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CS Professional · Strategic Management and Corporate Finance · Analyzing the External and Internal Environment

Which statement best describes the 'margin' in Porter's value chain model?

Margin is the difference between the total value the firm creates for buyers and the collective cost of performing all value activities. It is not a dividend or a cost figure of only primary activities; widening it gives the firm competitive advantage.

  1. AThe total cost of all primary activities only
  2. BThe difference between the total value created for the customer and the total cost of performing the value activitiesCorrect
  3. CThe profit retained after paying dividends
  4. DThe cost of support activities minus the cost of primary activities

Explanation

Porter defines margin as total value less the collective cost of performing the value activities. It is not limited to primary activities and has no link with dividends. A firm gains advantage when it creates value at lower cost or charges for superior value.

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