Buddy, Can You E-Mail Me 100 Bucks? The Next Big Thing in U.S. banking may be mobile person-to-person money transfers

What if you could send money to that friend who loaned you $20 last week by using your mobile phone rather than having to go through the trouble of trekking to the ATM or mailing a check? All you'd need would be your buddy's e-mail address or cell number—and presto.

Folks in Japan and Europe can already do that. Soon Americans will, too. Studies show that U.S. consumers, particularly the younger set, have embraced the convenience of online shopping and e-banking and are now ready to move to the next frontier: person-to-person mobile payments. A recent poll by Mercatus, a financial consulting firm, showed that the proportion of people ages 26 to 34 who had used a cell phone to buy goods or pay for a product or service had doubled, to 14%, in the past year. "We are at the tipping point," says Mercatus managing partner Robert Hedges.

That's why a host of banks and financial companies are gearing up to add person-to-person payments to their existing mobile and online banking platforms. PNC Financial Services (PNC), Bank of the West, and the Boeing Employees' Credit Union have teamed up with CashEdge, an outfit that already processes more than $50 billion a year in transactions among financial institutions, with plans to launch services in early 2010. Fiserv (FISV), a technology company that handles bill payments for 3,100 financial institutions, is marketing a similar service. MasterCard (MA) is working with Obopay, a mobile payment startup with funding from Nokia (NOK), while Visa (V) has been testing a service with U.S. Bancorp (USB). "Payment habits change pretty slowly, but Generation Y expects this," says Thomas S. Kunz, director of payments and e-business at PNC Financial.

While the banks are only now waking to the potential of person-to-person payments, PayPal (EBAY) has built its business on them. The company, acquired by eBay in 2002, boasts more than 78 million active account holders worldwide and introduced a service earlier this year that allows users to make transfers over a cell phone. Now it is teaming up with banks to offer the same service. FIS (FIS), a tech outfit that counts 14,000 financial institutions as clients, announced on Nov. 3 that it plans to integrate PayPal's technology into its online banking platform. "We found out that [banks] want to collaborate more than ever," says PayPal President Scott Thompson.

HACKER HEAVEN?

Here's how these digital cash transfers work. Sign up for a service through your bank or another provider. Enter an e-mail address or phone number to send money to anyone you know. Your bank's person-to-person payment system will be integrated with your regular online banking, and the funds will be debited from your account. At the other end, the recipient may get the cash deposited directly into an account or have it posted to an existing credit card or a prepaid card. Mostly likely, banks will make money by charging senders a nominal fee (25 cents, say, for a domestic transfer).

What about security, you ask? "Banking on the mobile phone is relatively safe," says Robert Vamosi, an analyst on security, risk, and fraud at Javelin Strategy & Research. In fact, says Vamosi, mobile banking is currently more secure than online banking because cellular networks are tough to hack into.

With many of these new offers set to launch next year, the big question is who will gain critical mass quickly. Says Jim Bruene, editor of trade publication Online Banking Report: "Whoever can make mobile payments as simple as sending a text message is going to win."

Bet Your Bottom Dollar on 99 Cents

By TIM ARANGO

In one of the many smoky scenes in “Mad Men,” the critically loved cable show about Madison Avenue in the era of martinis and misogyny, a founder of the celluloid advertising firm Rogers & Sterling describes marketing glory.

“I’ll tell you what brilliance in advertising is,” says the actor John Slattery in the character of Roger Sterling. “99 cents.”

It may be just the insight the nation’s retailers are looking for as they struggle to stimulate consumer spending in this trying time: If you can’t sell something for 99 cents, you should at least tack on .99 to the price.

Steven P. Jobs, the chief executive of Apple Computer, tried the 99-cent approach and arguably saved the music industry from oblivion.

In picking that one standard price for each song for sale on iTunes, Mr. Jobs built a commercially viable digital delivery business for music. Before the start of iTunes in 2003, it was an iffy proposition that people would ever pay for music online when they could steal it from any number of peer-to-peer networks.

