The halo effect is when your first impression of a brand influences your overall judgment about the brand. According to Colin Shaw, founder and CEO of Beyond Philosophy, “Your feelings toward a brand create a positive or negative halo influencing your evaluation of their customer experience.”
The halo effect influences rapid decision-making because once a judgment has been formed, customers tend to base all subsequent purchasing decisions on that initial impression. Participation in a loyalty program leads to rapid decision-making, which changes contractor or dealer purchase behavior from one wholesaler to another. And the impact of their experience with a loyalty program leads to behavior change that maintains over time.
Related: Every emotional connection you make with a customer has a ripple effect that extends to nearly their entire network. Learn how to connect with them in more meaningful ways to build brand advocacy in this new ebook.
Ultimately, the goal of a contractor or dealer loyalty program is to change behaviors, so in effect, a loyalty program is a tool used by a wholesaler to demonstrate to their customer that they should be doing business. So how does the halo effect positively influence business growth and wholesaler loyalty? Here’s how it works.
How the Halo Effect Works – A Case Study
What does the customer look like after their participation in a loyalty program has ended?
First off, it is important to measure ROI down to the customer level during each program year with a contractor or dealer loyalty program. Once a dealer or contractor is no longer participating in a loyalty program, wholesalers need to measure the effect the program had on changing their behavior. That can be done two ways:
- If the wholesaler is targeting a dealer or contractor who's not a customer, every future purchase by that customer is incremental because they were at zero initially. By tracking purchases made by that customer over time, the wholesaler can measure how well they’re serving customers. There should be a year-over-year increase.
- Put an existing contractor or dealer customer who is doing some business, but could be doing a lot more, in a loyalty program, and see if a significant increase in their purchase volume occurs. To measure the halo effect within that audience, take a look at what happened to purchase levels the year after the loyalty program has ended. If there is still an increase in purchase volume, the wholesaler has successfully changed purchasing behavior. That’s the halo effect at work.
Related: Not sure who you should be targeting with your contractor or dealer loyalty programs? Learn about the three main loyalty program audience segments and how best to target them.
Based on a study we conducted, when a contractor or dealer participates in a loyalty program with a particular wholesaler, they ended up purchasing more product from our wholesaler client even after they are no longer part of the loyalty program.
In this example, the graph on the left is showing the control group. The graph demonstrates how much wholesaler profit was generated by contractors or dealers within a particular year. The increase from year one to year three is generated by industry growth alone.
The graph on the right shows wholesaler profit generated by contractors and dealers who were targeted and participated in a loyalty program through the wholesaler.
- In year one, the contractors and dealers in this segment were not part of a loyalty program. The growth seen in this graph is the growth you would expect to occur if no loyalty program had been implemented.
- In year two, the contractors and dealers in this segment did participate in a loyalty program, and there was a significant increase in purchasing volume.
- In year three, the contractors and dealers in this segment stopped participating in the loyalty program, but you can see that there was still growth in the amount of wholesaler profit generated by this group. If we assume that 14% of the 26% growth shown is due to industry growth, then that means the impact of participating in the loyalty program yielded a 12% increase in purchases even after the contractor was done participating in the program. This shows that we were able to change the contractor/dealers’ behavior and they are now buying more products from this wholesaler because that’s where they go for these products now.
The Benefit of Creating the Halo Effect with Your Loyalty Program
When a customer buys more product with each order from a wholesaler, the cost-to-serve decreases. Paying the delivery truck driver, delivery costs and other associated costs can be an expense.
Because of the halo effect, every time the delivery truck stops, more profit is getting off the truck per customer because of the impact of rapid decision-making and changed purchase behavior. When the truck stops, they’re delivering more product because the contractors or dealers are more loyal to the wholesaler.
Decreased cost-to-serve and increased purchase volume = better profits for the wholesaler all around.
Proof That Loyalty Incentive Programs Work
By focusing on measurement and the science of rapid behavior change, wholesalers can significantly increase loyalty among contractor and dealer customers. For one ITA Group client, objectives included improving top-line sales and gross margin, enhancing market share and experiencing growth despite a recession. After the first year, they saw a 59% increase in sales and continued growth over five years later. See how we did it.