The Stan Shih smile curve of value

A couple of weeks ago I was teaching 53 police officers about managing public money as part of the national High Potential Development Scheme. At one point I was talking about pricing strategies and I drew a idling curve on the board to illustrate the idea that the production of goods creates a smaller part of the value than the design that proceeds it and the marketing that follows. At the time I couldn’t remember the person behind it but it has nagged at me until I found the answer. What I was explain got the class was the Stan Shih smile curve of value.

Stan Shih was the boss of Acer computers and he put forward this idea about value in the early 1990s. He was thinking particularly about IT products and the picture above summarises the theory. It seems to me very likely it applies in IT today. Certainly if I think about myself as a customer of Apple then I know I get value from the design of the hardware and software, the packaging, the customer service, the Apple Store. And I can well believe that the cost of the components and assembly of the MacBook Air that I’m typing with amounts to less than 10% of the price I paid for it.

If this is the case for IT companies, is it true for others? Perhaps not all businesses but there are loads where the cost of manufacturing is a tiny proportion of the retail price and a lot of the value of the product comes from the design, branding, marketing, etc. For instance, clothing (how can All Saints get £40 for a cheap-looking t-shirt with a blurry print or replica football shirts sell for £70?), cola and soft drinks, bottled water, restaurants, cosmetics, champagne, brand name painkillers. I’m sure you can think of others.

What has this got to do with public services? Well, public bodies are provide services to the same people who buy all the things I’ve mentioned above. These people value more than just the creation of the products they buy so when it comes to public services perhaps public bodies should think about:

  • how they design their services
  • developing their brand and reputation
  • how they distribute (or make available) their services to users
  • how they will look after users after the service has been delivered.

Going back to the police service, whilst I am not an expert it seems to me that one common issue relates to supporting victims of crime. I might suggest that currently the focus of police leaders is in producing the service so that officers respond quickly to a call and deal with the immediate issues. Aside from anything else, this is a measurable output. How many calls have we taken, graded by urgency? How long has it taken to respond to each?

I think there has been work by senior police officers about the police brand and reputation is important to officers and police and crime commissioners alike. On the Stan Shih curve, brand comes before production. One choice a consumer has about any product is which brand to choose. The only choice a person has after an incident is whether to contact the police at all. I live in Derbyshire; I don’t have the option to call in Lancashire Police because I prefer their brand of policing.

The police are less focused, I think, at keeping the victim informed about progress afterwards. If the public derive more value by feeling that they are being ‘taken care of’ after they were burgled (say) than from the officer’s initial visit then the police ought to focus more resources on the former than the latter. But the outputs from this are less tangible and difficult to measure. I wonder, though, whether a change in emphasis would improve public satisfaction.