Finance at the Rotman School.He is the founding academic director of the Rotman FinancialResearch and Trading Lab – a state-of-the-art facility thatenhances the School’s teaching and training by providing stu-dents with access to the global financial community and itsresources in a real-time setting. Using the Lab’s resources,Prof. McCurdy has led development of specialized curricula

for the Rotman MBA and Master of Finance programs. Hehas also been an academic advisor for student trading compe-titions, including the annual Rotman International TradingCompetition, which attracts teams of student traders fromaround the world.

The Martin and Lang Awards were established in 1999 by agenerous donation to the Rotman School by Dean RogerMartin and his wife, Nancy Lang. Their purpose is to recog-nize and encourage excellence in the research and teachingactivities of Rotman faculty members. In addition to theseawards, 74 Rotman professors were honoured with RotmanExcellence in Teaching Awards for the 2006-2007 academic year.This Award is based on student evaluations of instructors’ per-formance in the School’s MBA, Executive MBA, OMNIUMGlobal Executive MBA and BCom programs. Students rankinstructors on a scale of one through seven. The criteria toreceive this Award is to be rated six or higher. – BY KEN MCGUFFIN


MBA Creativity on Display at LENS 2008

ROTMAN MBA STUDENTS once again displayed their creativity dur-ing the third annual LENS Photography Competition andExhibition. The winners were announced on March 24th duringa wine and cheese reception and silent auction held at theRotman School. The reception launched a month-long exhibi-tion of student photography at the School and featured photostaken by students enrolled in the two and three-year MBA pro-grams. This year, 264 entries from 54 students were submittedfor consideration, from which ten winners were selected(including the top three, pictured here).

This year’s winners were Matthew Murphy (MBA ‘08) infirst place; Andres Bernal (MBA ‘08) in second; and JonahPeranson (MBA ‘08) in third. Rounding out the top ten, in noparticular order, were Signy Franklin (MBA ‘08), MikeGraham (MBA ‘08), Sasi Shanmugarajah (MBA ‘10), RezaMotaghedi (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 photossubmitted this year and had a difficult time selecting the win-ners. Serving as judges were Lisa Binnie from Toronto ImageWorks, Nancy Lang, artist and publisher; and AdjunctProfessor of Marketing David Dunne.

LENS 2008 was generously supported this year by MJBraide Corporate Development, GE Profile, TorontoImage Works, Digipix (operated by MBA ‘09 Gavin Reiff),Rotman Designworks, MBA Program Services andAssociate Dean, MBA Programs, Richard Powers.– BY KATHY SKELTON (MBA ‘08)

Matthew Murphy’s “Election Time, Marrakech, Morocco” placed first.

Andres Bernal’s “Golden Years” placed second. Jona Peranson’s Fabric of Mogador,Morocco, placed third.

20635 69-112 4/2/08 7:14 PM Page 107


What is The Shopping Channel’s mission?First of all, I’m proud to say that we are cel-ebrating our 20th anniversary this year.The Shopping channel is Canada’s onlynationally-televised, 24-hour shop-at-home service, available on a variety ofcable channels across the country. We have

the pleasure of servicing hundreds of thousands of Canadianseach year by providing a wide product selection at competi-tive prices; we carry both brand-name items and unique ‘newto the market’ items that can’t be found anywhere else. Ourproducts range from fashions to household items to Canada’slargest selection of jewellery. Our mission is to provide cus-tomers 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?Yes, there are several things, including genuine furs, firearms,liquor and tobacco.

Describe your audience.We reach over seven million households in English Canadaand are watched by almost two million viewers weekly. Ourviewing audience is approximately 50-50 male and female, butour customers are predominantly female. They range in agefrom 25 to 55+ and live in both urban and suburban households.Our customers are sophisticated shoppers; they do extensiveresearch and price comparisons before making a purchase.

What is your fondest memory of your Rotman MBA experience?I had some very interesting professors at Rotman, whom Iremember fondly. I completed my MBA on a part-time basis,so my memories are of being at class in the evenings, studyingalongside a crowd of accomplished professionals. I remembershowing up at class at the end of a work day, feeling tired andlethargic, and then finding myself rejuvenated by the rigour ofmy studies, and by professors who challenged us to really strivefor our academic achievements. If you wanted to achievesomething great, you had to work hard for it.

What are your greatest challenges at the moment?Our greatest challenge is developing that elusive entity, cus-tomer loyalty. Like in any business, this entails making surethat our customers are satisfied and really wowing them with

the experience. We are continually refining these aspects.Also, because we are broadcasters, many of the day-to-daychallenges are on-air challenges – things going wrong or notworking. And our big-picture challenge is the same as with anymodern company: it’s all about getting really good people andretaining them.

How can people get their products onto The ShoppingChannel?We hold ‘open houses’ a couple of times per year, where peoplecan come in and make a pitch to our buyers. The products thatdo best on our Channel share similar characteristics: they areunique; they are in limited distribution (often exclusive to us);their features can be demonstrated on TV; and they offerexceptional value – the retail price plus shipping charges mustprovide value to consumers compared to competitive productsin the retail category.

What would you say you’re most proud of to date?That’s easy: my people. In my career I’ve had a lot of associ-ate staff that have really risen within the ranks, either withinthis company or elsewhere, in jobs they have branched out to.I have mentored quite a few of them, and it’s extremely fulfill-ing to watch them grow. I’m really proud of my staff, bothpresent and past.

Would you say The Shopping Channel has been affected yetby the move towards the more green products and services?In terms of the products we sell, not yet. But we are very con-scious of the packaging we use in our shipping process, whichwe try to minimize; and internally we are always looking at waysto cut back in terms of lighting, garbage, those sorts of things.

As a consumer, what are you proud to consume, and what isyour ‘guilty pleasure’?I consume everything – I am a real shopper. For me, it’s enter-tainment; I just love going to stores to relax. My guilty pleas-ures would have to be chocolate and red wine.

What do you do for fun?I travel a lot with my husband. Most recently we went to BoraBora and Easter Island. We’re not really into ‘fun in the sun’trips; we like to go off the beaten path. Next on our list isSouth Africa.

//// Alumni ProfilesAnnette Sullivan (MBA ’01-GEMBA)

Interview by Karen Christensen

Vice-President, Marketing The Shopping Channel

20635 69-112 3/28/08 4:17 PM Page 108


Describe your responsibilities as ChiefCredit Officer, World Markets, forAmerican Express.I’m responsible for credit policy and cred-it decisions for 15 markets around theWorld: Argentina, Puerto Rico, France,Spain, Netherlands, Sweden, Finland,

Germany, Austria, Hong Kong, Taiwan, Singapore, Thailand,India and the International Dollar Card market. My dailydecisions involve approving individuals for credit cards,determining what level of credit the customer should have, atwhat price we should sell products given the risk level, whichaccounts should be reviewed and what steps should be takenwith them (i.e. increase credit, reduce credit, cancel the cardetc.) All of these decisions are made using complex econo-metric models, decision science and business rules based onpast experience. My larger role is to ensure that all of thesedecisions contribute to profitability for the company and anoutstanding customer experience.

In addition, I am responsible for monitoring the economic,industry and competitive environments so that at all times weare prepared for and well protected against economic down-turns or changes in regulations. I manage the net loss provisionline in the P&L (Profit and Loss) statement. This is the moneywe put aside to ensure we are well covered for credit losses.These are an expected expense of doing business for us, but Ineed to make sure that we maintain the right balance betweenhaving losses as low as possible while growing the business asmuch as we can.

What are the greatest challenges of your position?Managing growth and profitability are both major challenges.Our business grows by issuing more cards and allowing morespending and borrowing by our customers. The trick is to makesure that the people that we lend money to are able to pay usback, so that we can earn money in interest and fees. Thisrequires a lot of data mining and building great prediction mod-els and risk management systems. Every once in a while we getinto an economic downturn cycle, and this is always challengingbecause all the paradigms change and all the prior years' historyare not representative of what the future will be. Shareholdersstill want to know what the credit-net-loss provision is going be;and without a crystal ball to see the future, risk management hasto come up with an accurate answer. It is important to applycontrols to prevent unnecessary credit losses, while allowing

good customers to spend and give them a great customer expe-rience (for example, by not declining their charges.)

