A halo effect is when a product causes a consumer to purchase another product by affecting their trust in a certain product or brand, perception of quality, and even their association with the product/brand.
For example, a retailer, let’s call it “Terra Organic”, is known for its fresh, high-quality organic produce. Drew, a regular customer who always opts for fruits and vegetables, decides to try other store-brand products. Trusting the brand’s reputation, Drew purchased Terra Organic’s milk, granola bars, and eco-friendly cleaning kits, betting on the brand’s continued quality and high standards. After all, a positive experience with the product often leads to creating a halo effect, extending consumers’ trust and influencing their broader shopping choices.
In order to determine if it is a halo effect, the grocer needs to make a distinction between causal and correlative relationships. Yes, Apples and Bananas are often bought together but is it because they incentivize the sale of one another or is it because people who buy apples are more likely to buy bananas because of their shopping patterns?
Better customer retention rates:
As discussed above, a good product incentivizes the sale of another one, as customers are willing to pay more for products from a brand they can trust. This creates a good sense of loyalty, encouraging them to come back for the same brand’s products in the future.
Cross-Channel Benefits:
This type of effect benefits both physical and online stores, as a positive shopping experience or a good promotion or product presented in a brick-and-mortar store can always have a spillover effect on the other channel (online) and lead to increased sales.
Enhanced Average Revenue Per Consumer:
Consumers influenced by the halo effect make multiple purchases on a single shopping journey. The retailer can leverage the consumer’s trust and recommend additional products or upgrades as a part of an upselling and cross-selling strategy, resulting in an increased basket size.
Reduced Price Sensitivity:
Customers who are prone to the halo effect tend to try other offerings due to their trust in the brand or product previously built based on past purchases. They now have a stronger and more positive association with that brand, making them less sensitive to price increases and willing to pay more because they trust that brand’s overall value proposition.
The halo effect can be a double-edged sword for retailers, and must be handled and strategized effectively to avoid these consequences:
The “Horn” Effect:
If the consumer had a bad experience with a brand’s product, this can taint their view of the entire brand, leading to what we call the “horn effect”, making them question the entire brand’s product quality, services, or whatever reason that caused the bad experience. This can be particularly damaging if the brand only has a few products of its own. In short, a single negative trait or experience can affect the way consumers observe a single brand.
Limited Control:
Since it’s based on customer perception, this effect can be difficult to control entirely. This is caused by the effect’s unpredictable impact on sales and consumer behavior, as a single negative review or incident can overshadow an entire campaign. Additionally, the effect itself is difficult to measure, especially when retailers rely on indirect metrics like surveys and manual analysis.
Reduced Innovation:
When having a positive impact on sales, the halo effect can carry new products with ease, which sometimes leads retailers to make an assumption that their strong reputation will get the job done. As a result, the pressure to innovate is loosened and retailers start to neglect the need to adjust their approach to ensure continuous responsiveness to customers’ needs.
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