Dave Gold also tried it. In the 1960s, he and his wife owned a liquor store in Southern California where they sold wine at various prices: 79 cents, 89 cents, 99 cents and $1.49.

“We always noticed that the 99 cents sold much better,” he recalled in an interview.

They priced all their wine at 99 cents, and overall sales improved.

“The 79 cents sold better at 99, the 89 cents sold better at 99, and of course the $1.49 sold better at 99,” he said.

Mr. Gold’s experience might suggest caution as iTunes prepares to sell songs in April at varying prices — a move that some academics say could complicate matters for consumers and cut into sales.

“It adds a level of complexity to the purchase of music,” said John T. Gourville, a professor at Harvard Business School who has studied what is known as psychological pricing. “Research has shown that when you add complexity to decision making, some people opt not to choose anything,” he said.

Mr. Gold and his wife eventually took the concept to the extreme and in 1982 started a chain of 99 Cents Only stores. They took it public in 1996, and today the company has 282 stores and is worth more than half a billion dollars. In the last quarter, sales were up 8 percent; profits, 31 percent.

Mr. Gold wasn’t the first to strike on 99 cents as a lucrative marketing gimmick, but he may have done the most with it. No one quite knows who came up with the concept.

It could have been Rowland H. Macy, who in this newspaper in 1880 advertised 100 pieces of “reliable black silk” for 99 cents. That’s the first instance of a newspaper advertisement featuring a price of 99 cents — at least the first one that one academic who did some digging on the subject could find.

Then there is this explanation: that the advent of the cash register, invented in 1879 by a Dayton bar owner (according to the Museum of American Heritage), allowed merchants to thwart pilfering clerks by charging a penny less then a full dollar amount, thereby forcing cashiers to open the register to give change to a customer.

Regardless, the marketplace power of .99 seems undeniable. But why?

Academics have offered a variety of psychological explanations. One study, by Robert M. Schindler, a professor of marketing at the Rutgers School of Business, found that consumers “perceive a 9-ending price as a round-number price with a small amount given back.” Researchers have also found that prices ending in .99 communicate “low price” to consumers.

At the University of Chicago, for instance, researchers found that when the price of margarine dropped from 89 cents to 71 cents at a local grocery chain, sales improved 65 percent, but that when the price fell to 69 cents, sales rose 222 percent, according to Kenneth Wisniewski, an author of the study.

And Professor Schindler, in a study at a women’s clothing retailer, found that the one-penny difference between prices ending in .99 and .00 had “a considerable effect on sales,” according to his study, with items whose prices ended at .99 outselling those ending at .00.

All of those findings may help explain why the new prices that iTunes plans to charge all end in nine: 69 cents for less popular songs, and $1.29 for current hits.

So when retailers price their wares with a figure ending in 9, the reason is simple, Professor Schindler said.

“It’s to make the price seem like it’s less.”

