Patagonia Case Analysis
Patagonia is a firm started by Yvon Chouinard (an outdoor enthusiast) in 1973, which
produces high quality outdoor and adventure sport clothing. The company was featured as one of
the most environmentally responsible businesses in the world. The CEO Chouinard was a man
constantly worried about the impact of Patagonia’s products and manufacturing process on the
environment. He was also deeply concerned about overconsumption by the company’s
customers. While most of Patagonia’s competitors are singularly focused on selling customer’s
as many products as possible (without regard for excess), Chouinard was contemplating
launching a new initiative called “Product Lifecycle Initiative” that would get the customers to
buy less and expand the repair and recycling of old garments, and set up a used product market
for its customers. The management team of the company was concerned whether this new
initiative can allow them to achieve a 10% revenue growth as presumably consumers would be
buying fewer products upon the implementation of such a program.
The key decision point for Patagonia was whether to follow through on this initiative or
not. In order to evaluate this decision it is important to understand more about the company and
the customers it serves. Patagonia spends less than 1% of its sales on marketing and advertising,
the company’s body of work in regards to environmental friendliness has garnered favorable
attention from the press, social outlets, and word-of-mouth advertising. As a result, the
company’s environmental commitment was a big part of its business strategy; it made a
concerted effort to connect with the environmentally conscious consumer. Despite the costs of
donating to environmentally friendly charities, additional overhead and expenses, the company
felt it was necessary for them to continue to be one of the most environmentally friendly
companies. In essence, the company has carved out a niche market among environmentally
friendly consumers. Evaluating the exhibit’s it is clear that Columbia Sportswear, Nike,
Timberland, and V.F Corporation have a significantly higher annual sales turnover and market
value. However, Patagonia enjoys higher gross and net margins than do its competitors.
Furthermore, its growth rate of 6% annually is higher than its competitors. Thus, it can be
assumed that Patagonia is not seeking to necessarily grow to the size of its competitors, but is
serving two types of customers: ones who make decisions based on sustainability and new
customers who can sell their used apparel for cash to buy new apparel. In serving these market
segments, going through with the “Product Lifecycle Initiative” is the proper move for the
company, because they would be serving the two types of customers who are their main targets.
While the new initiative would properly align with the strategic objectives of the
company, would it enable them to reach their financial goals? Furthermore, they will have to
bear additional costs from repair costs and recycling costs. However, since they have adopted to
be in a niche market, they can charge a premium that would recoup their additional costs.
Furthermore, since their new products are supposed to last longer, they have the right to price the
product at a higher cost. Patagonia can thus offset any repair/recycling costs by pricing the
product at a higher price. They can also expect the exchange market to grow significantly as
many more customers can be lured through an exchange marketplace rather than a high price.
Patagonia should also seriously consider launching a new division or spinning off a
branch of their company to provide environmental consulting for other companies. As a pioneer
in this area the company has developed a fair bit of competence in this field, and as noted by the
case has advised numerous large conglomerates including Wal-Mart. Such a consulting division
or group can help them see wider adoption of environmentally sound principles across the retail
industries, and the vision of the CEO can be realized more broadly.
