The consumer goods industry, especially the brand driven industry has to subject the value creation chain to a critical examination in the scope of the European business and future suitability. Most likely many businesses are going to be in need of a reconfiguration. The main cause is, as we know from numerous analysis, a yearly drop in productivity in marketing, costs for sales promotions getting out of hand, in comparison to the results too much money spent on brand communication, while at the same time insufficient investments in brand value and profit margins which are no longer in line with the models of distribution. In short: The value creation chain is antiquated in many businesses, even in many branches and thus needs to be rejuvenated. It should not go unmentioned that the increasing verticalization of distribution channels leads to a ‘merger of margins’, which significantly impacts the value creation chain.

For instance, if retail calculates with markups of 180 or more percent, but only achieves 80 percent on a yearly average because they are stumbling from one sale to the next, then alarms should be going off everywhere in the industry.

Every link in the chain of value creation has to correspond to the respective contribution for achievement for all elements. In connection with the globalization of commodity flows, I’d like to point out that the capacity to compete is going to be impaired in the medium and long term through unnaturally inserted elements and their no longer parallel flowing cash flow. Financial and fiscal aspects should not be allowed to play a role, not even if they seem very attractive and by all means legal.

In the long run, success on the market can only be achieved through possession of a tight value creation chain with powerful links for brands and products. This applies to all brands and products, even those who are positioned in Premium and Luxury segments. We often hear that the bar can be raised when it comes to the creation of value for products serving the satisfaction of wants, than for instance for Economy products and Economy brands, because the immaterial value allows for it. For us this is a misapprehension. Experience shows that especially global brands of Luxury goods work with extremely tight value creation chains. We suggest turning this into a key topic for 2006 if the configuration of the value creation chain has not been reviewed lately.