100 Thoughts on Pricing: #59
Subsidizing unprofitable business lines from profitable ones becomes a very slippery slope. I once briefly worked at an organization with two main business units with a fair amount of customer overlap. On volume rebate deals involving both BUs, the profitable BU was forced to simply absorb all the rebate cost to help the unprofitable BU look better. It was internally called an "equitable arrangement".
Approved from the top, it creates an environment where decisions were made to placate personalities instead of forcing poorly performing lines of business to improve their operations.
Ultimately, you land in a situation where a BU that no longer belongs in your business never gets divested, sold, closed, etc. and the better performing BU(s) lose their best people and customers until, eventually, the game is up, and the entire business gets sold or closed.