What are you most proud of to date in your career?I built a team from scratch in India to do risk management forAmerican Express worldwide, from one employee to over 300in a span of three years. I hired, trained and developed peoplethat are now deployed in our offices worldwide. I was in Indiaat the very beginning of the Business Process Off-shoring(BPO) fever and was a precursor of the high-end BPO analyticsthat is now being copied by many multinational corporations.

At one point you were responsible for Japan and the Asianmarkets. How are Asian consumers different from those inNorth America?Service quality is part of their DNA. It is hard to find someonethat doesn't smile or want to make sure you are OK and wellserved. I live in Singapore now, and the national pastime here isshopping. We call it retail therapy.’ We have some of the bestmalls in the world; some are specialized, for example electronics,kids, sports, entertainment. Like most of today’s consumers,Asian consumers are very brand conscious. I’ve never seen somany people buying designer watches and clothing.

In terms of your own consumption, what is something youare proud to consume, and what is a ‘guilty pleasure’?I am a gadget man. I buy as many high-end electronics as mybeautiful wife allows me to (though in reality, most of the timeI don’t ask for permission). For some reason I feel pleasurewhen I buy another iPod (I already own five and will probablybuy the next model when it comes out) or when I get a newsoftware package or XBox 360 game. And I always like a nicenew suit or a custom tailored shirt. Sorry, no guilt here.

What do you do for fun?I’m a private pilot, so I love renting a plane and flying aroundevery time I come to the U.S. (Singapore has a very small air-space!) I also like photography and enjoy editing video andphotos on my Apple G5 computer. I recently built my ownfamily website and try to keep it up to date with pictures andnews (danielalmenarafamily.com).

Daniel Almenara (MBA ’92)

Interview by Karen Christensen

Chief Credit Officer, World Markets American Express

20635 69-112 3/28/08 4:17 PM Page 109


Brian Ingham (MBA ’74) Product Line Manager, Tundra SemiconductorLives and works in: Ottawa, Ontario

BEST THING ABOUT MY JOB: Exerting astrong influence on the success anddirection of the business.MY BIGGEST CHALLENGE: One of our for-mer solution partners is now an arch-competitor, 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 haven’t hadone here yet. In prior positions, it was the tremendous fun andsuccess rate I enjoyed while working as a sales manager forIBM with an outstanding team. THE WORD THAT BEST DESCRIBES ME: Thoughtful.THE MOST INNOVATIVE THING I’VE EVER DONE IS: Create a deep andbroad partnership with a (former) competitor.HOW I RELAX: Teamwork, and how to effectively guide a teamfrom various backgrounds and different skill sets towards acommon goal.MOST IMPORTANT THING MY MBA TAUGHT ME: Pay attention.WORDS OF WISDOM: Appreciate every day, your blessings and thepeople who care about you.

Laura Manes (MBA ’06)Consultant, Bain & CompanyLives and works in: Toronto

BEST THING ABOUT MY JOB: The diversityof projects. Every few months I get tosink my teeth into a new industry, sothere is always a lot to learn.MY BIGGEST CHALLENGE: Given that a lotof our clients are spread out acrossNorth America, there is often a lot of

travelling required, which can be stressful.MOST IMPORTANT SKILLS FOR MY JOB: Learning quickly and big-picture thinking.PROUDEST MOMENT: At the end of one of my recent projects, theclient threw me a going away party and told me how muchthey would miss my contributions. It made me realize thateven in a short time, I was able to make an impact and effectchange within a huge organization.THE WORD THAT BEST DESCRIBES ME: ‘Joiner:’ I participate inevery committee and event that comes my way.THE MOST INNOVATIVE THING I'VE EVER DONE IS: On one of my proj-ects, we were asked to give an update to the CEO. Instead ofdelivering the presentation ourselves, I invited some of the com-pany’s frontline employees to speak at the meeting. The CEOreally appreciated hearing from them directly, and it motivatedthose employees to really commit to the project. By removingthe consultants from the process, it opened up new communica-tion lines at the company and got everyone more engaged.HOW I RELAX: Since I’m away a lot, I love coming home and beingvery domestic: I cook a big meal and invite a pile of friends andfamily 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, it’s tough to accept that noteverything can meet your high expectations all the time. But ifyou can learn to be happy with ‘just okay’ sometimes, you willsave yourself from a lot of frustration and disappointment.THE PRODUCT I AM MOST PROUD TO CONSUME: News, editorials andnon-fiction books about current events. (Can anyone really beproud of their consumption?)MY 'GUILTY PLEASURE’: My wardrobe – though most of it consistsof work clothes!

//// Alumni Capsules

Marcello Populo (MBA ’03)Business consultant, Rara Avis Consulting Lives and works in: Rio de Janeiro, Brazil

BEST THING ABOUT MY JOB: It is unpre-dictable and challenging.MY BIGGEST CHALLENGE: Thinking out ofthe box.MOST IMPORTANT SKILLS FOR MY JOB:

Integrative Thinking.PROUDEST MOMENT: Closing a consulting

project.THE WORD THAT BEST DESCRIBES ME: Intense.HOW I RELAX: Training for triathlons.MOST IMPORTANT THING MY MBA TAUGHT ME: ‘Sunk cost’ and ‘Cashis king’.WORDS OF WISDOM: There is no finish line.THE PRODUCT I AM MOST PROUD TO CONSUME: Wine.MY ‘GUILTY PLEASURE’: Pizza and beer.

Compiled by Stephen Watt

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Alicia Damley (MBA ’90)Portfolio Analyst, Harding Loevner ManagementLives and works in: New York City

BEST THING ABOUT MY JOB: The breadthof perspectives required, complexity ofanalysis and adapting to a continuallychanging market environment.MY BIGGEST CHALLENGE: Anticipatingchanges 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-fiction) and travel.MOST IMPORTANT THING MY MBA TAUGHT ME: The devil is in thedetails! Don’t underestimate the importance of both breadthand depth of analysis.WORDS OF WISDOM: Sreyaamsi Bahuvighnaani (Sanskrit).Translation: Success must overcome many obstacles.

Niraj Hansoti (MBA ’05)Consultant, AT Kearney Lives in: London, EnglandWorks in: Europe

BEST THING ABOUT MY JOB: There is littleroutine in consulting as each project isunique.MY BIGGEST CHALLENGE: Living out of asuitcase. The novelty of living in differ-ent cities for extended periods of timeis short-lived. Also, convincing others

that change is beneficial.MOST IMPORTANT SKILLS FOR MY JOB: The ability to developand communicate a powerful story that inspires action todeliver results. Ability to work in a team: most projectsinvolve working with other consultants and numerousclient groups, and without their support and cooperationyou cannot progress.PROUDEST MOMENT: Recipient of Chief Information Officer100 award for work done in the health services sector. Thisinternational award, issued by CIO Magazine, is given eachyear to 100 initiatives/companies worldwide that demonstrateexcellence and achievement in business technology. THE WORD THAT BEST DESCRIBES ME: Innovative.HOW I RELAX: Scuba diving in the Great Barrier Reef, touringglaciers in Iceland, sand duning in the Dubai desert, golfing inIreland and watching Australian Rules Football. WORDS OF WISDOM: Andy Warhol best encapsulates my viewtowards life: “They always say time changes things, but youactually have to change them yourself.”MY 'GUILTY PLEASURE': Nintendo Wii.

Malcolm Jussawalla (MBA ’04)Partner, Accelteon Partners Inc.Lives and works in: Richmond Hill, ON

BEST THING ABOUT MY JOB: As a partner inour firm, every action I take has a directimpact on how we perform as a company.I truly enjoy being responsible for driv-ing growth for the entire organization. MY BIGGEST CHALLENGE: It is understoodin the consulting world that when you

stop learning you will quickly be irrelevant. We need to notonly be aware of all the latest in business and strategy trends,but ensure our entire organization can effectively apply thelessons to all our engagements. MOST IMPORTANT SKILLS FOR MY JOB: Communicating yourthought process. It is usually straightforward to come upwith the ‘right’ answer, but it takes skill to convince yourclient it is the right answer.PROUDEST MOMENT: We were quite proud when we got our firstrepeat customer. It was at that moment that we knew we couldbuild a successful firm.THE WORD THAT BEST DESCRIBES ME: Dependable. If I say I amgoing to do something, it will be done.

