HALO EFFECT
Definition
The halo effect refers to the phenomenon whereby the price of a product (often a flagship item or one with high visibility) influences the overall perception of a retailer’s price image. If key products are perceived as inexpensive, the entire product range is seen as competitive, even if some products are actually more expensive. This is a powerful tool for building a reputation for value without having to lower prices across the entire catalog.
Why it's important
- 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.
- Boosting foot traffic: A compelling price image draws customers into the store or to the website, where they can then explore the entire product range.
A concrete example
A major retail chain selects 1,000 key volume items from its 30,000 product SKUs. For these 1,000 items, it strictly matches the lowest market price. For the remaining 29,000 items, it maintains its standard pricing policy, with an average margin 3 to 5 percentage points higher. Shopper studies reveal that 78% of customers perceive the retailer as “among the least expensive,” even though its overall price index is not particularly distinctive. The halo effect has done its job.
How to measure/use it
Activating the halo effect requires three steps: 1) identify the KVI (products that consumers actively compare, typically 3 to 8% of the product range), 2) implement a strict pricing alignment policy for these KVI, 3) measure perception through shopper studies and cross-reference it with the actual price index to validate the effect. Modern analytics tools enable the automated detection of KVI based on in-store scan data and online behavior.
Common Mistakes
- Misidentifying KPIs: promoting products that no one compares erodes margins without boosting brand image.
- Don't just measure brand image—measure sales too: a successful halo effect also drives traffic and increases average order value, not just brand perception.
- Confusing KVI with bestsellers: a product can sell well without being a price benchmark, and vice versa.
Learn more
- Research & Data: Price analysis to identify the true KPIs of your product range.
- Solutions: Pricing Analytics to drive a KPI strategy at scale.
- Tip: Develop a pricing strategy that combines the halo effect and margin.
- Resources: Check out our pricing FAQ to learn more about KPIs.