Designing products: One design does not fit all

One Design Does Not Fit All
Ellen Glassman
General manager of brand design and strategy
Sony Electronics USA
Park Ridge, New Jersey
At Sony, we believe What customers really want is choice. How we deliver that is a collaborative process between designers, engineers, and marketers. What we've found is that consumers have very different needs that can't be fulfilled by a one-size-fits-all approach. So we believe in offering a breadth of designs, price points, and features: In March, we introduced nine flash-based players to the Network Walkman lineup, which includes last year's 20-gigabyte HD3.
Competing in this space? Honestly, it's all about customers first. We accomplish that by having our designers watch for emerging trends and technologies and then marry them to the needs of the customer. Our designers must have an extra sense of what will come. We send them all over the world to different kinds of exhibits, such as the Milan furniture fair. We have designer exchange programs, where someone from, say, Tokyo will work in the States for a while. Senior management realized very early on how important it is for designers to understand different cultures. It's a way for them to keep their minds open to possibilities.
We believe we're in a unique position as an entertainment company. As digital technologies converge, we're evolving to combine portable audio and entertainment. If someone wants to play games, listen to music, or watch a movie, we offer that in one device. If they want to make a call, take a photo, and listen to music, we do that too. So we're going to continue to pursue what we've always pursued: identifying consumer lifestyles and making products that work for them. In the end, we're really competing with ourselves to make the products better.
Ellen Glassman, 40, was formerly director of the Sony Design Center. Early reviews of Sony's newest set of flash-based players say it's a strong contender to take on the iPod shuffle.
Let the Customer Drive Design
Steve Gluskoter
Codirector, Industrial Design and Usability
Product Group, Dell
Round Rock, Texas
Sometimes, something that looks cool or neat is of no value to the customer. By the time we entered the market for MP3 players in 2003 with the Dell DJ, there had been a lot of products out there, and we studied the vast majority, including the iPod. There were positives and negatives for every player, and we tracked them. But we didn't want to focus on what everyone else did.
At Dell, we don't make design decisions based on style alone. Customer input is a huge driver, which is why we talk to our customers directly through our in-house usability lab. This is where we test our concepts alongside our competitors'. Then we watch and learn. That's how we realized the importance of volume control, which has a dedicated button on the Pocket DJ. It's something people want to adjust constantly but was often buried or difficult to find on other players.
We also do our own trend watching. Honesty of materials was one trend that factored into the design. People want to know that the cold feel of metal in your hand is the real thing, so we chose to go with anodized aluminum, which gave us the strength and rigidity we needed. Also, our surface is fingerprint resistant. In the labs, we saw that people were incredibly annoyed by that with the iPod.
There's a sign in the lab that says two things: listen to the customer and you're not the customer. We bring in people across a broad demographic, from target customers to owners of our competitors' players, from teenagers to corporate executives. It's hard to do the wrong thing if you're talking to enough people and listening to what the masses are telling you.
Steve Gluskoter, 41, joined Dell in 1993 as its first industrial designer. The Pocket DJ, released last October, was named one of Oprah's Favorite Things in 2004.
Put Design First
Young Se Kim
CEO and founder, Innodesign Inc.
Palo Alto, California
In the first 15 years of my career as a designer, many clients would come in with an idea already set and then ask me to make it pretty. The trouble is, their ideas were based on research from competitors' products or trends. It's very difficult to make a completely different product that way. You'll end up with more of the same.
That's what happened with iRiver's first hard-drive player. It was based on an engineering spec, and we didn't have as much freedom with the design. So with the H10, its successor, I felt we had to start from scratch. We obviously couldn't ignore our biggest competitor, the Apple iPod, whose design is so popular. But we wanted to do something different. With the iPod's click wheel, I noticed lots of people using only one-quarter of the turn with the thumb. So I thought, if that's all they need, why not make it just go straight up and down? That idea -- that a vertical touch pad might make more sense -- came from just watching people at coffee shops.
Industrial design has become one of the few cards manufacturers can play these days. It's especially true for MP3 players, because the technology processes have become commoditized. At the end of the day, users will buy what they feel attached to, what they're happy with, what they can show off as part of their identity. Design is no longer an easy process that comes at the end. It's a matter of life and death, so it should come first.
