The halo effect is a cognitive bias where a trait (characteristic of a person or object) influences another trait or traits of that person or object. The halo effect is very common among physically attractive individuals. Physically attractive individuals are assumed to possess more socially desirable traits, live happier lives, and become more successful than unattractive people.
Edward Thorndike was the first to support the halo effect with empirical research.Thorndike's first study of the halo effect was published in 1920. The study included two commanding officers that were asked to evaluate particular qualities of their soldiers. The point of this study was for Thorndike to see how the results of one characteristic affected another characteristic result.The correlation in the halo effect experiment was concluded to be a halo error. The halo error shows that the officers relied mainly on general perception of certain characteristics that determined the results of their answers.
Dion and Berscheid (1972) conducted a study to reconfirm if Thorndike's research about the halo effect was correct. The research was done at U of M.
Landy's Task Evaluation as a Function of the Performers Physical Attractivenes also reconfirmed Dion's and Thorndike's results about the halo effect. The author's expected that physical attractiveness would influence the evaluation of an individual's performance on a given task even when the task isn't related to physical appearance.
A corollary to the halo effect is the reverse halo effect where individuals, brands or other things judged to have a single undesirable trait are subsequently judged to have many poor traits, allowing a single weak point or negative trait to influence others' perception of the person, brand or other thing in general.
Two consultants, Melvin Scorcher and James Brant, wrote in Harvard Business Review in 2002:
"In our experience, CEOs, presidents, executive VPs and other top-level people often fall into the trap of making decisions about candidates based on lopsided or distorted information ... Frequently they fall prey to the halo effect: overvaluing certain attributes while undervaluing others."
This is to consider the halo effect in the context of recruitment. But the effect also influences other areas of business. Car companies, for instance, will roll out what they call a halo vehicle, a particular model with special features that helps to sell all the other models in the range.
Sources:
http://en.wikipedia.org/wiki/Halo_effect
http://www.economist.com/node/14299211
http://www.investopedia.com/terms/h/halo-effect.asp
I noticed toward the end that your examples of car dealerships and being able to understand the "halo effect" turned out to be a very beneficial strategy in sales. I was able to find another clear example to add to the ways in which companies are able to profit from a solid understanding of this effect.
I found that Apple had understood this idea when creating the very first series of iPods. Apple was hoping to raise their sales of Mac computers from this new invention. Adding a device as popular as the iPod was able to entice customers into looking further into their Mac computers, therefore, allowing Apple to sell more of these equally amazing computers.