Understanding Marketing Psychology and the Halo Effect

Marketing and psychology are closely related. If psychology is the "systematic study of human behavior," then marketing is the "systematic study of human behavior in the marketplace." Good-looking people, for example, tend to be perceived as more intelligent, more successful and more popular. That's the halo effect in psychology. The halo effect also works in marketing. What's behind the phenomenal success of Apple Computer? In a word, the iPod. In fiscal 2005, Apple Computer sales were up 68% over the previous year. Profits were up 384%. And the stock was up 177%. And Apple's net profit margin increased from 3.3% to 9.6%, an astonishing jump. The good news from Apple Computer wasn't just the success of the iPod. As a matter of fact, in fiscal 2005, the iPod and iTunes together accounted for only 39% of Apple's sales. The other 61% of Apple (computers, software and services) also did well. Apple's computer and related businesses were up 27% in fiscal 2005 over the previous year. And, according to industry reports, Apple increased its share of the personal computer market from 3% to 4%. That's the halo effect in marketing.73.9% market share During the year, Apple bombarded the public with TV advertising, print ads and billboards touting its iPod. Very effectively, too. Apple share of the digital music market is 73.9%. The iPod brand is so dominant that almost nobody knows which brand is in second place. (For the record, it's iRiver with a miniscule 4.8% share.) What about the marketing support for Apple's line of personal computers? The company can't have spent very much. I can't remember seeing a Macintosh advertisement during the year, can you? Which is exactly the point. Apple put the bulk of its marketing budget behind the iPod creating a halo effect that helped the entire Apple product line. Motorola has done something similar by putting its emphasis on its Razr line of cellphones. In the third quarter of last year, for example, Motorola shipped 38.7 million cellphones. Revenues for the quarter were up 26%. But only 6.5 million, or 17% of those cellphones, were Razr phones. Obviously the Razr became a halo for the rest of the line.Go with your best horse Focusing your marketing message on a single word or concept has been our mantra for years. But taking this idea one step further can also produce dramatic results. To cut through the clutter in today's overcommunicated society, place your marketing dollars on your best horse. Then let that product or service serve as a halo effect for the rest of the line. Not an easy idea to sell in the boardroom. "What? You want to spend most of the marketing budget on a product that accounts for only 39% of our sales?" (It's even worse than that. Presumably Apple Computer's 2005 marketing budget was prepared in 2004 when iPod and iTunes accounted for only 19% of sales.) One of the best examples of the halo effect is Sirius Satellite Radio and Howard Stern. Sirius has 120 channels, but they promote only the shock jock. Results have been phenomenal. The day they announced the hiring of Stern in 2004, Sirius had just 660,000 subscribers. Today they have 3.3 million. Stern is not for everybody. Probably half of the new Sirius subscribers will never listen to his channel. But the focus on Stern has generated enormous PR and created a halo over the entire satellite radio system. (Much like the effect "The Sopranos" has had on HBO.)Halo effect in marketing history The halo effect has a long history in marketing. In 1930, Michael Cullen created the first supermarket chain which he called "King Kullen." His breakthrough idea was his method of pricing. He decided to price 300 items at cost. Another 300 items barely above cost. And the remaining 600 or so items at very healthy margins. Guess which items he chose to advertise? The ones he sold at cost. What you advertise and what you make money on can be two different things. Virtually every principle of psychology has an application in marketing. Take "imprinting," for example. The first brand in a new category will imprint itself in human minds as the original, the authentic, the real thing. Kleenex in tissue. Hertz in rent-a-cars. Heinz in ketchup. Starbucks in coffee shops. The study of marketing begins with the study of psychology. ~ ~ ~ Al Ries is the author or co-author of 11 books on marketing, including his latest, The Origin of Brands. He and his daughter Laura run the Atlanta-based marketing strategy firm Ries & Ries. Their website: www.ries.com.

Understanding Marketing Psychology and the Halo Effect

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