Razr, iPod, and Howard Stern: The Halo Effect

I don’t disagree with marketer Al Ries’ general comments about halo effects around Motorola’s Razr, Apple’s iPod, and Howard Stern’s move to Sirius, but he misses an important issue. Halo effects make much more sense through the rear view mirror than they do looking foward. In other words, it’s easy to say that these companies did the right thing, but had things turned out differently we would be criticizing them all for staking so much in such a narrow area.


  1. I’m fairly convinced that the survivorship bias is the most widespread business fallacy. The funniest (but not, you know, ha-ha funny) versions of it I’ve heard are generally offered up by hopelessly clueless techies who point to Bill Gates or Steve Jobs as evidence that a solid engineering background is all you need to create a world-beating company. Unfortunately, I’ve also learned that it’s not acceptable to respond, “But you’re not Bill Gates or Steve Jobs.”
    I suspect that the survivorship bias isn’t really as popular as it seems, though. It’s probably mostly a post facto rationalization of a long bet, a lazy man’s way of appearing savvy. “You think I’m crazy for selling pet food online? Crazy like Steve Jobs!”

  2. Brent Buckner says:

    It’s easy to mistake good luck for good management, but it’s also easy to mistake bad (or even neutral) luck for bad management. Lots of rational bets have high probabilities of losing – but if they win, they are likely to win big enough.
    Investors in public companies are supposed to be happy enough for management to load up on rational bets, almost regardless of how much idiosyncratic risk is involved (noting that bankruptcy or other lack of stability costs have to be considered in the payoff matrix).

  3. Things that randomly occur seem predictable after the fact. That’s the hindsight bias in psychology. Psychology and irreverent responses to Al Ries’ articles are closely related. Identificiation of Al Ries’ cognitive biases begins with the study of psychology.
    Anyway, I liked this blog entry as it aligns w/ what I think could also be a reasonable objection to most business school case studies. Separately, for a bit of background on the principles of psychology that Al Ries is disussing, there’s good coverage of “halo effects” in a couple pages (pp. 171-172) of Robert Cialdini’s excellent “The Psychology of Persuasion.”