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CS Professional · Strategic Management and Corporate Finance · Strategic Analysis and Planning

A company's value chain analysis shows the following costs as a percentage of its product price of ₹100: inbound logistics 10, operations 30, outbound logistics 8, marketing and sales 12, service 5. Support activities (procurement, technology, HR, infrastructure) cost ₹15 in total. What is the margin per ₹100 of price, and which statement is correct about margin in Porter's value chain?

The margin is ₹20. Primary activities cost ₹65 and support activities ₹15, giving total cost of ₹80 against a price of ₹100. In Porter's value chain, margin is total value minus the collective cost of performing all value activities, both primary and support.

  1. A₹20; margin is the difference between total value and the collective cost of performing the value activitiesCorrect
  2. B₹35; margin equals only the cost of primary activities
  3. C₹20; margin is the sum of primary activity costs
  4. D₹5; margin excludes support activity costs

Explanation

Primary activity costs: 10+30+8+12+5 = 65. Adding support costs of 15 gives total cost of 80. Margin = 100 - 80 = ₹20. In Porter's model, margin is total value less the cost of performing all value activities, so the cost of primary activities alone is not the measure. Check: 80 + 20 = 100.

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