HALO EFFECT
Definition
The halo effect refers to the phenomenon whereby the price of a product (often an iconic or highly visible one) influences the overall perception of a retailer's price image.
If key products are perceived as inexpensive, the entire product line is seen as competitive, even if some products are actually more expensive. This is a powerful tool for building a reputation for affordability without having to lower prices across the entire catalog.
Why is this important to know?
- Optimizing brand image while keeping costs under control: Aggressively aligning just a few hundred key performance indicators (KPIs) is enough to lend credibility to the entire brand’s image.
- Increasing margins on non-KVI products: While KVI products drive brand image, other products can maintain a more generous margin.
- Increasing foot traffic: A compelling price image draws customers into the store or to the website, where they can then explore the entire product lineup.
Example
A major retail chain selects 1,000 KVI products from among its 30,000 SKUs. For these 1,000 products, it strictly matches the lowest price on the market.
For the remaining 29,000 items, it maintains its standard pricing policy, with an average margin that is 3 to 5 points higher. Shopper surveys reveal that 78% of customers perceive the chain as “among the least expensive,” even though its overall price index is not particularly notable. The halo effect has done its job.
How do you measure/use it?
Enabling the halo effect requires three steps:
1) Identify the KVI (products that consumers actively compare, typically 3 to 8 percent of the product lineup),
2) implement a policy of strict alignment with these KPIs,
3) Measure perception through shopper studies and cross-reference it with the actual price index to validate the effect. Modern analytics tools make it possible to automate the identification of KPIs based on in-store scan data and online behavior.
Mistakes to Avoid
- Misidentifying KPIs: Aligning products that no one compares erodes margins without boosting brand image.
- Measure only brand image, not sales: a successful halo effect also translates into traffic and average order values, not just perception.
- Confusing KVI with bestsellers: A product can sell very well without being a price benchmark, and vice versa.
Frequently Asked Questions
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