Young Se Kim, 54, founded Innodesign in 1986. This past January, Bill Gates showed off the H10 during his keynote address at the International Consumer Electronics Show in Las Vegas.
It's the Inside that Counts
Henri Crohas
Founder and CEO, Archos
Paris, France
I do not share the opinion that Apple's design for the iPod is any good. That's because I define great design in terms of fantastic machinery. And if you look inside the iPod's technology, it's quite common and unimpressive. It isn't anything special. What Apple has done well isn't the iPod, but iTunes. It has been the first to pull together all of these music editors and convince them that they have to open a big store online. But there's a second phase coming. Like the cell phone, the technology to integrate photos and videos is now available. Microsoft has been working on this for years. Its Windows Media Center is well advanced and does everything iTunes does, plus more.
We got into the MP3 business in 1999, with our first hard-drive player, the Jukebox 6000. That was a year and a half before the first iPod. When Apple hit it big in 2003, we were no longer interested in the music-only category. For the past five years, we've been focusing on what's coming next: the portable audio-video player. Our 20-gigabyte Gmini 400, which we released last September, has been very successful. It's the size of an iPod, costs the same as an iPod mini, but comes with 20 gigabytes and a larger LCD screen to play back video. And this video can be any type of video, from your computer or from TiVo. We think that the first source of media content is still TV. What we've done is make that content portable.
The way we design products is very much driven by the technology inside, whether it be combining video, audio, and music, or making our products wireless. Archos wants to continuously ride the wave of technology, so that means we tend to go away from the low end of the mass market. That's why we no longer make flash players. In order to do it now, you simply buy a reference design for the technology and then build a new interface. You can argue that you can differentiate with the design of the interface, but it's all the same, including Apple's. Archos is not competing in the same arena. Creative, Rio, iRiver... certainly those companies fight against Apple, because they want to reach the same target. But we are after something different. Apple may have won a battle when it comes to music, but it remains to be seen whether it will win the war against Microsoft.
Henri Crohas, 54, founded Archos in 1988. The Gmini 400, launched last September, has outsold the Apple iPod in the 20-GB category in Europe.
Outcool the Competition
Sim Wong Hoo
Founder and CEO, Creative Technology Ltd.
Singapore
When all anyone could talk about was the iPod, we were already thinking about how to outcool it. That was the design charter for the Zen Micro, which we released late last year, and we wanted to win in every aspect. We started off with the name, looking into the whole concept of Zen, then decided that it was a good direction and made it the basis for the design. It's not about the religion but the lifestyle: Zen is something simple yet powerful. Our player, the Zen Micro, is cool and clean, and we have it in 10 contrasting, electrified colors, so we can catch people's eye. Its curve fits into your hand, it has a mesmerizing blue glow, and there's top-injection molding. All of these are very Zen-like and give people a very warm and good feeling.
I am very passionate about design. Even though I can't design myself, I think I have a good eye for details. As the CEO, my job involves a lot of artist coaching, showing designers the right direction, how to look at the market, and what to go after. I have to keep them fresh, energized, and motivated. But at the same time, I can't let them run wild. If I did, I'd be left with crazy designs that only appeal to niche markets. I learned that lesson with the second-generation Nomad, which I let my designers talk me into releasing even though I personally didn't like it.
Of course, Creative's main competitor is Apple. It's always good to focus on the toughest guy, the top-tier guy out there. That way, we can at least be a strong number two. But I think the main reason why Apple is so popular is because of its blanket marketing. They've got billions of dollars I don't have. The market is exploding right now, and it's a crucial one we have to capture. So I have dedicated around $100 million in marketing this year. It's still a lot smaller compared to what Apple has spent, but I think it's especially important to give our MP3 players our number-one attention.
Unlike Apple, however, we are not going to spend our money trying to convince people that we are good. We are going to spend our money telling people what we offer. At Creative, more is better. Our products are packed with more features -- an FM tuner and voice recorder, for example -- and we're able to deliver this at a lower price. That's where we can win.
Sim Wong Hoo, 49, an engineer by training, founded Creative in 1981. It comes second only to Apple in total market share for MP3 players

