THE EFFECT OF CLIMATE CHANGE ON THE SALES OF CONSUMER GOODS (A CASE STUDY OF COCA COLA NIGERIA PLC)
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- NGN 3000
Background of the study
Climate is the average of the weather conditions at a particular point on the Earth. Typically, climate is expressed in terms of expected temperature, rainfall and wind conditions based on historical observations (Harvey,2000). “Climate change” is a change in either the average climate or climate variability that persists over an extended period. The Earth’s climate has always changed. Changes in the Earth’s orbit, the energy output of the sun, volcanic activity, the geographic distribution of the Earth’s land masses and other internal or external processes can influence climate. Scientists refer to this type of long-term climate change as “natural climate change” (McCarthy, 2002). As a result of natural climate change, the Earth has experienced regular cold periods (or ice ages) in the past, when glaciers covered large parts of the Earth’s surface. The Earth has also experienced warmer periods when sea levels were much higher than they are now. In the Earth’s long-term history, the current period is characterized by a relatively warm, stable climate that has lasted since the end of the last ice age about 11,700 years ago. This period is known to geologists as the Holocene and is the period during which human civilization has flourished(Dansgaard, 1993) .
Weather seems to influence human behavior in a variety of ways. Sometimes, weather influences general behavior. This occurred when Hurricane Katrina forced the temporary abandonment of New Orleans in 2005. Other times, weather influences specific consumption behaviors. For instance, the type of clothing we wear depends on the weather—e.g., we wear warmer clothing in the winter and cooler clothing in the summer. Building on this type of anecdotal evidence, research has found that weather variables can affect human behavior. For instance, research in finance suggests that the weather may affect stock returns (Saunders, 1993; Trombley, 1997; Hirshleifer and Shumway, 2003; Goetzmann and Zhu, 2005) and that this effect may be attributed to the influence that weather has on mood (Cao and Wei, 2005; Kamstra et al., 2003). Similarly, research exploring the link between weather and a social activity has reported that higher temperatures are correlated with increases in violent assaults and homicides (Cohn, 1990a, 1990b). Researchers have also found that the number of suicides rise with increases in barometric pressure and with decreases in wind (Barker et al., 1994; Stoupel et al., 1999). In addition, results from several laboratory studies show that artificial sunlight reduces seasonal affective disorder (SAD) symptoms for the majority of SAD and non-SAD depressed participants (Kripke, 1998; Stain-Malmgrem et al., 1998).Although the influence of weather on behavior has been explored in fields such as finance and psychology, it has been largely ignored in the marketing literature. However, there is anecdotal evidence that firms incorporate weather variables into models that they use to predict sales. For example, Wal-Mart lowered its June 2006 sales forecasts because unusually cool summer weather adversely affected sales of air conditioners, as well as swimming pool supplies. Coca-Cola developed vending machines that dynamically alter the price consumers are charged for the soft drink based on changes in the ambient temperature—i.e., the vending machines increase the price of a soda as the weather gets hotter (King and Narayandas, 2000). Nevertheless, the effect of weather on consumer spending has received only limited attention in the marketing literature (Parker and Tavassoli, 2000; Parsons, 2001; Steele, 1951). Our work differs from prior studies as we employ a mixture of methods and types of data to investigate this issue. This approach is consistent with Winer (1999), which argues that it is necessary for theory application research in consumer behavior to establish both internal and external validity. It is important to not only establish how variables influence consumer behavior in an artificial laboratory setting, but also to determine whether these variables influence behavior in an actual retail setting. In addition, the research reported in this paper is the first to go beyond demonstrating an effect of weather on consumer behavior to propose and test the psychological mechanism (i.e., negative affect) through which a specific weather variable (i.e., sunlight) affects consumer spending. Importantly, we find that only negative affect mediates the effect of weather on spending (i.e., changes in positive affect do not impact spending)
Statement of the problem
The impacts of climate change will have direct as well as indirect consequences for businesses. Direct effects encompass the effects of climate change on business and relevant supply, transport and distribution chains, which could become manifest in damages to trade infrastructure such as ports from more frequent extreme weather events or rising sea level( Hirshleifer, 2003). Other impacts, such as retreat of polar ice under warmer temperatures can lead to disruption of business route, hence, the need for a new and effective route. Indirect impacts for business will primarily result from the impact of climate change on the production of goods and services through changes to the factors of production of economies, i.e. land, labour, and capital. Both direct and indirect effects of climate change on business and sales will likely lead to changes to the comparative advantage of economies. Hence the need to look into the effect of climate change on the sales of consumer goods(King,2000).
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