HOW I RELAX: I am a low-key person, so hanging out withfriends and family is always great. But I do look forward toplaying Xbox 360 after a long week of work.MOST IMPORTANT TAKE-AWAY FROM MY MBA EXPERIENCE: Withouta doubt, the network of people Rotman is connected to. Alarge portion of our revenue is derived from connections toour Rotman network. In turn, we have hired several Rotmangraduates and will continue to provide employment opportu-nities for alumni. WORDS OF WISDOM: You have to earn your stripes. An MBA isjust a set of keys to open doors: it does not guarantee anything.MY 'GUILTY PLEASURE’: Xbox Live.

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Rotman Regional Events 2007-08

Rotman Alumni Network on TourRecently, Rotman alumni in cities around the world have gath-ered 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 Londonat the Savoy Hotel. Afterwards, alumni and visiting studentswere treated to dinner, conversation and an update on theSchool from Vice-Dean Jim Fisher.

Current Rotman students were delighted with their recep-tion 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 pro-fessors hosted events with alumni throughout the winterand spring.

//// Alumni Network News

As alumni, you’ll be contacted about any upcoming events inyour region. If you want a sense of what’s going around the world,visit rotman.utoronto.ca/alumni/services.htm

Quick updatesJoin your classmates and otheralumni at the Inaugural RotmanReunion Gala on Thursday May29th. This special celebration, atToronto’s Four Seasons Hotel, isopen 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 tothe Rotman Reunion Challenge by visiting rotman.utoronto.ca/alumni/invest.

Dust off your baffles and mashie-niblicks and join in the fun at theRotman Alumni and FriendsGolf Day, August 19 at King’sRiding Golf Club in King City.This all-day event will include two

sumptuous meals, full use of the practice facilities, entertain-ment on and off the course, and prizes galore. Many class groupshave already reserved a spot – why not join them? Or bring alongyour favourite clients. Sponsorship opportunities at all levels arealso available. Details and registration are available online at rotman.utoronto.ca/events/Jim Fisher and Rotman alumni and students in London

Compiled by Michelle Perotta

• 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

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Class Notes: The All-Consuming Issue

It’s finally spring, which means this year’s new Reunion Gala is almost upon us. Reuniontakes place May 29, followed the next day by our annual Life-Long Learning day. Theseevents provide a wonderful opportunity to catch up with your former classmates, as doesevery issue of Class Notes – so now is the time to start writing your Class Notes submissionfor the next issue. The fall edition, titled ‘The Capital Issue,’ will hit your mailbox inSeptember. Your deadline for new submissions will be in mid-June. Don’t be left out! Keepthem coming! – Jack

MBA / MCOM / DBA Full & Part-Time1965MBA Class Champion:Cam Fellman [email protected]

1966MBA Class ChampionGary [email protected]

1967MBA Class Champion:Len Brooks [email protected]

In MemoriamJerry Dermer M.B.A., Ph.D., P. Eng. Dec. 26, 1941 – Jan. 23, 2008 After a long and courageous battle withlymphoma, Jerry passed away at ScarboroughGeneral Hospital with his family at his bedside.Predeceased by his parents Simon and MollyDermer of Ottawa, he was the beloved husbandand best friend of Anita (née Lamberti), the cher-ished father and mentor of Simon and Benjamin,and the dear brother of Bob Dermer. He will begreatly missed by many cousins in Canada and theU.S., as well as by the whole Lamberti family. Formore than 25 years Jerry was a well-respectedprofessor at the Schulich School of Business atYork University, and previously taught at theUniversity of Illinois, University of Toronto andMIT. He also taught thousands of students bothin Canada and abroad in executive seminars andgovernment training programs.

1968MBA Class Champion:George Hayhurst [email protected] earning his MBA in 1968 from the U of T

Business School, Lawrence Lederman joined theCanadian Foreign Service, where he promoted

trade on behalf of Canadianindustry abroad. He laterworked for the Department ofForeign Affairs in the areas ofhuman resources, diplomacyand trade. His diplomaticcareer included posts at theCanadian embassies in Brussels,

Bern, Caracas and Munich, and he served as theConsul General in Cleveland from 1987 to 1992.In 1992, he was appointed the first Canadiandiplomat to an OSCE (Organization for Securityand Cooperation in Europe) Monitor Mission inMacedonia, for which he was awarded theCanadian Peacekeeping Medal in 2002. He thenbecame the longest-serving Canadian chief ofprotocol, working under three prime ministersand 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 thedomestic and international sectors. In 2006, hewas named distinguished senior fellow at theNorman Paterson School of International Affairsat Carleton University in Ottawa.

1970MBA Class Champion:Charles [email protected]

1971MBA Class Champion:Chris [email protected] of Michael Younger’s abiding interests hasbeen what he sees as the abuse of the moneysupply by Western democratic governments andthe debasement of value of fiat money. He writes,“Bernanke is set to shower the world with dollarsand… [current MBA students] would do well tostudy the phenomenon we are about to endure!”

1973MBA Class Champion:George [email protected] Forray is a project manager with PeopleSoftin Plano, Texas.

1974 MBA Class Champion:Hank Bulmash [email protected]

1975MBA Co-Class Champions:Susan [email protected] [email protected]

1976MBA Class Champion:Jane Gertner [email protected] Lawton is vice president, energy and envi-ronment for Energy Advantage Inc., in Burlington.Rajiv Manucha is president and CEO of MSReCustoms, a trade compliance firm with capabili-

ties in both technologyand services. With nearly1,000 clients worldwide,MSR eCustoms is one ofthe leading companies inits industry, and is

currently expanding further into the US andabroad. As part of the company’s ongoingcommunity endeavors, he has spearheadedefforts to provide technology solutions to severalpost-secondary institutions for the education ofcustoms professionals. Rajiv lives in Toronto withhis wife and four young sons.

1977MBA Class ChampionJudy [email protected]

Editor Jack Thompson


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1979MBA Class ChampionLorn [email protected] Jolliffe is senior vice president, global humanresources (CHRO) for Ingram Micro Inc., aFortune 100 company and the world’s largest technology distributor. Lynn and her husbandHoward recently moved to Newport Beach,California from Brussels, Belgium where she wasvice president of human resources and servicesfor Ingram Micro Europe. Their sons graduatedfrom the International School of Brussels andnow attend York University and Western. She andher husband are enjoying being ‘empty-nesters’and having their boys return for visits. As part ofher job, Lynn gets to also fulfill her love of travel-ing through trips to Asia and Latin America.

1980MBA Full-Time Class Champion:Frank [email protected] Lum is research director with EVHResearch in Toronto.

1981MBA Full-Time Class Champion:William [email protected]

1982 MBA Full-Time Class Champion:Danny Chau [email protected] MBA Part-Time Class Champion:Michael [email protected] Sera has been appointed chair of theboard at the Ontario Pension Board. An OPB

director since 2004, Vincenza is anaccomplished investment bankerwith extensive experience in theCanadian financial services indus-try. Her career highlights includemany years as managing director

with National Bank Financial (NBF), as co-headof the Financial Institutions Group practice atPutnam Lovell (an NBF subsidiary), and as adirector on corporate, industry association andnot-for-profit boards and advisory committees. Louise Sommers enjoys putting her MBA theoryinto action with a career in fashion retail: she ownstwo lingerie stores in Toronto, Tryst Lingerie.

Louise and her husband, David,have three grown children: Shanaco-owns Tryst Lingerie; Joeworks for the Ontario HealthMinistry and lives with Anitaand a growing family; andDevon is in her last year of resi-

dency at St. Michael’s Hospital and lives with herpartner Bill.

1983Karim H. Ismail recently published Keep ANY!Promise: blueprint for designing and living yourfuture, drawing on his 20 year experience plan-

ning and leading health and cultural buildings.The book contains a unique 12-step process tohelp people keep promises and design futuregoals. Karim is also an accomplished mountainhiker, having climbed Kilimanjaro and the Andesnear Machu Picchu with his daughter Aliya. Theyhave set their sights on base camp Everest.

Eli Javier is director, system deliveryand control at Dundee Bank,Scotiabank Group in Toronto.

1984Jane McCormick Christensen writes to the Class of‘84, “Our 25th reunion is coming up next year in2009 and so is my 50th birthday. I would like tobegin my mid-life crisis in style catching up withyou guys. I’d love to learn what you did with yourdegree and your life so I can decide what to do formy next career. Hope to see you there.”

