Business Model & Environmental Crisis
Patagonia adopts a business model based on three key pillars: (1) Environment Stewardship, (2) Management By Absence, and (3) Value-Based Choice of Partners (Reinhardt, Casadesus-Masanell and Kim). By Environment Stewardship is meant company's commitment to minimize impact of company's business on environment. Examples are numerous including removing anti-odor chemicals from products in 1998, switching to manufacturing all cotton products from organically produced cotton in 1996 in spite of increased costs and signing in 2007 Bluesign Technologies, standard used to appraise environmental impact of dye and finish chemicals (Reinhardt, Casadesus-Masanell and Kim).
If anything, CEO Casey Sheahan's statement is central to not only company's mission but also to company's core business model and operational practices. Specifically, Patagonia is committed to minimizing company's carbon footprint in supply chain management by opting for organically produced raw materials, strategic partnerships by choosing partners committed to similar values and, not least, customer relationship management by engaging customer in campaigns and initiatives aimed to minimize carbon footprint and raising public awareness on broad environment issues.
Product Development & Marketing
Fundamentally, Patagonia has quality, environmental impact and innovation as criteria for product development and design. For quality, Patagonia conducts regular field testing by "ambassadors" (professional athletes) in order to cater for company's "core" customers leading "dirtbag" lifestyle. For innovation, Patagonia invests $3 million annually in R&D and maintains a lab for testing raw materials, a practice which has only led to a host of patented fabrics and designs emulated by in company's industry (Reinhardt, Casadesus-Masanell and Kim). In choosing her partners, Patagonia makes sure business partners are committed to environmentally-friendly values adopted by company. Internally, Patagonia hires staff whose lifestyle is consistent to company's "casual" cooperate culture and respect for environment. For customers, Patagonia uses retail space not only for selling but also as a community space used for a variety of purposes including, most notably, promoting environment causes and issues. The marketing channels used by Patagonia – special campaigns, product catalogues and online platforms – not only to capture more market share and maximize profitability but also to raise public awareness of environment causes and issues. For example, Patagonia's catalogs devoted only 60% to "selling space" compared to 90-95% by competitors and used remaining space for environmental advocacy, scenic photography and lifestyle essays.
Success Formula
Product Lifecycle Initiative (PLI)
The initiative is an extension of Common Threads Recycling Program but at a larger scale. If anything, PLI is an ambitious initiative. Changing company's business model from one based on constant consumption into one based on reusability, PLI is, in concept, a radical program which, if successful, could change concepts of profitability for good. However, cost remains a central issue Patagonia needs to handle. Having to spend heavily on shipment, R&D and staffing (for repair centers), Patagonia is likely to incur major profit-margin contractions. Just as pronounced by a number of company's executives, PLI should not be a well-meaning initiative only but should lead to more profits, any company's raison d'être.
Chouinard's Generic Model?
Chouinard is, after all, a visionary. He has been in sportswear and gear business for decades. His vision has helped propel company's growth for years. However, not all Chouinard's are equal since, as he emphasizes repeatedly, his business is a continuation of his personal passion. The private status of Patagonia has, put differently, enabled Chouinard pursue his environment sustainability values. Public-held companies are, however, more accountable to shareholders, a consideration which makes profitability higher in priority.
Sustainability & Risks
So far, Patagonia has shown remarkable agility in buffering off emerging challenges during her journey. The initial declines in profit margins (ensuing from initiatives aimed to comply with company's commitments to environment) only move upward as customers continue to subscribe to company's message of shared responsibility. The PLI is probably most comprehensive – and radical – initiative made by Patagonia in order to confirm her status as an industry pioneer in environment stewardship. This strategic shift involves, however, major challenges, particularly during periods of economic crunches. In an industry coming under increasing pressure to offer best quality products at minimum cost, opting for sustainability under all circumstances can influence company's balance sheets substantially. This does not mean, however, Patagonia should give up her core values. That would only cause irreparable damage to company's image. Instead, Chouinard can differentiate his environment stewardship offering across markets. By applying PLI in specific markets (particularly ones in which repair and recycle culture has established roots in broader culture such as in Scandinavia, Switzerland and North America), Patagonia can both maintain her current business model and introduce a radical one in more susceptive markets. This should spread profit-loss risk across different markets.
Works Cited
Reinhardt, Forest, Ramon Casadesus-Masanell, and Hyun Jin Kim. "Patagonia." Harvard Business School Case 711-020. Harvard Business Publishing, August 2010. Web. 21 April 2016.
