Business Psychology

Article No. 368
Customer Psychology, by James Larsen, Ph.D.

That Little Competitive Edge

Researchers explore a halo effect in product comparisons.

Business owners' radar is always tuned to detect competitive advantages they can incorporate into their businesses. Advantages are worth their weight in gold, and now, Alexander Chernev and Sean Blair, from Northwestern University have discovered a new competitive advantage that any business can use. They explored how this advantage works, and they developed rules we can follow to help insure that it works for us.

Chernev and Blair guessed that a well-understood effect known as the "halo effect" had a wider application than has been shown in the past. They guessed that pro-social actions by a business would influence evaluations of the products offered by that business, and they were right.

The halo effect is a tendency of people to extend overall evaluations of a product or service to specific properties of that product. For example, health and nutrient claims on food packages induce a "health halo" that leads people to rate these products higher on health attributes not even mentioned. A halo effect can also be observed when very attractive people are assumed to be highly intelligent before they are given an opportunity to say or do something to disprove it. Chernev and Blair found that this halo effect also extends to acts of corporate social responsibility. Under the right conditions, such acts alter consumer experiences with the product. They can significantly improve consumer perceptions of the functional performance of the company's products even though these charitable acts have nothing to do with these products.

Chernev and Blair explored the operation of this halo effect in a series of experiments. In each experiment, customers compared the performance of two products. They also learned that one of the products was produced by a company with a history of socially responsible, charitable actions while the other product was not. In each experiment, the halo effect transferred positive qualities from the socially responsible business to the product evaluations, significantly improving them over the comparison products.

These experiments also revealed three rules that business owners need to follow to trigger this evaluation halo.

First, the halo effect significantly improves product evaluations with people relatively unfamiliar with the product. In a wine-tasting comparison, wine connoisseurs were not influenced by the halo effect. Consumers unfamiliar with wine were influenced. Rule 1: Expect the halo effect associated with a company's prosocial activities to be stronger when customer expertise is low rather than high. Expect the halo effect to help you promote your business to new customers, especially customers unfamiliar with the product.

Second, the halo effect disappears when people believe that a firm's prosocial activities are motivated by self-interest. The moral undertone of the company's motivation for engaging in socially responsible activities is crucial. The halo effect influences product evaluations when prosocial activities appear to be motivated by benevolence. Rule 2a: Stress benevolent motivation for prosocial behavior.

Third, information about a firm's prosocial activities should come from third-party sources, not company advertising. Firm advertising touting prosocial activities gives the appearance of self interest as the motivating factor. Rule 2b: Use sources other than firm advertising to inform the public of business prosocial activities. Public relations advisors can explain how to do this.

Fourth, customer values serve to amplify or diminish the halo effect. If customer values match the benevolent, prosocial activities of the firm, the halo effect strongly influences product evaluations. If a match does not exist, the halo effect is much reduced. Rule 3: Know the values of the market you wish to reach, and match your prosocial activities with these values.

Customers have many choices. The little edge that brings customers to our businesses and products can make all the difference.

Reference: Chernev, Alexander and Sean Blair (2015) Doing Well by Doing Good: The Benevolent Halo of Corporate Social Responsibility. Journal of Consumer Research, 41 (April), 1412-1425.

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Keywords: social responsibility, halo effect, company reputation, product evaluation, perceptions of quality, competitive advantage
Consult Subject Index for related research.

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