1985MBA Full-Time Class Champion:Gerald [email protected] Part-Time Class Champion:Daniel [email protected]

1986MBA Class Champion:Roy [email protected] Poole is director, financial planning andadvisory services for CIBC Wood Gundy inToronto.After many years in the Canadian banking andleasing industries, Steve Sands recently estab-lished Element Financial Corporation, an inde-pendent equipment leasing company focused onassisting small-to medium-sized businesses withtheir capital asset acquisitions. Kenneth Smith is chair at SECOR Consulting inToronto.

1988MBA Class Champion:Grace [email protected] Cheng is vice president at Ernst & YoungOrenda Corporate Finance in Toronto.Yoram Shalmon co-founded AskKinjo in May2006. AskKinjo delivers location-relevant adver-tising and free-of-charge content to mobilephone users. Yoram writes, “Our current objec-tive is to demonstrate traction and scale inToronto. The following round is a launch acrossCanada and the United States.” Yoram recentlyreturned from a trip to Peru and Bolivia, wherehe enjoyed trekking in the Andes.

1989MBA Full-Time Co-Class Champions:David [email protected] [email protected]

MBA Part-Time Class Champion:John [email protected] Etherington is a consultant and coachwith Leadership Insight in Toronto.Vince Tong is audit manager at CIBC in Toronto.

1990MBA Part-Time Class Champion:Steve [email protected] Armstrong has joined LEVEL5 Strategic BrandAdvisors, where her client work is supported by herexperience in financial services, operations andconsulting. Katie also completed a MA in counsel-ing psychology, which adds an interesting perspec-tive to her change management work.

1991MBA Full-Time Class Champion:David [email protected] Part-Time Class Champion:Pamela [email protected] Baptist returned to Toronto after living inChicago and Paris for the last 12 years. Coming

with her and excited aboutbecoming a Canadian boy is herson Kyle, who just turned two. InMarch, Jacqueline joined theToronto office of the Frenchadvertising agency Publicis, lead-ing the Rogers Communications

account. She thanks all her classmates, includingthe ‘Bigger Fools’, who helped with her job searchand have been a great incentive to come back to Toronto.Scott Colbourne is vice president and director atTD Asset Management in Toronto.Bill Gottlieb is enjoying life in the US with hiswife and daughter, and making the most of the‘Great American Real Estate Giveaway’. Hesays, “I submitted a business plan to my bank tobuy foreclosures: banks are dumping houses fornothing.” He hopes to visit Canada once the USdollar recovers. Raphael Mpofu is a director of the School ofManagement Sciences at the University of South

Africa (UNISA), one of thenation’s top learning institutions,focused on distance learning. Heis also an associate professor inFinance since joining Unisa in1997. Raphael recently hosted adelegation of Rotman MBA

students led by Professor Ann Armstrong andLaura Wood in Pretoria, South Africa on January 7and 8, 2008.Marni Wieshofer recently left LionsgateEntertainment where she was the EVP of corpo-rate development to accept a position as thesenior vice president of corporate developmentand M&A at Media Rights Capital (MRC). MRCis the largest independent producer of high-profile motion pictures and television program-ming, and is one of the largest creators of broad-band Internet content.

Class Notes / MBA/Mcom Full- and Part-Time


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1992MBA Class Champion:Blair [email protected] Gorsky moved to Halifax, Nova Scotia in2001. Starting out as an independent consult-ant, she led the organizational start-up of amulti-institutional neurological/stem cellresearch collaboration, and later acted as theexecutive director of the Nova Scotia LifeSciences Development Association. Diane’scurrent focus is government relations for thepharmaceutical industry in her role as senioradvisor, Atlantic for Canada’s Research-BasedPharmaceutical Companies. Diane, who enjoysliving on the ocean and is a yoga enthusiast,plans to attend this year’s “Thinking aboutThinking” conference, where she hopes to seemany of her former classmates.Ed’s note: Join Diane and many of your class-mates at “Thinking About Thinking: How Muchof Yours is High Quality?”, the 10th AnnualRotman Life-Long Learning Conference forBusiness Leaders on May 30, 2008.

1993MBA Full-Time Class Champion:Daniel [email protected] Bremermann is manager, product planning,Europe, for Bose Automotive Germany in BadenWurttemberg.Randall Craig has just recently released his second

book (and now bestseller) PersonalBalance Sheet: A Practical CareerPlanning Guide, which is designed tohelp successful professionals get tothe next level of their career withoutgiving up their work-life balance.

Maureen O'Brien is senior director, talent programsat Loblaw Companies Ltd.

1994 MBA Full-Time Class Champion:Glenn Asano [email protected] Brun de Pontet has recently transitionedfrom full-time doctoral student to family busi-ness advisor. She combines her academic skillswith the business knowledge she gained whilerunning her own retail business and working insmall business lending. Stephanie and her familymoved to Atlanta, Georgia a few years ago, but isa regular visitor to Canada. She would love toreconnect with classmates from the class of ‘94. Sumitra Seshan is the COO of Fifth GenerationTechnologies India Ltd. 5G is a boutiqueoutsourced software product developmentcompany headquartered in Chennai, India with abranch office in Toronto. Sumitra would love tohear from anyone planning on visiting India.

1995MBA Full-Time Class Champion:Nick [email protected] Part-Time Class Champion:Darlene Varaleau

[email protected] Ra is a director with Scotia Capital in Toronto.Barry Richards is a tech analyst at ParadigmCapital, a brokerage firm serving the Canadianinstitutional investment community, as well assmall-and medium-sized Canadian companies.The Richards family welcomed their child,Jensen, a brother for Calli Anna and Griffin.

1996MBA Full-Time Co-Class Champions:Christine [email protected] [email protected] MBA Part-Time Class Champion:Daisy [email protected]

1997MBA Full-Time Class Champion:Burke [email protected] Part-Time Class Champion:Nancy [email protected] Steiner is COO, Region CentralEurope, and managing director for SkandiaGroup in Berlin.

1998MBA Class Champion:Mari Iromoto [email protected] Barker recently graduated as a doctor in theUK, and is working as a houseman in South WestLondon. He is getting married in March, 2008.Jack Crane is a principal in the Corporate Strategyand Development group of PG&E, one of thelargest US utilities. Before 2006, he was directorof strategic planning at EMCOR, a large engi-neering services firm. He lives in idyllic MarinCounty, between San Francisco and Napa, withhis wife Meg, baby daughter Mirielle and Bordercollie Mei-Mei. He keeps a well-stocked winecellar and goes hiking whenever he can.Amy Freedman is the COO, investment banking atThomas Weisel in Toronto.Scott Gavura recently accepted a position as direc-tor, provincial drug reimbursement programs atCancer Care Ontario. He is responsible for themanagement of the New Drug Funding Program,which provides access to high-cost cancer drugsto Ontario residents. Scott, his wife Lillian andtheir 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 DeloitteConsulting in Toronto. He recentlymoved into a character loft (run downbuilding) in Parkdale.

1999MBA Full-Time Co-Class Champions:Lenore [email protected] [email protected]

Caroline Bachand is senior manager, treasury riskmanagement at Nortel in Toronto.Jennifer Black (Shaw-Devos) is senior businessanalyst, operations for Transamerica Reinsurancein Charlotte, NC.Phillip Lund is still with Schneider Electric, wherehe is responsible for services training programs andfor developing and delivering training courses forthe selling of services and solutions. He lives inParis with his wife Danielle Constantin, whorecently published Masques et mirages. Genèse duroman chez Cortázar, Perec et Villemaire (New York:Peter Lang, 2008). Khalid Rashid is a director at Xceed MortgageCorp in Toronto.

2000MBA Class Champion:Mitchell [email protected] Baxter assumed responsibility for allCanadian after-sales operations for Jaguar LandRover (JLR) Canada. He notes that this will be atransition year at Jaguar, as the Ford Motorcompany works to complete the sale of the Jaguarand Land Rover business. Doug sends best wishesto the Part-Time MBA class he started with, andthe Full-Time class he finished with.Rob Pankratz is AVP portfolio and risk analytics inthe Derivatives Middle Office of the InvestmentsDivision of Manulife Financial. In July 2007 Robwas promoted to AVP in market risk managementand subsequently moved to the Middle Office ina December re-organization. Rob and Elaine arebusy raising three boys in Oakville, and recentlyadopted a new child-friendly cat for the boys.