What makes a great brand

A new-age fable says that you can leave behind your brands' five-year plans in the business class seat of your aircraft, your competitor, sitting two rows behind can pick it up and take it to his office, and you can still beat your competitor if you implement and execute your plans.

Most plans do not get executed. And it is not difficult to guess what your competitor's plans are over the next five years. But the million-dollar question is, will they be able to execute the plan? To this is the corollary, how will they adapt their execution to the changes in the market environment?

The premium soap Liril was originally test marketed in early 70s as a blue colour soap cake. Finally, it got launched as a green soap, based on customer feedback. Interestingly, in 2002, Liril was relaunched as an 'icy blue' soap.

Sundrop cooking oil was launched in a 1 litre PET bottle and economy packs came only three years after launch. The company was worried that a pouch pack would dilute the premium appeal of the brand.

Dettol Soap was launched in 1981 as a light yellow soap, positioned as a 'love and care soap'. After the poor response, the company took a few years to regroup and relaunch the brand in a green wrapper, as a germicidal soap on the '100% bath' platform.

Brand execution is about constantly keeping an eye on the various parameters that make up the brand offering:


Is the product quality just right? Can it be improved? Global FMCG major P&G launches a new product only if it scores 51% on blind product test over its nearest rival.

Is the pricing competitive? Should it be lower? Higher?
Indian consumers look for value even in prestige products. The brand has to rationalise the price premium through emotional or experiential means .

Is the place right for the brand? Should new distribution avenues be explored?
Eureka Forbes created a unique direct selling model to market vacuum cleaners in India. Cease Fire appliances tried emulating this model in the late 90s but after a few years could not sustain the momentum.


Is the 'promotion' mix right?
Not all performance problems can be fixed with a new advertising-promotion campaign. But as Santoor discovered, a new campaign (focusing on skin care benefit) turned the fortunes of the brand in late 80s, early 90s .


Is the packaging right? Are there other options?
Frooti from Parle, exploited the tetrapak packaging medium to create a new space in the soft drink market. Cadbury's Appela, launched five years earlier may have had a better chance if it had used a different packaging form, instead of returnable glass bottles.


Is the profit plan in place? Should it be modified?
India is a large market with a large consumption appetite. But MNCs have discovered that it is not a cakewalk. While most companies plan for a two to five year gestation period for a brand, how valid are these assumptions in a changing-growing market? ...


What 'people' or 'service' support does the brand need?
While the seven factors listed under brand execution are not exhaustive, these form a key framework for the brand offer.

They are also not mutually exclusive parameters. As an old adage goes, the Indian consumer will want everything 'Sasta, Sundar, and Tikau' (economical, beautiful and long lasting). Marketers have to balance this S-S-T needs of the consumer with the organisation's obligation to the stakeholders and shareholders.

Brand execution elements will change in importance as one moves from an FMCG to a durable to a service. While the product/service offer, price, distribution, location/place, and promotion will continue to be important, the service or people component will become paramount for a service brand like a hotel or a department store. Durable brands too are becoming more and more service driven.

Product offer

Brands depending on the product/service category will have to offer features that are de rigueur (point of parity) of the category, while they have differences in the offering (point of difference). Sometimes the PODs are in the price, or place. But most successful brands offer a POD in the product offer as well:


Ayurvedic soap Chandrika, is made through a special 'cold-press' method

Liril was the first soap to offer a marble texture

Lifebuoy hand-wash was the first liquid soap

Hyundai Santro was the first small car to offer a Multi Point Fuel Injection (MPFI) petrol engine

Kinetic Honda was the first modern age scooter with a button start

Onida was the first colour TV with a sleek looking vertical format.
The examples are numerous, and often it is the easiest solution to go with a me-too product. Or at times, launch a brand with a product difference that is too small to be noticed, JNND (Just not noticeable difference). The danger in these approaches is that the brand starts with no real difference in product offer terms. The onus of creating a difference now vests on the other legs, a more difficult task.

Price offer

The brand price offer can also be played using different packaging forms:


Chik and Velvette shampoos used the pouch pack to build brand attraction at a low price point of 50 paise.

Anchor white toothpaste has large packs at attractive prices to gain brand loyalty. The pricing strategy for a brand can also be driven by the gaps in the market:

Nirma Beauty Soap was priced at Rs. 7 per 100 gmsa price point below Lux but above 150 gms Lifebuoy on a gram per gram basis. ....
Price is the single most important dimension in the value driven Indian market. Brands have met with sudden deaths with ill timed price increases:


In the 80s Chiclets Chewing Gum moved its price from lOp (for 2) to 25p. As against an anticipated drop of 50% in sales volume, the brand sales dropped by 90%.

