The halo effect.

May 1, 2006

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 percent over the previous year. Profits were up 384 percent. And the stock was up 177 percent. And Apple’s net profit margin increased from 3.3 percent to 9.6 percent, 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 percent of Apple’s sales. The other 61 percent of the Apple (computers, software and services) also did well.

Apple’s computer and related businesses were up 27 percent 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 percent. That’s the halo effect in marketing.

During the year, Apple bombarded the public with television advertising, print ads and billboards touting its iPod. Very effectively, too. Apple share of the digital music market is 73.9 percent. 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 percent 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 percent.

But only 6.5 million, or 17 percent of those cellphones, were RAZR phones. Obviously the RAZR became a halo for the rest of the line.

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. Focusing your marketing dollars on a single product or service.

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 percent 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 percent of sales.)

Decentralization makes those kinds of decisions very difficult. Do you suppose General Motors could have put the bulk of its marketing budget behind only one or two of its brands? Not a chance. According to Ryndee Carney, GM’s manager for advertising and marketing communications, the divisions operate independently.

Yet the opportunities are there. Look at Chrysler which has put a lot of its marketing efforts behind its hot-selling 300 series vehicles, even though the model accounts for only 22 percent of the brand’s sales.

Last year, sales of Chrysler 300 models were up 28 percent over the previous year. And there’s a lot of evidence that the 300 served as a halo for the rest of the Chrysler line which was up 6 percent. (Some 70 percent of Chrysler 300  buyers had never owned a Chrysler product.)

Compare Chrysler with General Motors. Last year, thanks to the halo effect of the 300 model, the Chrysler Division was up 10 percent in sales over 2004. Even the Chrysler Group (which includes Jeep and Dodge) was up 4 percent.

General Motors, on the other hand, was down 4 percent from the previous year.

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 have had on HBO.)

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.

Look at FedEx. By trying to advertise all of its services under one umbrella theme, FedEx (like many other companies) produces advertising that gets totally ignored.

How many people know that “Relax . . . it’s FedEx” is the company’s advertising slogan?

            What should FedEx advertising say?

“When it absolutely, positively has to be there overnight.” Sure, FedEx has other services, including two-day and three-day deliveries and a chain of copy stores, but if it does a terrific job on overnight delivery, it must be pretty good at those other services, too.

Some companies have perfected this single-product strategy into a awesome marketing weapon. Gillette, for example, generally puts all of it marketing dollars behind its latest razor brand. Look at the Fusion six-bladed razor. In its first month, the Fusion captured a 55 percent share of the razor market. And Gillette itself dominates the wet-shaving market with a 80 percent share.

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.