Manoj Srivastava has joinedthe Ministry of Educationas senior technical manager.He has also moved to his newhouse in Vaughan.

2001MBA Part-Time Co-Class Champions:Lisa [email protected] [email protected] Bisaillon recently joined Dell as a globalprogram manager to run a joint initiative withMicrosoft, all from his home office in St. John’s,NL. He says that his family is happy and growingup fast: “with our new Honda snow blower,there’s no more reason to fear the Newfoundlandwinters. We love to welcome Rotman alumni tothe Rock (for a visit or permanently). To bookyour trip contact [email protected].”Michael Brodie-Brown moved to Tokyo with wifeYukiko in early 2006 and accepted a positionwith Lehman Bros., producing custom Japanese

equity research. Michaeland Yukiko are enjoying thelocal culture (particularlythe cuisine) and have takenscuba diving trips to the

Philippines, Okinawa, Taiwan and Guam. Hewrites, “Hope all is well with the class of ‘01 and ifanybody finds themselves in Tokyo be sure to get

MBA/Mcom Full- and Part-Time / Class Notes

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Class Notes / MBA/Mcom Full- and Part-Time


in contact! [email protected].”Stephen Crozier is legal counsel for Barrick GoldCorporation in Toronto.Al Nagaraj is doing business development forOTC Derivatives in Toronto.Jennifer Shelton and her husband Marcos SantiagoMondragon have bought a house in Maple,

Ontario. In November 2007,they were blessed with thearrival of their first child, ababy girl named Paloma.Jennifer is currently on

parental leave from her position at MicrosoftCanada, and plans to return in Autumn 2008.Manny Singh is sales manager for New WorldDistributors in Surrey, BC.Young Soo Son is director of finance for Jolera Inc.in Toronto.

2002 MBA Full-Time Class Champion:Rizwan [email protected] Part-Time Class Champion:Jay [email protected] Giuffrida lives in Toronto with his wife LauraHopkins, and is the founder of Adavius Inc., offer-ing strategic IT services to professionals. David isalso a lawyer and recently completed a three-yearterm as a part-time legal member of the OntarioReview Board. He has no life-changing events toreport, having reluctantly conceded that acquir-ing a new gadget does not count as one in theminds of most. He looks forward to seeing hisclassmates at the reunion next summer, to learnwho has wed, bred or risen in the corporate worldsince we last met. He writes,“Best wishes, all!”Marice Hart and her husband Benjamin werethrilled to welcome their daughter Orly in

September 2007. Besides latenight feedings and singing ‘ItsyBitsy Spider’, Marice is in thesecond year of the Masters inSocial Work program atCarleton University. Michael Kuan is a partner, inter-

national equities at Picton Mahoney AssetManagement in Toronto.Sheldon Szeto has joined the merchant bank theRose Corporation as director of financial analy-sis. He and Flora Chen (2001) are expecting theirthird child.This past December, Tom O. Varesh was promoted tothe position of equity research analyst at CanaccordAdams, providing research coverage for transporta-tion and transportation-related industrial compa-nies. On a personal front, Tom has legally added‘Ohanessian’ as his middle name in recognition ofhis Armenian roots.(This would have been Tom’slast name had his great grandfather not changed itto Varesh at the turn of the last century.)

2003MBA Full-Time Class Champion:Pamela [email protected] Part-Time Co-Class Champions:

Jennifer [email protected] [email protected] Carson is an account director for CPCHealthcare Communications in Toronto.Becky (MacKinnon) and D’Arcy Finley are very

happy to announce the arrival oftheir daughter Amelia on June 27,2007. Becky is currently on mater-nity leave from Boston ConsultingGroup, and D’Arcy works at RogersCommunications Inc. They can be

reached through [email protected] [email protected] Pare is an equity analyst with CIBC WorldMarkets in Toronto.Amir Sperling is an associate with Tishman SpeyerProperties in New York.

2004MBA Full-Time Class Champion:Maya [email protected] Part-Time Class Champion:Steven [email protected]. P. Beaudoin is a senior consultant for ZSA-XFinancial Recruitment in Toronto.Billy Chung is an executive director of Culturecom,a company listed on the Hong Kong StockExchange. He notes, “It’s a company goingthrough changes, so keep an eye out for a brandnew Culturecom.”Rachel Doll sends greetings from the Pena Doll

Family, where her daughter Sophiehas reached the ripe old age of tenmonths (as of the time of writing).Says Rachel, “she has grown somuch since Christmas (weighs 25pounds 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 realestate developer, having recentlyfinished his first real estate devel-opment project by building semi-

detached bungalows (pictured). Feel free to contacthim at [email protected] for moreinformation.Jason Krause is director at Sierra Wireless Inc., inVancouver.Michael Pietrocarlo is marketing manager for VisaCanada in Toronto.Steven Richards is director, enterprise riskmanagement for Manulife Financial in Toronto.George Tolomiczenko is executive director ofresearch and scientific liaison at Crohn’s andColitis Foundation of Canada in Toronto.

2005MBA Full-Time Co-Class Champions:Fiona CunninghamFiona. [email protected] [email protected] Part-Time Class Champion:Bob Kapur

[email protected] Cho is senior manager at WundermanCanada in Toronto.

Vineet Gupta is vice president ofAmerican Home Mortgage in NewYork.

Shelly Puri has returned to work at Merrill Lynchwhere she is responsible for trading credit

and structured products. Herhusband Sacha is at McKinseyand Co. On August 4, 2007, thecouple was proud to welcome ason, Jai K. Ghai, into the world.She comments, “Simply put, he

has redefined our reason for living.”Eran Schweiger is a human resources officer for theUnited Nations, stationed in Bangkok.Richard Son is project coordinator at Sophis UKLtd. in London.Giovanni Strazzullo is a consultant in the powerand renewable energy team of the London, UKoffice of Investec Bank. Until recently, he was anassistant vice president in the Project Financeteam at PwC in Toronto.Ekaterina Sutugina is a project manager, mergersand acquisitions with UC RUSAL in Moscow.Shiming Tan is a director at UBS AG in Hong Kong.Gabriel Villegas is now a senior financial engineerat Algorithmics in Toronto.Kai Wang is working in investment banking withNM Rothschild & Sons (Hong Kong) Limited.

2006MBA Full-Time Co-Class Champions:Bill [email protected] [email protected] [email protected] [email protected] Part-Time Class Champion:Ushnish [email protected] Gord Bennett lives in Toronto and manages the

forecasting department of TELUS,the second largest telecommunica-tions company in Canada. In hisspare time, he supports the charita-ble organization Room to Read asdirector of finance of the Toronto

chapter. The Bennett family is pleased toannounce the birth of their first child, AlexanderJames (AJ) and is looking forward to introducinghim to Whistler this ski season. Gord hopes tosee everyone in 2008.Kate and Geoffrey Cambridge welcomed theirfirst child, Benjamin Michael, into the world onDecember 4, 2007, weighing seven pounds, 13ounces.Brian Carey is vice president and controller forMCAP in Toronto.

