Introduction
Patagonia Inc. is one of the leading and notable eco-friendly manufacturers of outdoor gear. It is popular for upholding high levels of integrity through its eco-friendly operations (Joanne et al., 2021). It is also a well-known brand due to the premium quality of its products that attract a robust customer base. The company has headquarters in Ventura, California, US. It was founded by YVON Chouinard in 1973 and operates in the Apparel industry. Today, Patagonia is arguably the most admired company due to its eco-conscious ideology and integrity. By putting its employees, customers, environment, and community ahead of profits, the company has grown to become among the leading players in the prestigious apparel industry (Chouinard and Stanley, 2013). Appointing Rose Marcario as the CEO in 2008 saw the company’s profits soar to greater levels without sacrificing the company’s environmental values. During her stint as the CEO between 2008 and 2020, she advanced the company’s environmental goals by embracing the principles of a circular economy. The incoming CEO, Ryan Gellert, faces a new challenge of encouraging companies, big and small, to embrace a circular-economy business model that is resource-efficient and eliminates waste as much as possible (Claudio, 2007). This report analyzes Patagonia’s internal and external environment using the SWOT analysis framework. It also examines the company’s strategy diamond and its five key elements. Finally, the report formulates and justifies strategic recommendations to enable Patagonia to achieve sustainable a competitive advantage.
Patagonia Internal and External Environment Analysis
Patagonia’s internal and external environment can be analyzed using the SWOT analysis framework. The SWOT analysis is a strategic framework that analyzes a company’s internal environment and external environment (Carpenter and Sanders, 2009). The strengths and weaknesses represent the internal environment while opportunities and threats represent the external environment. The incoming CEO can leverage on SWOT analysis to better understand the company, address the prevailing weaknesses, and deter potential threats. SWOT analysis can also help management to take advantage of opportunities and to capitalize on internal strengths to develop strategies and goals for long-term growth. Patagonia’s SWOT analysis is discussed below;
Strengths: Patagonia has plenty of strengths that help it to thrive in the highly competitive apparel industry. Its popularity among consumers is arguably the greatest strength. The company’s emphasis on sustainable consumption not only makes it popular but also increases the customer base. It is among the most loved brands courtesy of its eco-conscious operations ideology and high levels of integrity (Marquis, 2020). For decades, the company has prioritized its stakeholders including employees, the environment, consumers, and communities, putting their interests ahead of the company’s profits. As a result, the company has grown to become a leading player in outdoor clothing dealers. Having an eco-conscious mindset sets the company apart from most public and private companies that have little regard for environmental sustainability. For example, the company sets aside 1% of its sales revenues every year to lessen environmental impact. For example, the ‘buy less’ campaign rolled out in 2011 which encouraged consumers to hold their outdoor wear longer promotes the principles of circular economy (Joanne et al., 2021). Surprised by the company’s commitment to environmental conservation, the campaign led to the highest level of sales revenues the company had ever experienced. Patagonia is also hailed for treating its employees fairly, which contributes significantly to low employee turnover. It takes good care of its employees, which improves their productivity and efficiency. Patagonia’s global climate market strategy is another source of strength. This strategy helps the company to attract environmentally-conscious customers. In addition to this global climate marketing strategy, the company creates social awareness among its customers which drives further its sales and popularity. The company’s marketing message that clearly resonates with its targeted customer is a powerful source of strength (Drawbridge, 2018). Patagonia’s targeted customers are environmentally-conscious and only buy products that are manufactured by an environmentally-conscious company. Other than lasting long, Patagonia’s products can be recycled for future use. The customers also take advantage of the company’s efforts to promote the sale of used outdoor clothing, which further encourages the company to remain eco-friendly.
