The document analyzes Patagonia's business evolution from its inception in 1957 to present, highlighting its growth strategies, environmental commitment, and competitive advantages in the outdoor apparel industry. It discusses the company's unique value proposition focusing on quality, sustainability, and innovation, which allows it to command premium prices in a highly competitive market. Additionally, it presents a SWOT analysis, addressing strengths such as environmental reputation and weaknesses like limited customer accessibility.

1. Case Analysis:
Patagonia
Team 2: Jerad Stahlinski
Aneesh Jain
Aidan Kanell
Brian Long
Elena Pappas

2. •Patagonia
o Back-of-the-car Operation (1957)
 Yvon Chouinard
o Chouinard Equipment (1966)
 Largest supplier of outdoor climbing equipment
(1970)
 Patagonia (Apparel Line, 1972)
 Chouinard Equipment was sold (1980’s)
Patagonia

3. • Patagonia Co. (1979)
o 1972-1980’s Patagonia grew sales from 20 to 100
million
o Expanded Internationally
o Grossing 200 million in net sales by 2000
• Patagonia Philosophy
o Patagonia strives to build the best product, cause
no unnecessary harm, and use business to inspire
and implement solutions to the environmental
Patagonia cont...

4. •CEO
 Rapid Turnover in Sr. Mgmt. between 1990’s-
2000
 Casey Sheahan took over in 2005
• Long time friend of the Chouinard’s
•Growth
o Average 6% growth sales 2000-2010
o 2010-2015 Target goal of 10% annual growth
Patagonia cont...

5. •External Environmental Analysis
•Internal Analysis
•Business-level / Corporate-level Strategy
•Firms Performance
Strategic Management Process

6. •Macro Level (PESTEL)
•Industry Environment (Porters Five
Forces)
•Competitive Environment
External Environmental Analysis

7. ● Political
● Economic
● Sociocultural
● Technology
● Ecological
● Legal
PESTEL Analysis

8. ● Threat of Entry
● Power of Suppliers
● Power of Buyers
● Threat of Substitutes
● Rivalry Among Existing Competitors
● Complements
Porter’s Five Forces

9. ● Many Firms
○ The North Face Inc., Marmot Mountain Ltd.,
Mountain Hardware, and ARC’TERYX
● Differentiated Products
○ High End outdoor apparel
● Obstacles to Entry
● Can raise prices for a unique product
Monopolistic Competition

10. •Resources, Capabilities and Competencies
•VRIO Analysis
•Value Chain
Internal Analysis

11. •Goal is to apply environmentally sustainable
methods to better use resources
•With these better resources, brings greater
appeal, and ultimately more money from
consumer
•Including:
Conventional & Organic Cottons
Less damaging dyes and fabrics
Resources

12. • “Never be happy playing by the normal rules of
business”
• Appeal to the “dirtbags” (core-users)
• Simplicity being the main goal
• Strive to consume less, yet consume better
• Being a private company, money can be
distributed however Patagonia pleases
Capabilities

13. “Build the best product, cause no unnecessary harm, and use business
to inspire and implement solutions to the environmental crisis”
‘5 Pronged Business Initiative’
1.Lead examined life
2.Clean up own act
3.Do our penance
4.Support civil democracy
5.Influence other companies
Balance between environmental commitment & business
Consume less, but consume better!
Competencies

14. • Valuable:
o ‘Product Life Cycle Initiative’, ‘1% for the
Planet’, Organic Cotton
• Rare:
o Donates revenue to environmental org’s worldwide
o Pioneer of organic cottons, leading to industry shift
o Leader in field of recycling and sustainability
VRIO Analysis

15. • Imitation costs:
o Risked 20% companies stake ($20 million) on organics
o Organics cost triple the price of conventional cotton (500-100%)
o Recycling initiative costs over $60,000 yearly
o Invests $3 million yearly for innovations ( R&D )
• Organized to Capture Value:
o Sold 8% more with organic products over competitors comparable
products
VRIO Analysis cont...

16. Primary
•Raw Materials
•Intermediate Goods/Components
•Marketing/Sales
•Customer Service
Support
•R&D
•H/R
•General Management
Value Chain

17. •Patagonia uses a focused differentiation strategy.
•They focus on a narrow segment of customers, who are willing to pay a
premium price.
•They compete in the high end outdoor apparel industry.
•Patagonia’s product line consists of four main product categories: Sports
wear (casual clothing including cotton shirts), Technical Outerwear
(insulation garments such as technical shells), Technical Knits (baselayers
with special fabric treatment), and Hard Goods (packs, luggage, and
accessories).
Business Level Strategy