Marcelo Cesario is a senior consult-ant at IBM Business ConsultingServices, with a focus on the tele-com industry. Marcelo and his wifeSimone welcomed their daughter

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Giovanna on January 14, 2008. The entire familysends best wishes and success to the class of 2006.Bob Deol is an associate director with ScotiaCapital’s Corporate Banking – Global Mininggroup in Toronto.Robert Dias is now a vice president with GoldmanSachs in New York.Jared Green is corporate counsel for CedaraSoftware Corp in Toronto.Tahir Janmohamed spent the winter holidays onthe island of Zanzibar and touring the grasslandsof East Africa. He returned to 40 centimeters ofsnow and two exciting new strategy projects inthe financial services and mining industries. Tahirhopes that everyone enjoys their summer break!Kalpesh Lad is the finance manager for Duracell,Pringles and Folgers Canada at Procter &Gamble. He and his wife recently returned froma fantastic vacation throughout South East Asiaduring the holiday season.Ryan Lavallee is immersed in the world of ratesderivatives products at the London offices of

JPMorgan Chase. He remarksthat he is “befuddled by the factthat among the people inEngland, he is the one of the few

lacking an accent.” As always, Ryan sends his bestregards to his friends at Rotman. Al Leong went on a sabbatical with his two dogs,Buddy and Sarah. Their camping trip includedstops in Minnesota (four days before the bridge

collapse), South Dakota, Wyoming,Vancouver, Portland, the Bay area,the Mojave Desert, the GrandCanyon, Malibu, Calgary, Regina,

Winnipeg, Chicago, Detroit and Toronto. Al isstarting to build his business, and plans to acquireland and build a small cottage where his dogs canrun free.Khurram Afgan Malik is an analyst at Jacob &Company Securities in Toronto.Linda Mackay is VP and special assistant to theCEO at TD Bank Financial Group in Toronto.Rishi Marwah is a consultant with DPWNBusiness Consulting (Asia Pacific) in Singapore.Natasha Parekh is living in London and is an asso-ciate at Goldman Sachs.Preety Ranchod is manager of strategic marketingfor Bell Canada in Toronto.Rodrigo Rodrigues is general manager for Glasartin Sao Paulo, Brazil.Jason Rose is director of sourcing and stakeholderrelations at CarbonZero Offsets in Toronto.Adam Rubin is an experience strategist for IdeaCouture Inc. in Toronto.A.J. Silber is an associate with law firm Ropes &Gray LLP in New York.Ryan Starkman works at TD Commercial Bankingin Toronto. Most non-work time is spent inmarathon training and looking after his son Jake

(although wife Rebecca woulddefer to comment at this point).Jake had his first Skittle the otherday and hasn’t stopped since.Ryan can be contacted directly at

[email protected] Wong is manager of business developmentat SOTI Inc. in Mississauga.

2007MBA Full-Time Co-Class Champions:Francois [email protected] [email protected] [email protected] [email protected] Part-Time Co-Class Champions:Kate [email protected] [email protected] Agarwal is a consultant with the CampbellAlliance Group in Chicago.Sumit Arora is a securities analyst for First GlobalSecurities in Navi Mumbai, India.Charanpal Brar is a business manager with CapitalOne in Toronto.Araba Carson is manager, banking operations forBMO Financial Group in Toronto.Robert Chen is a program buyer for MagnaClosures in Concord, ON.Lawrence Chinsam is director of services atOpenwave Systems Inc, in Whitby.Ivan Chow is a manager for Alwa Design &Associates in Hong Kong.Krupa Desai is a research analyst with LusightResearch in Toronto.Craig Geoffrey is a director with MontroseHammond Inc. in Toronto.Kanishk Gupta is a financial analyst with CIBC'sprestigious Financial Management DevelopmentProgram (FMDP). Prior to his Rotman MBA, hewas working with a leading financial institution(ICICI Prudential) in Mumbai as a financialunderwriter. He sends his best wishes to theClass of ‘07.Jordan Hague is a generalist for RBC CapitalMarkets in Toronto.Eric Hedges is a business analyst for Vancouver-based Communicate.com.Henry Jing is a data marketing analyst at Rogers

Wireless. His younger son, Ryan,started junior kindergarten thisyear and together with his olderbrother, Tyler, goes to school

every morning. Henry sends best wishes to all theClass of ‘07 and their families!David Jube is an associate with DesjardinsSecurities in Toronto.Zakiah Kassam is a business development manager(Technical) at Plasco Energy Group Inc., inKanata.Mansur Khan is equity research associate forDundee Securities in Toronto.Yoko Kobayashi is manager of emergency responseand public relations for World Vision Canada inMississauga.Adriane Lau is an associate at OANDA Corporationin Toronto.Gina Lavarello is FMDP financial analyst for CIBCin Toronto.Steven Leung is a manager at Deloitte in Hong Kong.Patrick Tao Liang is a senior consultant for Deloittein Toronto.

Gave Lindo is an associate with Fasken Martineauin Toronto.Yanyan Liu is a business analyst for Finansia inToronto.Peter Lizon is a financial analyst at Edenbrook HillCapital in Mississauga.Sabrina Machel is in the leadership rotation atGlaxoSmithKline in Mississauga.

Naveed Masood has over 10 years ofexperience working across differ-ent industries with an emphasis inhealthcare and life sciences. Hisexperience spans different func-

tional areas including business strategy, processdesign, drug marketing and most recently regen-erative medicine using cellular therapies. Hecompleted his MBA at Rotman specializing inHealthcare and Biotechnology.Rik Muilwijk is legal counsel at Navis CapitalPartners on Kuala Lumpur.

Eric Nie is an accountant withKPMG in Toronto.

Mehrnaz Ravel is in the leadership rotation atGlaxoSmithKline in Mississauga.Abhijit Rawal is a senior consultant with Deloittein Toronto.Katherine Rivington is an associate with EdgeStoneCapital Partners in Toronto.Ali Rizvi has more than six years of experience in

corporate and investmentbanking. Currently he isworking in CIBC asmanager of credit and lend-ing audit on Bay Street.

Azadeh Sabour is a research analyst with JantziResearch Inc., an independent social investmentresearch firm based in Toronto (formed in 1992).

The firm evaluates and monitorsthe environmental, social, andgovernance (ESG) performance ofglobal securities. Jantzi’s clientsinclude mutual funds, pensionfunds, money managers, invest-

ment advisors, and others who integrate ESGcriteria into the investment decision-makingprocess. Jantzi Research is the dominantCanadian provider of socially responsible invest-ment (SRI) products, services and research tools.See www.jantziresearch.com for more details.Azadeh is recently engaged and plans to marryher fiancé Chris, who is currently enrolled in theMBA program at Rotman (class of ‘09), in August'08. She sends her best wishes for success to theClass of ‘07 – “Stay healthy, Stay fit!”Sean Samieian is in management consulting with

Infosys Consulting Inc. (ICI) basedout of Seattle, Washington. ICI is awholly owned subsidiary of InfosysTechnologies. “Best wishes to theentire class.”

Carlos Sanchez is an associate analyst for Moody’sInvestors Service in Toronto.Diana Sen is an analyst at Accenture in Mississauga.Blendian Stefani is an associate with SmartCentresin Vaughan.Kimberly Tack and her husband David welcomedtheir first child, Andrew Harrison on October 11,

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Class Notes / MBA/Mcom Full- and Part-Time / Executive MBA


2007. “We feel so blessed to havethis little guy in our lives. He hasbrought us so much joy.”

Asad Tahir is a PM consultant at TELUS inScarborough.Liang Tang is a senior analyst with BMO Financialin Toronto.Kevin Taylor is senior consultant for Deloitte inToronto.Roger Thompson is a manager, strategy and opera-tions of FirstService, a diversified property serv-ices company with more than US$1.7 billion inannualized revenues and 17,000 employeesworldwide. He was recently married in July 2007to his soulmate Chiara and honeymooned in LasVegas and Western Canada. Jack Trimmer is senior project manager at CiscoSystems in Toronto.Ip Tsui is a research associate with Tristone Capitalin London, England.Ameet Uchil is a director with DataVisionSoftware Solutions in Pune, India.Akif Unal is a senior business analyst with CapitalOne Canada in Toronto.Bijan Vakili is a software developer for OANDACorporation in Toronto.Kathleen Wheelihan is an associate with CIBCWorld Markets in Toronto.Valerie Whitt is special projects coordinator forthe Humber River Regional Hospital in Toronto.Xiaolin Yu is a senior financial analyst at DBRSLimited in Toronto.

EXECUTIVE MBA

1985Class Champion:Bob [email protected]

1987Class Champion:Vitor [email protected] Simons has moved with her husband,Frank, from Calgary to Fernie, BC, where she isvery much enjoying an active lifestyle in herretirement.

1989Co-Class Champions:Peter [email protected] [email protected]

1990 Class Champion:Jeffrey [email protected]

1993 Class Champion:Andy [email protected]

1994Class Champion:Andrew [email protected]

1995Class Champion:John [email protected]

1996Co-Class Champions:Jon [email protected] [email protected]

1997Class Champion:Jennifer [email protected] Yee is head of finance at BNP ParibasPrivate Bank in Hong Kong.

