Patagonia Case Study free essay sample

Patagonia is a high-end outdoor apparel company founded in 1972 by Yvon Chouinard, a self-described ‘dirtbag’. The company remains private. Has experienced strong growth to date (6% sales growth Y-oY) while maintaining its commitment to sustainability and the environment Industry includes Columbia Sportswear, The North Face (VF Corp. ), and many general retailers Strategy Business Model: Customers: median age of 38 years old, average household income of $160K Products (% revenue): Sportswear (47%), Technical Outerwear (30%), Technical Knits (12%), and Hard Goods (6%). High quality, priced 20% higher than other outdoor apparel. ‘Ironclad Guarantee’ to repair, refund, or replace any product that does not fully satisfy customers Financials: 50%-55% gross margin on goods sold. High environmental and social standards for suppliers, though selectivity also leads to lower product defect rates Sales (% sales): Wholesale (44%), Retail (33%), Catalog + Internet (23%) – fewer distributors than competitors; retail stores and catalog play important role in communicating brand connecting to customers Marketing: environmental / social stance often attracted free media attention; careful conscious effort to not exploit position for monetary gain Culture: strong culture, family-friendly workplace, environmental perks for employees, low employee turnover Questions In spring 2010, Patagonia was in the process of implementing a new, radical environmental initiative called â€Å"Product Lifecycle Initiative† (PLI). We will write a custom essay sample on Patagonia Case Study or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page This initiative represented a holistic commitment to lengthen the lifecycle of each product and reduce landfill waste. It constituted Patagonia’s efforts to take responsibility for the products it made, â€Å"from birth to death and then beyond death, back to rebirth. † The initiative consisted of a mutual contract between the company and its customers to â€Å"reduce, repair, reuse, and recycle† the apparel that they consumed. This case invites you to  understand a unique approach to creating and capturing value, assess its sustainability, and evaluate innovative ways to compete. 1. Evaluate Patagonia’s strategy: how does Patagonia create and capture value? Patagonia sells high quality products to outdoor enthusiasts – its products are cutting edge in terms of the materials used (and the value they generate for the customer), as are their manufacturing methods. Patagonia embeds environmental sustainability into its production methods, allowing it to meet its own mission while appealing to customers who share those values. Also see above outline. 2. How important to Patagonia’s strategy is its stated mission: â€Å"Build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis†? Each of the three parts of the mission statement guide Patagonia day to day business decisions: Build the best product: high RD spend ($3M annually), focus on innovation, ambassador model for testing and feedback Cause no unnecessary harm: environmentally friendly manufacturing techniques, supplier selectivity and environmental standards, raw materials sourcing (e.g. organic cotton), Footprint Chronicles to analyze impact, energy efficient buildings and recycling processes Use business to inspire and implement solutions to the environmental crisis: 1% of revenue donated to environmental causes, sharing of sustainability processes with other companies / competitors, grants and other campaigns (see Exhibit 10) 3. What is your assessment of Patagonia’s product lifecycle initiative (Reduce, Repair, Reuse, and Recycle)? Will it be a success? Evaluating PLI hinges on the definition of success: how heavily the company weighs achieving its annual growth targets against achieving its sustainability mission. The innovative program will likely be a success in raising awareness on over-consumption, but Patagonia will need to focus on aggressively growing its customer base (vs. repeat sales to existing customers) in order to achieve targets. Patagonia may also want to find ways to monetize the online swap market they create to supplement some of the potential lost revenue from individuals who buy second hand (membership fee, repair fee, flat fee on each swap, charge other retailers for access, etc. ). In the long-term the second-hand buyers may become future Patagonia customers, who at present cannot afford the high-end new products, creating a new customer acquisition vehicle.