Halo Effect – Definition

Cite this article as:"Halo Effect – Definition," in The Business Professor, updated December 3, 2018, last accessed July 14, 2020, https://thebusinessprofessor.com/lesson/halo-effect-defined/.

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Halo Effect Definition

The halo effect is a type of cognitive bias that a consumer applies in favor of all products or services offered by a certain brand or service provider because of positive experience with some products or services delivered by the same brand or provider. The halo effect is an indispensable tool for augmenting brand equity by virtue of enhanced brand image and brand loyalty.

A Little More on What is the Halo Effect

The halo effect covers numerous classifications, such as individuals, organizations, concepts, and brands. A worthy illustration of the halo effect would be Apple Inc., which garnered unprecedented brand image and brand loyalty following the immense popularity of a single product – the iPod. Most, if not all, products that Apple launched well along, such as the iPhone, the iPad and the Apple Watch hugely benefitted from Apple Inc.’s now tremendous brand equity.

Companies on their part, strive to create a halo effect by concentrating on their key strengths. This results in high-magnitude marketing of already successful products and services. Such marketing efforts ideally go a long way in augmenting visibility and reputation of the brand as a whole. This, in turn, reinforces the brand equity of the company.

The Halo Effect Process

The halo effect, in the simplest terms, causes the consumer’s positive experience with one offering to make the whole range of offerings seem more reliable or desirable. This confidence is despite the consumer having zero experiences with the other offerings. The rationale behind such confidence is that if a brand excels at one product or service, they will unquestionably excel at other products or services.

Metaphorically, the halo effect creates a sort of halo over the brand, creating ample product or service expansion opportunities for the brand. Coming back to the Apple Inc. example, its currently successful product lines such as the iPhone, iPad or the Apple Watch will most definitely never have been as successful without the launch of the iPod Classic in late 2001.

The horn effect or “the horns of the devil” is the antithesis of the halo effect. It refers to the instance when the consumer’s negative experience with one offering makes the whole range of offerings seem unreliable or undesirable.

The halo effect has important perquisites to offer to the brand; it strengthens brand loyalty, brand image and brand reputation, and consequently, augments brand equity. Businesses employ the halo effect to not only earn credibility as market leaders in their respective segments but also, resultantly, gain market share and increase profits.

Reference for Halo Effect

Academic Research on Halo Effect

The halo effect: evidence for unconscious alteration of judgments., Nisbett, R. E., & Wilson, T. D. (1977). Journal of personality and social psychology35(4), 250. This paper suggests the importance of reading, and drawing of inspiration from books and social media. It also proposes different sources for the derivation of knowledge and states that knowledge leads to the betterment of people. It suggests a degree at which someone must search for knowledge, and recommends two sources for inspiration and information.

Brand equity: the halo effect measure, Leuthesser, L., Kohli, C. S., & Harich, K. R. (1995). European journal of marketing29(4), 57-66. This paper defines the concept of the halo effect as a systematic bias in attribute ratings resulting from raters′ tendency to rely on global affect rather than carefully discriminating among conceptually distinct and potentially independent brand attributes. It also discusses how halo measurement can serve as a useful indicator of brand equity. The paper uses consumer rating data in three categories of commonly purchased household products to demonstrate the approach.

Unpacking the halo effect: Reputation and crisis management, Timothy Coombs, W., & Holladay, S. J. (2006). Journal of Communication Management10(2), 123-137. This paper explores the impact of the halo effect on a company’s pre reputation prior to crisis.  The paper states different ways in which the halo effect can work to protect an organization’s image during a crisis, and proposes different strategies for using this systematic tool. The purpose of this paper is to present two studies designed to test if the halo effect could occur and which of the two dynamics of the prior reputation halo best serve to explain the benefits of a favorable, pre‐crisis reputation.

The halo effect and technology licensing: The influence of institutional prestige on the licensing of university inventions, Sine, W. D., Shane, S., & Gregorio, D. D. (2003). Management Science49(4), 478-496. This paper explores the belief by sociologist and organizational theorists that the processes of knowledge creation and distribution are fundamentally social. To back this claim, the paper explores  the effect of institutional prestige on university technology licensing. It also examines the  influence of university prestige on the annual rate of technology licensing by 102 universities from 1991–1998. The study aims to show that institutional prestige leads to stratification in the creation and distribution of university-generated knowledge.

Using a structural model of halo effect to assess perceptual distortion due to affective overtones, Holbrook, M. B. (1983). Journal of Consumer Research10(2), 247-252. This paper suggests that perceptual distortion due to affective overtones can cause problems for consumer research on evaluative judgments. The paper proposes and illustrates a method for estimating such perceptual biases via a structural model of halo effect.

The team halo effect: why teams are not blamed for their failures., Naquin, C. E., & Tynan, R. O. (2003). Journal of Applied Psychology88(2), 332. In this study, the existence of the team halo effect, the phenomenon that teams tend not to be blamed for their failures, is documented. With 2 studies using both real teams and controlled scenarios, the authors found evidence that the nature of the causal attribution processes used to diagnose failure scenarios leads to individuals being more likely to be identified as the cause of team failure than the team as a collective.

The halo effect in business risk audits: Can strategic risk assessment bias auditor judgment about accounting details?, O’Donnell, E., & Schultz Jr, J. J. (2005). The Accounting Review80(3), 921-939. This study examines whether the holistic perspective that auditors acquire in making a strategic risk assessment influences the extent to which they adjust account-level risk assessments when they encounter changes in accounts that are inconsistent with information about client operations. The study suggests that the halo effect generated during strategic assessment influences judgment by altering auditor tolerance for inconsistent fluctuations.

The halo effect revisited: Forewarned is not forearmed, Wetzel, C. G., Wilson, T. D., & Kort, J. (1981). Journal of Experimental Social Psychology17(4), 427-439. The purpose of this research is to determine if forewarning subjects about the halo effect eliminates the effect or makes people aware of its impact. Findings from this paper shows that forewarning and introspection instructions have no impact on subject’s awareness of the halo effect. It also shows that subjects liking for an interviewer has minimal effect on their ratings.

Influence of training, method, and relationship of the halo effect., Brown, E. M. (1968). Journal of Applied Psychology52(3), 195. In this paper, a research is carried out on the degree of halo effect of trained Judges and untrained ones. The paper shows that on normal conditions, trained Judges experience less halo effect when compared to untrained Judges, with results being equal on rare occasions. It also shows that judges interaction with an object is one of the primary reasons of higher halo effect on the part of untrained judges.

Misunderstanding the nature of company performance: The halo effect and other business delusions, Rosenzweig, P. (2007). California Management Review49(4), 6-20. This paper explores the degree of errors of popular thinkings in the business world. The paper goes on to propose the halo effect, a tendency to attribute many positive features to successful companies, and to make the opposite attributions when companies falter. The paper aims to dissolve the belief that companies must follow formulas to be successful, by stating that organizations need more than formulas to excel in the financial world.

Consumer perceptions of corporate social responsibility: The CSR halo effect, Smith, N. C., Read, D., & López-Rodríguez, S. (2010). This paper investigates the absence of knowledge on the impact of corporate social responsibility (CSR) on consumers. The paper suggests that consumers may well make inferences about company CSR performance on the basis of very limited information, using two studies which provide support for a halo effect within and across domain of a CSR performance in a community. It also highlights the implications if this suggestion were to be the case.

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