In a replay of sorts, Halls in the 90s moved its price from 50p to 75p to meet with a similar fate.
The rapid growth of motorcycles in the late 90s were contributed to by the narrowing price difference between scooters and entry level motor cycles.

Quartz watches' sales benefitted with launch of Titan and its price value offer, backed by the Tata guarantee. In spite of the initial fear that the Indian consumer will be loath to buying batteries every year, the company's pioneering effort to ensure affordable batteries paid off in a revolution on Indian wrists.

Place offer

How will the brand reach the consumer's hands? How many hands will it pass through? Where will it be retailed?

How is the brand presented at the dealer outlet?

Does the place add to the brand value?

Tata Motors when they made their play for the growing Indian small car market consciously set up an entirely new dealer network, distinct from the Tata truck dealers. The company re-organised that while utility vehicles like Tata Sumo could be sold through commercial vehicle dealers, a passenger car buying family man will be very hesitant to enter a truck showroom.

Raymond's secret strength is their 250+ authorised dealers. Each is a handpicked dealer offering a 'Raymond' buying experience including tailoring and readymade apparel. Park Avenue and Parx (and Color Plus which was acquired in 2002) are the readymade brands from Raymonds enjoying the tremendous advantage of instant distribution presence across the country. ...

So retail outlets may not just be selling points but can be a big vehicle for carrying forward the brand message.

Promotion offer

How will the brands be promoted? How will the brands message reach the prospects?... A new brand will need to attract trial. That calls for free sampling or trial offers. Once the brand gains momentum, free trials can be reduced.

When Johnson &Johnson was trying to sell sanitary napkins in India in the mid-70s, they found the only way to discuss such a sensitive topic was on a woman to woman basis. So they put together a large team of sales promoters who went door-to-door.

This gave the brand Stayfree a toehold and the product category, the initial user base. The programme has now been dropped, as the core user base has been created. The company may still want to run 'educational' programmes at girls' schools and colleges.

Buy Water, Help Children

That's the idea behind Ethos bottled water, say its founders. And since Starbucks purchased the brand, the audience for that message is huge

"We think what we're doing this week will be the largest mobilization of people ever for World Water Day," says Jonathan Greenblatt excitedly. "There will be happenings in 11 cities across the U.S." Greenblatt and his partner, Peter Thum, have reason to be excited.

In roughly four years, Ethos Water, the company they co-founded, has grown from a local bottled water company selling its goods through yoga studios and health-food stores in Southern California, to a nationally recognized brand. Last year, the company was sold to Starbucks (SBUX ) for $8 million, giving it a new distribution channel and substantially greater reach.

That new market reach translated to more than just sales. It helps Ethos realize its underlying mission: to help children around the world get clean water. For every bottle that Ethos sells, Starbucks donates five cents toward solving the world water crisis, with the goal of donating $10 million by 2010.

In a crowded marketplace -- there are more than 800 different brands of bottled water -- Ethos sets itself apart through its social mission. BusinessWeek Online's Jessie Scanlon spoke with the founders about water, branding, and selling activism in a bottle. Edited excerpts of their conversation follow:

Bottled water is still water. It doesn't really vary that much from brand to brand. How did you set Ethos apart?
Thum: The Ethos brand came out of work that I was doing at McKinsey & Co. in South Africa. I spent a lot of time around people who didn't have access to clean drinking water. Following that, I consulted on a project in the bottled-water industry, and I realized that there was an opportunity to create a brand that people really cared about. The Ethos brand has an element of activism. Every buyer is opting into the community by the simple act of purchasing the product.