1998 Class Champion:Ashok [email protected] Wright and family moved to Charlotte, NCin 2004. “Seems like such a short time ago wewere in Toronto, working on case studies andtrying to beat the pants off the other groups!Both kids are now in college, so lots of time forgolf, travel, and the odd bit of work. I am workingfor Curtiss-Wright Controls as vice president,engineered systems. Two of my businesses are inToronto, so I get up there every month or so. Ihaven't done a good job staying in touch, but ifanyone is passing through Charlotte and wouldlike to golf or catch up, give me a call or e-mail.”

1999 Co-Class Champions:Steve [email protected] [email protected] Chan is director of marketing for MedicisAesthetics Canada in Toronto.

2000 Co-Class Champions:Jennifer [email protected] [email protected]

2001Co-Class Champions:Ken [email protected] RyanGary Ryan has been experiencing the challengesof running a small rural hospital as he took on theinterim CEO duties at Stevenson MemorialHospital in Alliston in September of 2007 inaddition to his existing duties as VP of acute serv-ices at Southlake Regional Health Centre.

Referring to his Jim Fisher Leadership notesdaily, he is looking forward to the next RotmanLifelong Learning session to pick up a few moretricks to keep him on track. Anyone wishing to contact Gary Ryan can do so [email protected].

2002 Class Champion:Cheryl Paradowski [email protected]

2003 (EMBA19)Class Champion:Jennifer [email protected]

2003 (EMBA 20)Co-Class Champions:Rob [email protected] [email protected]

2004 (EMBA 21)Co-Class Champions:Fariba [email protected] [email protected] Danylewich has left Youth ChallengeInternational, where he was executive directorfor four years, to join the executive team at RightTo Play – an athlete-driven humanitarian organi-zation that uses the power of sport and play toimprove the lives of children in the world’s most

disadvantaged countries. Aglobal leader in sport fordevelopment, Right To Playenjoys the support of some ofthe world’s greatest athletes

and Olympians. David will be leading field opera-tions in over 20 countries, with a staff of 300.When he is not traveling or working on behalf ofthe children in Right To Play’s programs, he andhis wife Hilary can be found playing with theirown children, Heath and Celeste, who are nowfour and two.Marc Finkelstein is Canadian IT planning andmanagement lead for Capgemini in Toronto.

2005 (EMBA22)Class Champion:Michele [email protected] Anne Downey has started a new businessimporting luxury bed linens from Egypt. LuxeBrands International has been granted distribu-tion rights for North America: www.luxe-brands.comTai Hong Yuen is chief operations officer at TsunTay Toy Company Ltd in Hong Kong.

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Executive MBA / OMNIUM/GEMBA / Class Notes


2005 (EMBA23)Co-Class Champions:Karen [email protected] [email protected]

2006 (EMBA24)Co-Class Champions:Elizabeth [email protected] [email protected] Kelly is regional vice president and marketleader for TD Waterhouse in Toronto.

2006(EMBA25)Class Champion:Rob [email protected] Syed sent this along: “This is the profile of aperson who had been taking risks and initiative

throughout the course ofhis life and had been prettysuccessful so far; however,the decision to migrate toCanada literally changedhis entire perspective on

life. His list of life highlights initially onlyincluded his marriage with the one he loved,Darakhshanda, but now that list also includes hisEMBA experience from Rotman. The exception-ally humble and considerate faculty, outstandingcolleagues and the world class experiencecertainly makes Rotman the best in class. Theexposure at Rotman enabled Abdul to integratehis past experience with the new Rotman learn-ing and carved a place for him to contribute inCanadian retail development. Abdul started hiscareer in Canada with Kraft as a category advisorand within a year moved to Smuckers Food astrade marketing manager for Ontario and WestRegion. Within a total timeframe of three yearsin Canada, a lot has happened for Abdul and hisfamily and he hopes that this positive develop-ment process will continue in years to come.”

2007 (EMBA 26)Class Champion:Serge [email protected] Jones is AVP market development for SunLife Financial in Toronto.Steve Strong is in checkout risk operations atGoogle, located in Mountain View, California.

OMNIUM / GEMBA (GLOBALEXECUTIVE MBA)

1998 Class Champion:Lan Nguyen

[email protected] Dougherty was recently appointed presi-dent of Sun Life Global Investments, a uniquegroup of high performance affiliated companiesand third-party asset manager relationships,supporting mutual funds, institutional funds andhigh net worth channels. Kevin is responsible forSun Life’s North American asset managementbusiness, and accelerating the company’s growthin the expanding wealth market around theworld. He joined Sun Life Financial in 1994, andmost recently led Sun Life Financial Canada aspresident for the past three years. Kevin is alsochairman of the national Quality Institute’sBoard of Governors.

1999 Class Champion:Jim [email protected]

2000 Class Champion:Nancy [email protected] Schmitz, CFO of Pergo Inc., Raleigh,NC and Uniboard Canada Inc., Montreal, QChas been appointed vice chairman of the GermanCanadian Chamber of Commerce in Toronto.

2001 Co-Class Champions:Margaret Evered [email protected] Hennig [email protected]

2002 Co-Class Champions:Manfred [email protected] Cerhan [email protected] Kreutzer writes: “It is a pleasure toannounce that I was recently promoted to the

position of vice president atthe Spitz Group, responsiblefor purchasing and procure-ment for the entire group.Reporting about 230M CAN$of purchasing value, my respon-sibility has significantly risensince leading the bakery divi-sion representing ‘only’ 65 mil.CAN$. This promotion fitsquite nicely in my CV after 10years of technical experience inthe field of bakery and confec-tionery, followed by over 12

years in the responsibility for sales and marketingwithin the bakery industry. While the moment tochange was not at all the best (as many raw mate-rials as well as some services have increased theirprices substantially since last summer), there wasand still is a lot to learn for me and the small teamof buying directors I work with – perfectlymatching with the idea of life-long-learning, evenif it is this time the non-academic, more practical

approach. Besides that, but even more impor-tant: The Family, composed of husband EVI,daughters Victoria 18, Franziska 8 and of course‘Gemba Baby 2001’ Flora are all fine and doingwell. I am glad to enclose a recent picture of thegirls as well as one from myself giving mywarmest regards to the UofT Rotman GEMBATeam and all pals and peers from GEMBA 2002Program. Best regards from Austria.”

2003Co-Class Champions:Michal [email protected] [email protected] Burki is head of internal audit & riskmanagement at Precious Woods Holding inZurich.

2004 Co-Class Champions:Ralf [email protected] Champ Ralf Martinelli reports in:

“Oktoberfest 2007 seemeda place worthy of a reunionof GEMBAs 2004. Indeed,nearly all GEMBAs 2004located in Europe appearedand had a great time

observing Bavarian habits. Due to their belief‘think global, act local’, it was just a question oftime until the participants adapted to the localhabits. Their cheers went to all other GEMBAs2004 all over the world; they are very muchexpected to meet at Oktoberfest 2008.”Brent [email protected] Browne is senior consultant with CIBC inToronto.

2006 Class Champion:Cecilia [email protected] Senninger remembers “during our MBAtime people were asking me what phone I wasdeveloping, but I couldn’t disclose anything.Now, after two years I have defined, developedand publicly-launched three mobile handsets. Mylatest phone is: www.nokia.co.uk/5310, availablein some selected markets and soon worldwide. Ican tell you launching your own phone, whichyou have specified 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 havebeen well adopted by consumers and are verysuccessful. Almost every working day reminds meof our MBA classes and experiences. I rememberwhen we went to Shanghai's counterfit market inorder to “further develop and deepen our negoti-ation skills”. I was amazed by the surprisinglygood quality of fake watches. But now, discover-ing fake models of my own phone one week inadvance to the factory ramp up suddenly didn’tamaze me anymore. Besides the fact that we

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Class Notes / OMNIUM/GEMBA / MBA (Accounting)/Master of Management and Professional Accounting / DIFA


obviously had a serious leakage, I have to admitthat this also flattered me, since it proves theylike my phone. Luckily they weren’t able to copymy phone completely – only the nut shell is some-how similar. It would be nice to hear also fromyou what’s going on; some of you I haven’t heardfrom in a while!”

2007Co-Class Champions:Dirk [email protected] [email protected]

MBA (ACCOUNTING) /MASTER OF MANAGEMENT& PROFESSIONALACCOUNTING / DIFA1992Jacqui Kuypers (nee Bridel) is a principal in auditingand assurance standards with the CanadianInstitute of Chartered Accountants. Jacqui wasmarried this year, and she and her husbandrecently welcomed a new addition to the family –Lara, who was born on January 12, 2008.

