ACCA Applied Knowledge · Business and Technology · Competitive factors
Which statement best describes the purpose of the 'margin' in Porter's value chain model?
Margin in Porter's value chain is the difference between the total value the organisation creates for customers, reflected in what they will pay, and the total cost of carrying out all the value activities. A business gains competitive advantage by performing activities more cheaply or in ways that add more value.
- AThe difference between the total value created for customers and the total cost of performing the value activitiesCorrect
- BThe percentage mark-up added to the cost of each primary activity
- CThe difference between the firm's revenue and its competitors' revenue
- DThe amount spent on support activities as a share of total costs
Explanation
In Porter's model, margin is the difference between the total value customers are willing to pay and the collective cost of performing the value activities. The other options describe mark-ups, competitor comparisons or cost shares, none of which is the model's definition of margin.
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