Environmental Factors in Operations Management: The Impact of Air Quality on Product Demand
Forthcoming, Production and Operations Management
45 Pages Posted: 1 Apr 2021
Date Written: March 19, 2021
The operations management literature has recently begun to analyze how novel data sources help practitioners better understand product demand. We extend this stream of research by analyzing how air quality, a prominent environmental factor that has received little attention in prior studies, can impact product demand. Specifically, we examine how air quality affects the demand for different product color options, and find a greater demand for blue-color product option on air-polluted days (vs. clear days). We attribute this pattern to compensatory consumption induced by need deprivation. Specifically, poor air quality deprives people of the visual experience of seeing a blue sky, leading them to seek compensation by acquiring blue-color options. By analyzing a three-year purchase-related dataset from an online retailer (Study 1) and conducting a field experiment (Study 2) and two laboratory experiments (Studies 3 and 4), we establish the external validity, internal validity, and robustness of this finding. We also provide empirical support for deprived visual experience as the mechanism: The proposed effect is driven by air quality indicators that affect visibility (Study 1) and is mediated by experienced visibility (Study 3). We further identify a theoretically relevant individual difference variable as a moderator: prior experience with air pollution, which strengthens the proposed effect in the laboratory setting because prior experience enables people to “relive” the deprived visual experience more vividly (Study 4). Given the prevalence of air pollution across the globe, our research sheds light on how practitioners can improve their operational decisions by factoring in air quality.
Keywords: demand forecasting, environmental factors, air quality, product options, compensatory consumption
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