Weaknesses: Involvement in politics is one of the company’s greatest weaknesses and a major undoing. Being environmental activists, Patagonia’s executive managers and CEO were the biggest critics of President Trump’s administration and now President Biden’s administration and environmental policies (Wolf, 2018). This aspect not only damages the company’s reputation but also threatens its long-term growth. The fact that the company offers high-quality products means that the products are highly-priced. Whereas a section of society may be willing to pay the high price for Patagonia’s outdoor clothing due to its brand name, the majority of the customers are price-conscious, so they are likely to buy from competitors offering friendly prices. The high prices are a major weakness that could contribute to the loss of market share. Patagonia is also characterized by weak e-commerce that prevents the company to grow its online sales (Taylor, 2020). This is a major weakness in modern society where consumers are shifting towards online shopping. The weak e-commerce is an indication that Patagonia lags behind in terms of technology compared to its rivals such as Walmart that have a robust online presence. Relatively low market presence is another weakness because Patagonia operates mainly in the US with a few stores in Canada. The low market presence forces customers to purchase outdoor clothing from competitors because they cannot find a Patagonia store around them. The overreliance on the US market alone further puts Patagonia at risk of vulnerabilities of the US market. Over-reliance on suppliers from Asia, like other outdoor clothing companies, exposes the company to supply chain complexities. Although the company ensures that all suppliers comply with its ideology and rules, it faces the unlimited challenges that come with over-reliance on suppliers.
Opportunities: Given that Patagonia enjoys financial stability, it can capitalize on global expansion. It can conduct thorough market research to identify potential markets around the world where it can establish operations and increase sales revenues (Min, 2021). The demand for Patagonia’s outdoor gear spreads globally, so global expansion can help the company to increase profitability. Introducing new product offerings is another opportunity that the company can leverage to further grow its sales revenues. For example, it can offer complementary products that are used with outdoor sports clothing such as footwear to attract additional customers. Introducing second-hand clothes, for example, would not only help the company to tap into new customers but also help it remain true to its mission of sustainability. Investing in new technologies can secure ample growth for Patagonia (Sonsev, 2019). Currently, the company is characterized by weak e-commerce that hinders its growth. Developing a robust online platform can help the company to gain new markets and customers for its products.
Threats: Stiff completion is probably the greatest threat that Patagonia faces. Like other sectors, the apparel sector involves several competitors such as North Face, REI, and H&M who compete with Patagonia for the existing customers. The prevailing recession contributed by the Covid-19 pandemic threatens the growth of Patagonia as consumers are significantly reducing their expenditure on non-essential items like Patagonia’s outdoor clothing (Morin, 2020). Climate change is another potential threat that Patagonia has to deal with given that its products are made from natural materials like wool and cotton. The availability of these materials highly depends on the climate and is negatively affected by climatic conditions such as prolonged floods and draughts (Sebastio, 2018). Low-quality products that are relatively affordable pose a great threat to Patagonia given that it produces high-quality products priced relatively high. The availability of low-quality products that serve the same purpose as those of Patagonia threatens the sustainability and long-term growth of the company. Those who cannot afford high prices turn to low-quality products regardless of poor performance. The changing consumer behavior is another concern that Patagonia has to deal with. The growing trend of working from home is causing a paradigm shift towards online shopping, which relies on a robust e-commerce platform. The absence of a powerful e-commerce website threatens Patagonia’s long-term growth.
Patagonia’s Strategy Diamond
The strategy diamond is a strategic tool used by organizations to develop or determine the source of competitive advantage needed for international growth and expansion (Carpenter and Sanders, 2009). It is called strategy diamond because it is diamond-shaped and consists of five elements that determine the level of competitiveness. The five elements include arenas, differentiation, economic logic, vehicles, and staging. In the case of Patagonia, these elements have successfully helped the company in terms of boosting its international growth and innovation. Each of these elements is discussed below;
Arenas: Strategic questions about arenas will tell Patagonia’s management where the company will be active and the level of emphasis. Prior to establishing operations internationally, the management must consider factors such as the ideal categories, the suitable channels, the appropriate market segments the company would serve, and the specific geographic areas the company should focus on (Min, 2021). Other considerations include the core technologies to apply as well as the value-creation strategies to apply.
Differentiation: These are the unique aspects of a company that gives it a competitive advantage in its present and future arenas. Here Patagonia’s management will be concerned with how the company will win in terms of image, customization, pricing, styling, product reliability, and speed to the market (Min, 2021). Differentiators can be asset-based, either tangible or intangible assets. For example, Patagonia enjoys goodwill and reputation which is an intangible asset and a significant differentiator that can give the company a competitive advantage internationally (Austin et al., 2016). Differentiators can also exist in the form of capabilities or how a company does things. Patagonia, for example, is very good at environmental sustainability, which is a considerable source of competitive advantage.