As a small company entering a crowded marketplace dominated by big companies like Nestle and Danone (DA ), what was your initial brand strategy?
Greenblatt: When we launched the brand, we realized that it had to be more than a product with a cause. It had to be a great product. Our water comes from natural sustainable springs.

Next, we worked hard to develop a great package that would allow us to sell effectively against brands like Evian and Fiji. Finally, it had to be a platform for raising awareness. We looked to Newman's Own as a model. Newman's Own has been incredibly successful and given hundreds of millions of dollars away to charities. But people don't think about camps for sick children when they buy the chunky tomato sauce.

There were established conventions in bottled-water branding. Source and packaging were incredibly important to consumers. Peter and I took a very different approach. It's based on a very simple idea: Buy water, help children get water. From the beginning, we saw the brand as a platform for creating a community and spreading information about the world water crisis.

How did you approach marketing?
Thum: First what we did was think carefully about where we were going to distribute our products. We first sold the water in cafes, health-food stores, and yoga studios in Southern California. We tried to find places that had developed relationships with their customers already, so that we could borrow that equity. We were also influenced by [Malcolm Gladwell's book] The Tipping Point.

We launched the product at the high-end fashion retailer Fred Segal. We went to the Academy Awards and partnered with the company driving celebrities to the ceremony and stocked their cars with water. So Leonardo DiCaprio and Cameron Diaz walked into the awards carrying Ethos water. These associations helped us make the brand seem much larger than it really was.

How has that marketing strategy evolved as the Ethos brand has become established?
Thum: A few years ago, when Coca-Cola (KO ) and Pepsi (PEP ) got into the water business, you started to see serious money being poured into marketing. That hadn't happened before. Ethos depends on word of mouth.

That's one of the reasons that the Starbucks relationship made sense. There are 80,000 Starbucks employees who are essentially building that word of mouth campaign every day.

You saw Ethos as not just a product, but as a platform to build an activist community. How has that worked?
Thum: In the very beginning, we went and invested our own money in water projects around the world. We wanted to build relationships with those groups, and we wanted people to see the kinds of groups we were working with. Also, as we continue to build this community, that network will give people that want to get more involved good options for giving money or volunteering.

In 2005, Starbucks bought Ethos. How has that affected your brand strategy?
Thum: Now we have a real marketing budget and the resources to do some of the things that we always wanted to do. And Starbucks has significantly increased our ability to build this community. It was hard to do that when our distribution was limited to health-food stores in Southern California. Through Starbucks we have the ability to reach more than 40 million consumers a week.

Greenblatt: One of the biggest advantages of the relationship has been our ability to scale our work. Soon after we closed the deal, we announced a $250,000 grant to fund water-related projects in Ethiopia.

Does the close alignment of the brand with the world's water crisis limit your options for future brand extensions?
Greenblatt: Our brand is predicated on a idea, "Buy water, help children get water." It's that link between consumption and cause that has animated the brand. We think we've got our hands full focused on this problem today. In the future, I'm not sure. That link between the consumption and cause may lead to other exciting opportunities.

Critics of the bottled-water industry point out that much of the water being sold is no healthier than tap water, that the bottles themselves are made of toxic chemicals, and that the energy required to distribute the water is immense. As a company founded on a social mission, how does Ethos respond to these critics?
Thum: I don't think that we can answer for the entire bottled-water industry. What we're trying to do is make the American public aware of this problem [lack of access to clean water] -- a problem that kills more people than AIDS.

The bottled-water industry may not be perfect, but if you can take a sliver of the industry and turn it towards something positive, that's a good thing. The most important thing is to start a dialogue and to get people in the U.S. to start thinking about the world water crisis not just as something that affects people far away, but as a problem that we will face soon as well.

How many brands of bottled water can the market sustain?
Greenblatt: When we launched the business, there were more than 700 brands. Now there are more than 800. With the entry of Coca-Cola and Pepsi into the market, scale certainly matters, so we might see some small brands disappear. But there's always the opportunity for niche brands that have a high value proposition.