Halo Effect

Reviewed by Sweta | Updated on Aug 27, 2020

Introduction

'Halo Effect' refers to the consumer's preference for a product line backed by prior experience using other products of the same company. The halo effect arises due to customer loyalty and market strength of a brand, giving the company an easy market penetration for future products. Halo effect's opposite is the horn effect wherein consumer having previous bad experience refuse to try another product of the same company.

Understanding Halo Effect

Companies with established brand name use the halo effect to gain sales from loyal customers. They build on their brand loyalty for repeated sales and new sales. Halo effect also helps companies become market leaders in their segment. However, a bad product can change the brand's perception and destroy brand value and customer's loyalty.

Companies capitalise on their strengths in terms of technology or design to create a halo effect. Companies may also capitalise on their strong and good supply chains which provide high-quality raw materials. Many companies undertake marketing activities to deliver high-quality products or services and build a brand. Thus, the company's visibility and brand equity become strong.

Consumers who have a positive experience with a company's brand become loyal, thus resting brand loyalty. There exists a general perception of the company's brand and a trust that all offerings will be of good quality. The perception helps the company to comfortably launch other products.

Halo effect increases the sales of the existing products with more customers and generates sales for new products from existing and new customers. A company gains a large market share and becomes a market leader. Halo effect insulates a company from the competition.

For example, Honda is an established brand for cars. The brand rides on its brand loyalty for market penetration for two-wheelers.

Conclusion

Halo effect casts a halo over the brand, which build brand loyalty and brand equity. Halo effect positively influences the brand valuation of a range of products under a brand. The company housing the brand enjoys a premium valuation in the market. Many companies use a top-down approach to build a halo effect, focussing on building a market reputation with high-quality products before entering a mass market.