Economic logic: This shows how a firm generates money above its cost of doing business (Carpenter and Sanders, 2009). For example, does the company minimize cost through scale advantages or through scope and replication advantages? Does it generate profits by charging premium prices through offering unmatchable products and services or does it charge premium prices due to unique product features? For Patagonia, the company simply generates income by charging premium prices for high-quality products. Patagonia’s outdoor clothing are uniquely designed and eco-friendly, which sets them apart from those of competitors (Joanne et al., 2021). The high quality allows Patagonia to charge premium prices because consumers recognize them and generally accept them.
Vehicles: The fourth element of strategy diamond is called vehicles and simply communicates how the strategy will get the company where it intends to go. It tells whether the company will expand through joint ventures, alliances, franchising, internal development, or acquisitions (Austin et al., 2016). Technically, vehicles refer to how a company can pursue a new arena. Either through internal means, through help from an outside source, a new partner, or through acquisition. For Patagonia, it can either expand organically, through acquisition, or through a combination of the two. According to Min (2021), organic growth is developing a company in a selected country from the scratch, while acquisitive growth can be in the form of takeovers, acquisitions, or mergers.
Staging: It is the final element of strategy diamond and tells about the sequence and speed of moves (Min, 2021). This facet will help Patagonia’s management to think about the timing and the next strategic move, rather than just creating static strategies (Austin et al., 2016). Given that strategizing involves making choices as well as sequencing, the speed matters a lot. Staging also helps in reconciling the designed and emerging portions of a firm’s strategy. For Patagonia, staging will involve moving with speed to establish operations in areas with potential growth before competitors can establish theirs.
Fig 1 represents Strategy diamond Source: (Min, 2021)
Formulation and Justification of Strategic Recommendations for Sustainability
Improving product lines through diversification is the first recommendation that Patagonia should follow to achieve a competitive advantage in the market. Currently, the company offers a limited range of products that hinder its growth and expansion. Patagonia can introduce second-hand clothes, footwear, and other products that are related to outdoor clothing. Some of the major benefits that come with diversification include minimizing the risk of an adverse event bringing down an entire portfolio or business (Shi et al., 2018). Currently, Patagonia keeps a high percentage of its portfolio only in outdoor clothing, so the company risks losing in case the outdoor clothing business sours. There is also the foregone income of not diversifying. Lack of diversification implies the company is losing on growth opportunities. Thus, diversification would provide Patagonia with unlimited opportunities with high returns (Morin, 2020). Diversification would also safeguard the company against unfavorable market cycles such as the Covid-19 pandemic that almost led to recession. Diversification is also helpful as far as reducing volatility, which can collapse the business.
Developing a robust e-commerce platform is another recommendation that would help Patagonia to achieve sustainability. Currently, the company operates with a weak e-commerce website that has a negative impact on the brand’s image. Among other things, a robust e-commerce website would allow customers to locate the products they want to buy with a lot of ease (Taylor, 2020). In addition, online sales are achieved faster than physical store sales due to factors such as 24/7 operation. With e-commerce, there is improved customer engagement brought about by the presence of customized messages, pop-ups, emails, and much more. A robust e-commerce site also enhances customers’ shopping experience. For example, having features like artificial intelligence on an e-commerce platform would enable customers to envisage how outdoor clothes would look on them. AI can also provide customers with recommendations customized to their style and interests. Quicker product searches embedded on an e-commerce platform not only save customers’ time but also improve purchasing decision-making process (Li and Ku, 2018). E-commerce also comes with a wide range of shipping options that are convenient for the customer. Besides choosing the shipping location, customers are able to select their preferred mode of shipping based on factors such as urgency and cost. With robust e-commerce, Patagonia would be in a position to keep track and analyze customers’ purchasing patterns, product searches history, website traffic, usage of mobile devices, and other important consumer behavior for planning purposes.
Conclusion
Overall, Patagonia’s internal and external environment analysis shows that the company remains stable in the market. However, it faces stiff competition from rivals such as North Face, REI, and H&M. Being eco-conscious and upholding high levels of integrity has helped attract new customers and retain the existing ones. The high-quality products is another plus for the company, enabling it to charge premium prices. From the analysis, the company needs to diversify its product offerings to minimize the risk of loss and increase opportunities for growth. Enhancing its online presence through a robust e-commerce platform to gain a bigger market share. Further to this, modern consumers are increasingly turning online to purchase products, especially post Covid-19 era that encourages people to work from home. Strengthening its marketing would also allow the company to increase its sales revenues and profitability. For instance, besides targeting only customers who resonate with its environmentally-conscious philosophy, the company should target all kinds of customers to expand its global presence and increase sales revenues.
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