18. 1.Quality
2.Environmental Impact
3.Innovation
•Patagonia believes that these elements allowed it to charge prices
roughly 20% higher than those of other outdoor apparel and 50% higher
than mass- market brands for comparable products in both performance
wear and sportswear
•Chouinard states that, “Our goal is to offer only viable, excellent
products that are as multifunctional as possible so a customer can
consume less but consume better.”
When developing their products Patagonia
focuses on 3 main criteria:

19. •Patagonia built products for it’s core users, which they
define as customers who follow the “dirtbag lifestyle”.
•They meet these customers needs by producing
products that are simple, functional, and
multifunctional.
• In order to ensure such quality Patagonia spent
$100,000 on field testing performed by ambassadors
that assessed the quality of their different products.
Quality

20. • Patagonia makes business decisions based on
environmental impact. They are committed to
reducing their environmental impact at every level of
production.
o Common Threads Recycling Program
• An example of this commitment is when In 1996
Patagonia made the expensive switch to organic cotton
and remained committed to this decision despite a loss
in profit in the first two years.
Environmental Impact

21. •Patagonia is an industry leader in technological innovation. They
invested $3 million annually in research and development, which
includes a lab developing and testing new materials.
•They have developed many fabrics that have been adopted across the
industry.
•Their most successful patented technologies and designs, include
Synchilla (recycled polyester fleece), Capilene (moisture-wicking
polyester fabric), and most recently, a wetsuit lined with chlorine-free
wool for increased insulation.
Innovation

22. •Patagonia operates more as a single business company rather than a
diversified business.
•They have mostly stuck to the outdoor apparel industry. The
diversification Patagonia displays is to their product line and numerous
environmental initiatives the company is involved in.
•One example of Patagonia's diversification is their Textile Exchange
program, which brings together product brands, retailers, farmers, and
key stakeholders to teach about social and environmental benefits of
environmentally friendly textiles.
Corporate-Level Strategy

23. •Patagonia average customer is 38 years old with an average household
income $160,000.
•In 2010 Patagonia recorded their highest net sales in the North
American Market.
•Their second largest global market by net sales is Japan, which is then
followed by European and the somewhat newly established South
American market.
•Patagonia serves the international customers by offering online orders
available internationally.
International Scope

24. •Financial Performance
•Industry Comparison
•What trends are evident over the past
three to five years
•Internal/External Stakeholders
•Competitive Advantage
Analyze the Firms Performance

25. Financial Performance

26. •Consistent
growth in
net sales
Performance

27. •Growth in
Gross Margin
Performance

28. 2010 Comparison

29. External
o Triple Bottom Line:
Social, Economic, Ecological
o Continuous Innovation
o Better quality and reduced effect on earth
Stakeholder Perspective

30. Internal
oEnergy efficient buildings
oOrganic Cafeteria
oPaid sabbatical
oSubsidy for purchase of Hybrid vehicle
oBail payment for arrested employees of nonviolent
activism
oMaternity/Paternity leave
oOn site day-care for employees
Stakeholders Perspective cont...

31. •Higher quality product=higher value
added to the customer
•Higher cost to produce along with higher
quality allows for higher price of product
Competitive Advantage

32. •Highest % Net Income growth for industry
at 42.5%
•Private Company
•Leading Innovator makes competitors
follow and catch-up
Competitive Advantage

33. •Gross Margin: 50% average between
2002-2010
•Return on assets(ROA): 7.1%
•Return on Equity(ROE): 9.6%
•Return on revenue(ROR): 8.1%
Financial Ratios

34. •Resources and Capabilities vs External
Environment
•Competitive Advantage
•Value Chain
•SWAT Analysis
Making the Diagnosis

35. •Problems
o High costs
o Limited suppliers
o Expensive raw materials
o Costly innovation
o Costly mission to be environmentally
friendly
Resources and Capabilities vs
External Environment

36. •Environmental commitment
•Sustainability
•Innovation
Competitive Advantage

37. SWOT Analysis
Strengths
● Environmental Reputation
● High quality products
● Patented Innovative products
● Private structure
● Low employee turnover
● Strong community relationship
Weaknesses
● Political views
● Low customer accessibility
● Limited suppliers
● Limited product lines
● Environmental focus
Opportunities
● International Markets
● Going Public
● Increase retail stores
Threats
● Public Companies

38. • Problems/Solutions
o Political views
o Low customer accessibility
o Limited suppliers
o Limited product lines
o Environmental focus
Formulation: Proposing A
Feasible Solutions

39. Patagonia Value Chain

40. Vertical Integration
•Farms
•Factories
•Retail stores/Dealers
•Group Outings
Plan For Implementation

41. •Very high
expectations
for sales
growth
Patagonia’s Growth

42. Do not go public!
• Environmental Practices and Image
• Corporate Structure
• What would happen?
• Business model applied to other industries