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Patagonia: Case Analysis

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The case study was given to us by our Professor in Business Policy and Strategy where we were to analyze Patagonia's achievements and successes as well as their downfalls, and give them new ways to expand their business. We took a look at they're corporate strategies, finances, and sales, and then provided feedback with data for where they should ultimately take their company which was described in the case analysis that was given to us.

Publicado en: Ventas, Empresariales, Tecnología

Patagonia: Case Analysis

  1. 1. Case Analysis: Patagonia Team 2: Jerad Stahlinski Aneesh Jain Aidan Kanell Brian Long Elena Pappas
  2. 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. 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. 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. 5. •External Environmental Analysis •Internal Analysis •Business-level / Corporate-level Strategy •Firms Performance Strategic Management Process
  6. 6. •Macro Level (PESTEL) •Industry Environment (Porters Five Forces) •Competitive Environment External Environmental Analysis
  7. 7. ● Political ● Economic ● Sociocultural ● Technology ● Ecological ● Legal PESTEL Analysis
  8. 8. ● Threat of Entry ● Power of Suppliers ● Power of Buyers ● Threat of Substitutes ● Rivalry Among Existing Competitors ● Complements Porter’s Five Forces
  9. 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. 10. •Resources, Capabilities and Competencies •VRIO Analysis •Value Chain Internal Analysis
  11. 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. 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. 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. 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. 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. 16. Primary •Raw Materials •Intermediate Goods/Components •Marketing/Sales •Customer Service Support •R&D •H/R •General Management Value Chain
  17. 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. 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. 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. 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. 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. 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. 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. 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. 25. Financial Performance
  26. 26. •Consistent growth in net sales Performance
  27. 27. •Growth in Gross Margin Performance
  28. 28. 2010 Comparison
  29. 29. External o Triple Bottom Line: Social, Economic, Ecological o Continuous Innovation o Better quality and reduced effect on earth Stakeholder Perspective
  30. 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. 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. 32. •Highest % Net Income growth for industry at 42.5% •Private Company •Leading Innovator makes competitors follow and catch-up Competitive Advantage
  33. 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. 34. •Resources and Capabilities vs External Environment •Competitive Advantage •Value Chain •SWAT Analysis Making the Diagnosis
  35. 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. 36. •Environmental commitment •Sustainability •Innovation Competitive Advantage
  37. 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. 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. 39. Patagonia Value Chain
  40. 40. Vertical Integration •Farms •Factories •Retail stores/Dealers •Group Outings Plan For Implementation
  41. 41. •Very high expectations for sales growth Patagonia’s Growth
  42. 42. Do not go public! • Environmental Practices and Image • Corporate Structure • What would happen? • Business model applied to other industries