Friday, July 12, 2024

CEO Insider


Riccardo Pandini

What is the halo effect? How can it affect people? How much is it likely to distort reality? There are many questions arising on this, perhaps, too little considered phenomenon.

Knowledge is one of the most important characteristics that allows us to understand the surrounding environments, our needs and much more. For these reasons, some phenomena that have been extensively studied and theorised, starting from the psychological field, have also led to specific effects in other fields such as the economic one.

These in-depth concepts are valid both for the single and the private companies, which can use them to obtain more specific results. Over the years firms have seen an increase in the number of tools available to understand the consumers’ need: from simple market research to the marketing mix, up to purely psychological cognitive biases such as the halo effect. The latter is defined as a simple prejudice of the person that leads to an error of assessment. Companies, in fact, try to understand what is the potential that the consumers really want in order to fully satisfy them and create a trusting and loyal relationship.

What is the halo effect?

This phenomenon was firstly studied by the psychologist Edward Thorndike in 1920 and, subsequently, several definitions followed one after another refining the concept and starting to consider it in different fields such as communication and content marketing. For this reason, some companies have decided to try to use the halo effect in their market research in order to gain concrete advantages on the company’s image. In fact, the cognitive distortion resulting by the halo effect means that people build a favourable overall impression of an individual, an object and/or a product on the simple basis of a single relevant positive aspect (Bretcu, 2019).

Simplifying, the halo effect tends to generalise the appreciation of a person, a product, a service, a brand, etc., starting from a specific characteristic. There are many studies supporting this thesis, for example, if you consider an aesthetically beautiful person, you will be more likely to consider him gifted with more positive characteristics. This is a flexible feature that allows the possibility to expand itself according to different contexts and shades. For example, a corporate reputation is able to generate a halo effect that increase the likelihood of purchasing products from that specific brand with a better reputation (Burke et al., 2018).

In his 2019 study, Sulhaini demonstrates how the halo effect is also extended to consumers’ perception of the brand’s country of origin (COO). The famous “made in …” of countries with a positive reputation in that particular sector, enhances the positive image of all brands originating in that country. Naturally, this has a negative effect on local brands which will be considered less attractive than the global brands. Companies know this essential effect and use it in sales, perhaps taking advantage of the success of a product to enhance the entire range of the brand.

Although the halo effect brings an advantage only in the short term, the company will then have to be able to cultivate and develop this positive distortion by fidelity to the customers. At the same time there is a very important risk connected to this phenomenon, you can incur a disadvantage resulting from a negative bias. In fact, it is very important to know how to contextualise and customise it in according to the target, respecting the specific social and cultural aspects. It is therefore fundamental for small enterprises’ managers know the halo effect and its influence that can improve the uncontrolled reactions in their business (Bretcu, 2019).

How much and why halo effect distorts the reality?

Distortion could be positive or negative, it depends on many different aspects. The major problem is that most likely no one will win in the long run, especially if a specific quality of the people or products (or something else) evaluated are overestimated or underrated. This is the reason why the halo effect may harm someone with its deceptive appearances.

And this is the reason why the halo effect is now important for the marketing: if this effect distorts the consumers’ impression, the companies could reach wrong data with the consequence of an over appreciation (or an under appreciation) of their activities, with an important result on the business core in general (Bretcu, 2019).

Conclusion and further scenario

As seen before, judgments are often based on the first impression and for this reason it is not possible to define the long-term objectives: this strategy cannot be valid in the long run, and marketers need to use other techniques to maintain the existing competitive advantages.

The existence of the halo effect gives the possibility to take an initial advantage, but we need to be aware that the judgment obtained is characterised by a lack of data on what is being evaluated and may lead to a distortion. In fact, when the halo effect is positive, marketers try to exploit this fact and turn satisfied consumers into loyal customers. Using the halo effect requires a lot of skill, and the reverse of the medal usually means losing customers, opportunities, and how the company is perceived by the customers.

In conclusion, the halo effect does not always occur and for many reasons it will be necessary to analyse it more depth.

Written by Riccardo Pandini.
Have you read?
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Leadership Matters – Even in Outer Space written by Rick Williams.
How Linking Purpose and Strategy Benefits Employees by Ignacio Vaccaro.
5 Strategies for Solving Unsolvable Problems in Business by Jay Bousada.

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Riccardo Pandini
Riccardo Pandini is an Academic Tutor at the University of Milano-Bicocca and a writer at the State of Mind, an online journal of psychology, psychotherapy, neuroscience, psychiatry, and various current affairs.

Riccardo Pandini is an opinion columnist for the CEOWORLD magazine. Connect with him through LinkedIn.