The year is 1976, and Japanese automobile manufacturer Toyo Kogyo is contemplating bankruptcy. Known as Mazda in the US, the company was the first successful adopter of rotary engine technology, but the oil crisis of 1973 has reoriented American buyers to cars with better fuel efficiency, causing relatively thirsty rotary-powered models to fall out of favor. Mazda’s little econobox cars simply aren’t selling, especially after Honda’s successful 1975 launch of a superior competitive product, the CVCC, precursor to the Civic. Toyo Kogyo needs a miracle. Fortunately, they are about to get one, in the form of a dazzling yet affordable sports car called the RX-7, providing an elegant and important example of the impact of a cognitive bias called the Halo Effect.
The term “Halo Effect” was originally coined by Columbia University comparative psychologist Edward Thorndike. Thorndike reported the existence of the effect in 1920 in a landmark paper entitled “A Constant Error in Psychological Ratings” (Journal of Applied Psychology) after conducting a series of experiments in which commanding officers were asked to rate their subordinates on intelligence, physique, leadership, and character, without ever having actually spoken to them. Thorndike noted a correlation between service members who were found to be taller and more attractive, and the extent to which their commanding officers rated them as more intelligent and as better soldiers. Thorndike determined from these experiments that people generalize from one outstanding trait to form a favorable view of an individual’s whole personality.
The psychological implications of this discovery are actually stunning, and subsequent studies confirm its application over a wide range of scenarios. Attractive people are generally considered to be more intelligent, more successful, and more popular. More attractive political candidates are perceived to be more knowledgeable, regardless of their actual knowledge level. And one study even found that test subjects were more lenient in sentencing attractive individuals than unattractive ones, even though precisely the same crime had been committed.
By the 1960s, marketers began to discover that this effect translated not just with people, but also with products. And as brands increasingly began to be studied in terms of their “personalities”, based on consumer perceptions, the impact of the Halo Effect in consumer product marketing applications became a key consideration in the formulation of successful business strategies.
The Halo Effect increases brand loyalty, strengthens brand image and reputation, and translates into high brand equity. Successful companies use the Halo Effect to establish themselves as leaders in their industries, since when one product positively imprints in the minds of consumers, the success of that product infectiously affects other products. Ultimately, businesses can gain market share and increase profits thanks to the Halo Effect and can even protect their customer base from predation by competitors if they have an all-star product.
In the Mazda example, the launch of the RX-7 brought hordes of shoppers to dealer showrooms, but interestingly enough, not to buy it. The RX-7 was generally beyond the price range of these consumers, plus it lacked practicality. But the presence of the sports car in the overall Mazda product lineup suddenly conveyed cachet to its lower priced, less attractive siblings. By encouraging the purchase of the cheap econoboxes, the Mazda RX-7 not only kept Toyo Kogyo alive, it positioned the Mazda brand for the subsequent launch years later of the Mazda Miata, which with sales of more than a million units represents the most successful two-seater in automotive history.
With this knowledge in mind, how can you take advantage of the Halo Effect to propel your company’s sales to higher revenues and market share? What product line or other characteristic can you highlight for local consumers to drive up your brand cachet? What single characteristic can you focus on that will cause everything else that you sell to increase in perceived value?
I am currently working with an elite group of independent jewelers on a project in which by turning them into diamond growers with their own designated growing chambers, we’re spotlighting a Unique Selling Proposition (USP) that we believe can produce a significant Halo Effect. And by expanding growing benefits like Made to Order Diamonds and lab grown diamond tracking provenance initiatives, I’m hoping to create the same kind of outcome that Mazda dealers experienced as a result of having a gorgeous sports car in their local ads and on their showroom floor.
The lab grown diamond disruption is producing a unique moment in the history of the jewelry business. Deploy the Halo Effect properly, and you’re likely to ride it to uncharted levels of sales and profitability.
Class Dismissed!
