A long time ago I worked for a company where the MD had a great idea. A quick way to boost profits was to levy a new charge for delivery. He asked for comments.
“Jelly” I responded. Everybody thought it was an insult not piece of insight. But my point was that like squashing Jelly, new charges wouldn’t lead to the problem being stamped on, it would just lead to the problem oozing out elsewhere in the business.
Imposing the charge would mean that customers would change their behaviour and in order to not lose business, commercial decisions would change and negate the effects. I summarised that they should address the underlying problems of growth and cost structure to be viable long term and not impose that cost on the channel which would respond and negate the effects. On top of this the bad PR and lack of full return of revenue would most likely offset the proposition in the first place.
A year later the charge was in place, but some customers had gone, margin on product was lower, discounts and rebates had increased and people changed their ordering behaviour to avoid the additional charge or mitigate it. QED.
What I should have said was ‘Laffer curve‘ because that was the thing that made me make the jelly comment. I just thought Jelly would get more attention and be more memorable, but the reality was that they were similar.
So when you get somebody to make a business decision, sometimes it’s often better to ask a psychologist, not an accountant or economist!