ACCA Applied Knowledge · Business and Technology · Competitive factors
Which of the following best describes the margin in Porter's value chain model?
The margin is the difference between the total value created for customers and the total cost of carrying out the value-creating activities. It is a strategic measure of how much value the firm retains, not an accounting profit after tax and interest, and not simply a premium over competitors' prices.
- AThe difference between the total value created and the total cost of performing the value activitiesCorrect
- BThe profit left after deducting tax and interest from sales revenue
- CThe extra price earned over competitors' prices for similar products
Explanation
In Porter's model, the margin is the difference between the total value the customer is willing to pay for and the collective cost of performing the value activities. It is not an accounting net profit after tax and interest, and it is not a price premium over rivals, although a premium may help raise value.
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