1994Class ChampionChris [email protected]

1996Co-Class ChampionsVanessa [email protected] [email protected] [email protected] Lipschutz is financial controller for TheAtlantic Philanthropies in Hamilton, Bermuda.

1998Class ChampionMelody Tien [email protected]

1999Class ChampionJamie [email protected] Luo is an executive director and head of quan-titative strategy at CIBC World Markets. InCanada, he covers three sectors (quantitativeanalysis, hedge fund, and equity indexing) inequity research; in the U.S., he manages an equitymarket neutral proprietary trading portfolio.Yin’s wife, Jane Wang (MMPA ‘00) recently leftIBM Canada and joined OMERS as a senioranalyst, external funds, responsible for interna-tional public investments. Yin and Jane’s daugh-ter Emily-Jane is now two years old and enjoysher school days at Montessori.

2001Class Champion:Elaine [email protected]

2002Class Champion:Ali Spinner (Charyk)[email protected]

2004Linghao Su is operational risk manager atGuandong Development Bank in Guangzhou,China.

2006Kristin Matthews is a manager in the claims valua-tion and litigation support group at SobermanChartered Accountants in Toronto. In additionto her professional work in the field of forensicaccounting, she was appointed in October 2007by the Government of Canada to sit on the boardof directors of Parc Downsview Park Inc. for aterm of four years.

2007Tamer Alibux is an accountant with KPMG inToronto.Jennifer Qin Hua is a staff auditor at PKG Hill LLPin Toronto.Jonathan Lau is an accountant / auditor for Ernst& Young in Toronto.

PHD

1997Guy Bellemare is director, investment & researchat Caisse de depot et placement du Quebec, inMontreal.

2004Mustafa Karakul is an assistantprofessor of management scienceat York University since July 2003.Mustafa had his first baby, DeryaSeher Karakul, in April 2006.

BE A CLASS ACT

VOLUNTEER AS A CLASS CHAMPION

Class Champions ensure their classremains active and vibrant long aftergraduation and bring the RotmanSchool and its graduates closertogether. They help organizereunions, promote events, and keeptrack of their classmates’ activitiesfor inclusion in the Class Notessection of Rotman magazine. Torepresent your graduating class,contact the Rotman Alumni Office at(416) 978-0240, or via e-mail [email protected].

20635 113-120 3/28/08 4:36 PM Page 120

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Upcoming EventsComplete details are available

May 2008

May 12, 5:45-7:30pmBook Launch for “Who Owns Canada Now: Old Money, NewMoney and the Future of Canadian Business”Place: Fleck Atrium (ground floor), Rotman SchoolAuthor: Diane Francis, Editor-at-Large, Financial Post

May 22, 5:30-7:30pmRotman Integrative Thinking Speaker SeriesPlace: Four Seasons Hotel ChicagoAuthor: Roger Martin, Dean and Professor of StrategicManagement, Rotman School; AuthorTopic: “The Opposable Mind: How Successful Leaders Win Through Integrative Thinking” Session Sponsor: Doblin Group

May 28, 8:00am-2:00pmAtlantic Business SummitPlace: Fleck Atrium (ground floor), Rotman SchoolSynopsis: the summit promotes “brain circulation” to enableAtlantic Canada and Toronto to benefit from the best of what each region has to offer through the free flow of capital, knowledge and creativityCo-Hosted by: Dalhousie University Faculty of Management; East Coast Connected; Rotman School

May 29, 6:00-11:00pmAnnual Rotman Alumni Reunion GalaPlace: Four Seasons Hotel TorontoDetails: 6:00-7:00pm, reception in honour of the MBA classesof 68, 88, 98 and 03 to celebrate their 40-year, 20-year, 10-yearand 5-year Reunions; 7:00-8:30pm, dinner, open to all Rotmanalumni and guests; 8:30-11:00pm, dancing

May 30, 8:30am-4:30pmAnnual Rotman Life-Long Learning ConferenceTopic: “Thinking About Thinking: How Much of Yours is HighQuality?”Place: Four Seasons Hotel TorontoChair: Mihnea Moldoveanu, Professor and Director, DesautelsCentre for Integrative Thinking, Rotman School and Author Speakers: Dan Ariely, Professor of Behavioral Economics, FuquaSchool of Business and Author; Malcolm Gladwell, Staff Writer,The New Yorker Magazine and Author; Roger Martin, Dean andProfessor of Strategic Management, Rotman School and Author;

Anita McGahan, Professor of Strategic Management, RotmanSchool and Author; Jane Fulton Suri, Co-Chief Creative Officerand Director, Human Factors Team, IDEO and Author; andGerald Zaltman, Professor Emeritus of Marketing, HarvardBusiness School and Author

October 2008

Date TBARotman Integrative Thinking Speaker SeriesPlace: New York CityPresenter: Roger Martin, Dean and Professor of StrategicManagement, Rotman School; AuthorTopic: “The Opposable Mind: How Successful Leaders Win Through Integrative Thinking”

Date TBARotman Integrative Thinking Speaker SeriesPlace: New York CityPresenter: Mihnea Moldoveanu, Professor and Director, DesautelsCentre for Integrative Thinking, Rotman School and AuthorTopic: “The Future of the MBA: Designing the Thinker of theFuture” (Oxford, April 2008)

November 2008

November 10, 4:30-6:30pmRotman Integrative Thinking Speaker SeriesPlace: ITC Grand Central Hotel, MumbaiPresenter: Roger Martin, Dean and Professor of StrategicManagement, Rotman School; AuthorTopic: “The Opposable Mind: How Successful Leaders Win Through Integrative Thinking”

December 2008

December 4, 5:00-6:30pmInstitute for International Business @ Rotman Speaker SeriesPlace: Fleck Atrium (ground floor), Rotman School

Times and AuthorTopic: “In Spite of the Gods: The Strange Rise of Modern India”(Doubleday, 2007)

20635 Cover 3/28/08 12:48 PM Page 2

Presenter: Edward Luce, Washington Bureau Chief, Financial

at rotman.utoronto.ca/events

105 St. George StreetToronto, Ontario, Canada M5S 3E6

Publication MailingAgreement Number: 40062461

Spring 2008

The Magazine of the Rotman School of Management / Spring 2008

What’s a CEO to do? Longevity RiskLighting the Way

Forward

The All-consuming Issue

The A

ll-consuming Issue

Thinking About Thinking:How Much of Yours Is High Quality?10th Annual Rotman Life-Long Learning Conference

Friday, May 30, 2008Four Seasons Hotel Toronto

Register now for our 10th Annual Rotman Life-Long Learning Conference on May 30. The theme is “ThinkingAbout Thinking: How Much of Yours is High Quality?”We’re pleased to offer:

Conference Chair:Mihnea Moldoveanu, Professor andDirector, Desautels Centre for IntegrativeThinking, Rotman School and Author,“The Future of the MBA: Designing theThinker of the Future”

“The Power of Thinking Without Thinking” Malcolm Gladwell, Staff Writer, The NewYorker Magazine and Author, “Blink: ThePower of Thinking Without Thinking” and“The Tipping Point” In conversation withRoger Martin, Dean and Professor,Rotman School of Management andAuthor, “The Opposable Mind: HowSuccessful Leaders Win ThroughIntegrative Thinking”

“Observations on Our Thoughtless Acts” Jane Fulton Suri, Co-Chief CreativeOfficer 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 Insightsinto the Mind of the Market” and “Marketing Metaphoria: What DeepMetaphors Reveal About the Minds of Consumers

“Thinking About Your Firm’s Performance When You're Thinking About Thinking”Anita McGahan, Professor of StrategicManagement, Rotman School ofManagement and Author, “How IndustriesEvolve: Principles for Achieving andSustaining Superior Performance”

“Predictably Irrational: The Hidden ForcesThat Shape Our Decisions”Dan Ariely, Professor of BehavioralEconomics, Fuqua School of Business,Duke University and Author, “PredictablyIrrational: The Hidden Forces That ShapeOur Decisions” (Feb 2008)

Confirm your attendance today by registeringat rotman.utoronto.ca/thinkingWe look forward to seeing you on May 30th!

20635 Cover 3/28/08 12:48 PM Page 1

Roger Martin interviews Gord Nixon

Nobel Laureate William Sharpe on

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