What Is the Halo Effect?
Let me explain the halo effect to you directly: it's when you, as a consumer, show favoritism toward a whole line of products from a maker because you've had positive experiences with some of them. This ties into brand strength and loyalty, and it directly contributes to brand equity.
On the flip side, there's the horn effect, which I like to think of as named after the devil's horns. If you have an unfavorable experience, you start associating that negativity with everything the brand touches.
Key Takeaways
Companies pursue the halo effect because it creates brand loyalty and brings in repeat customers who stick around. You can trace the concept back to 1920, from a paper by American psychologist Edward L. Thorndike. Firms use it to position themselves as industry leaders. Remember, it's a double-edged sword: a strong positive perception can boost new products and keep customers loyal, but a poor image can drag down everything else. And don't forget the horn effect, where a bad product release can shatter loyalty and market perception.
How the Halo Effect Works
Companies build the halo effect by focusing on their existing strengths. They pour marketing efforts into their top-performing products and services, which boosts visibility and strengthens reputation and brand equity.
When you have positive experiences with products from well-known brands, you form a cognitive bias toward loyalty, regardless of actual experience with other items. The logic goes like this: if the company excels at one thing, it must excel at others. This assumption carries the brand far, helping it launch new products successfully.
Overall, the halo effect boosts brand loyalty, enhances image and reputation, and leads to high brand equity. Companies leverage it to become industry leaders. When one product succeeds in consumers' minds, that success spreads to others, helping the business gain market share, increase profits, and even deter you from buying from competitors if they have a standout product.
Important
Here's a key point: companies gain from the halo effect by building on what they already do well.
History of the Halo Effect
The term 'halo effect' dates back to 1920, when American psychologist Edward Thorndike used it to describe his observations of military officers ranking subordinates.
Without even talking to the lower-ranked men, superiors often assumed that physically attractive ones were smarter, more capable, and better leaders. In his paper 'The Constant Error in Psychological Ratings,' Thorndike pointed out how one impression creates a 'halo' that influences judgments of other qualities.
Special Considerations
Achieving brand loyalty and a halo effect across products isn't straightforward; it's an elusive standard that only a few major brands reach. But if you focus on making products achieve cult status, you're more likely to see the halo extend to new releases. Often, companies invest everything in one superior product to get known for it, then expand from there.
One straightforward way to tap into the halo effect is by hiring a celebrity ambassador. For instance, if someone like George Clooney endorses a product, their positive image transfers over, making you think, 'If he likes it, it must be good.'
Of course, you can also build it traditionally through a strong social media presence to boost image, reach, and visibility, or by prioritizing the product and user experience itself.
Advantages and Disadvantages of the Halo Effect
The halo effect acts as a double-edged sword. If a brand enjoys an extremely positive perception, it can carry over to new products, improving retention and loyalty. But no brand is invincible: one bad experience can make consumers abandon it entirely.
Take the famous case of Classic Coke versus New Coke. Coca-Cola tried rebranding its classic formula in 1985 to make it sweeter like Pepsi, aiming to close the competitive gap. Data from blind taste tests supported it, but they overlooked the emotional bond loyal drinkers had to the original. The backlash was huge, and Coca-Cola quickly reverted. This risked their halo effect and brand image, proving that you have to maintain it deliberately.
Pros
- Halo effects create strong brand loyalty and consumer retention
- Consumers are willing to pay more money for a brand they already know and trust
- Subsequent new products by a brand will benefit from the brand's halo effect
Cons
- The halo effect can extend negative impressions, too, known as the 'horn effect'
- Maintaining a brand's halo effect can also be challenging
- Brand image can be a make-it-or-break-it factor in a product's success, making the halo effect a more elusive factor to control
Example of the Halo Effect
The halo effect applies to people, organizations, ideas, and brands alike. Consider Apple (AAPL): it benefits hugely from it. When the iPod launched successfully, there was speculation that Mac laptop sales would rise too.
A halo essentially forms over the brand, enabling product expansion. Apple's iPod success paved the way for the Apple Watch, iPhone, and iPad. If a follow-up product underperforms, the leading product's success cushions the blow without shifting overall brand perception. This keeps Apple as a top tech giant, even with forgotten flops like AirPower or the Apple Newton.
This transfer of success from one product to another, as with Apple, is a textbook halo effect. iPod buyers kept returning, driving steady iPhone sales and perpetuating the cycle.
The Bottom Line
When a brand achieves the halo effect, it becomes one of its strongest assets, boosting brand strength, loyalty, and equity. Reaching this 'cult status' is no simple task, though.
Other articles for you
Accounting theory consists of assumptions, frameworks, and methodologies that guide financial reporting and evolve with business changes.
Bank capital represents a bank's net worth and is regulated to absorb losses and ensure financial stability.
Hidden values refer to undervalued assets on a company's balance sheet that value investors identify through fundamental analysis to forecast stock potential.
The MACD indicator helps investors identify price trends, momentum, and potential buy or sell signals in trading.
A guaranteed renewable policy ensures ongoing insurance coverage as long as premiums are paid, but allows for premium increases based on claims or risks.
Strategic alliances allow companies to collaborate on shared goals while remaining independent, offering benefits like market expansion and risk sharing.
Dollar duration, or DV01, measures a bond's value change in dollars for a 100 basis point interest rate shift, aiding in assessing interest rate risk.
Covered interest rate parity ensures no arbitrage by aligning spot and forward exchange rates with interest rates using forward contracts.
Loan origination is the detailed process of applying for and obtaining a mortgage or personal loan, involving steps like pre-qualification, documentation, underwriting, and approval, often with a fee charged by lenders.
The 183-day rule is a threshold used by many countries, including a more complex version by the U.S