Patagonia case study: Discussion on Cyclical Business Model

Question

Task: Consider the Patagonia case study and write a report discussing the cyclical business model adopted by Patagonia.

Answer

INTRODUCTION:
The Patagonia case studyis based on Patagonia, a new line of technical garments introduced by the climbing gear organisation, Chouinard Equipment. The report on Patagonia case study analysis would run a discussion on the cyclical business model adopted by Patagonia stressing on its ethical aspect. It would also discuss the competitive advantage of the firm,identifying the strategic and operational practices in favour of the business approach of the company. The Patagonia case study analysis would conclude by focusing on the impending opportunities and challenges in terms of ethical and sustainability aspect for Patagonia in due course of business.

1. Patagonia’s approach to business out of ethical and sustainability perspective
According to the Patagonia case study, Patagonia adopted the circular business model which articulates the logical flow of creation, offerings, and delivering values to its stakeholders and reducing the environmental impact as much as possible(Amit & Zott, 2012). The beautyofthe circular business model that it focuses on cost reduction of the supply chain and other operations and uphold its efficiency simultaneously over the aspect of profit maximisation unlike other commercial establishments. Taking relevance of the cyclical business model, Patagonia strived to exert an ethical and sustainable business approach in terms of supply chain management, human rights, and climate change.

Supply chain approach of Patagonia –
Patagonia strived to make a difference in the circuit when in 1993, came up with Synchilla fleeces which is derived by recycling the plastic bottles. Since then, Patagonia ventured into the usage of eco-friendly material as its supplies by converting the trash into fleeces to be used for its apparels(Khavul & Bruton, 2013). But before that, Patagonia experimented with organic cotton in 1991 to reduce the usage of harmful chemicals. Readings provided in the Patagonia case study signifies that the production process of the organic cotton was 50-100% expensive than the conventional cotton, but despite it the company undertook it as a substantial measure for responsible manufacturing process. Accordingly to adjust the increasing cost of the raw materials, the company increased the price of its final products to accommodate the profitability of the distributors suitably(Preston, 2012).

Patagonia following the success of organic cotton adopted the Fair Trade Certified sewing program. It is to ensure that the sewers engaged in the process are adequately paid and the company earned the rare feat of introducing the Fair Trade Certified garments. The company mentioned in the Patagonia case study also came up with the Common Thread program to manufacture products by recycling polyester innumerable times saving energy unto 75%(Ying & Li-jun, 2012). In this way, Patagonia involved itself in full responsibility of the product consumption by virtue of reducing, repairing, reusing, and recycling the apparels bought for the purpose. The supply chain process of Patagonia was further flourished with its sustainable campaign of “Buy Less” and “Don’t Buy This Jacket” focusing to use only those natural things that could be replaced(Rattalino, 2018).

Human rights approach of Patagonia –
Patagonia also maintained higher standards of human rights through its various programs.To start with, it takes good care of its staff by facilitating sorts of employee benefits like the health insurance and meal facilities at the company café. The phenomenon tends to develop the inter-personal relationship among the employees to have a stronger team enhancing their expertise and efficiency(Chouinard & Stanley, 2013). Then there are facilities like maternity leave, nursery for the children of the working staff, and scope to get personal time off as per the company policies. Patagonia also encouraged its staff to work as an intern with an environmental organisation to contribute to Mother Nature. It also gives free hand to the employees to pursue their passion like outdoor sports activities – surfing or skiing. The “Don’t Buy This Jacket” needs to be mentioned as it was initiated to help those living in the streets to repair their worn out clothes making it fit for wearing(Pies, et al., 2010). It also taught them easy sewing techniques to tackle these matters at home.

Climate change approach of Patagonia –
Patagonia was revolutionary in its cotton sourcing in an attempt to reduce the carbon footprint. The organisation examined in the context of Patagonia case study strived for total transparency as it enabled the visitors to have knowledge on its social and environmental impact with a simple click to its site(Ciravegna, 2012). The company addressed the issue of durable water repellent challenge by shifting to a C6 treatment to have less toxicity. It collaborated with its Swiss partner, Beyond Surface Technologies (BST) to reduce the consequence of textile chemicals on the environment and substitute it with natural raw materials. It attempted to use recycled polyester saving 75% of energy and campaigned in the market to exchange the old clothing for new ones to reduce the depletion of natural resources.

The phenomenon of reduce, repair, reuse, and recycle campaign in the market was successful as Patagonia recycled 95 tons of worn clothing during the period of 2005 and 2016. The company strived to contribute financially for the cause of environment by donating 1% of its sales revenue or 10% of its profitability, the higher figure would be considered. Accordingly, YvonChouinard, the owner of Patagonia collaborated with Craig Mathews, the owner of Blue Ribbon Flies to establish the Planet Alliance raising $150 million for environmental cause(Porter & Kramer, 2011). The facts noted in the Patagonia case studydepicts that the offices of Patagonia were designed with recycled materials giving it the tag of Green Buildings. So the company in every way was labelled as a responsible organisation cultivating on healthy communities and extracting from the earth, only those things which could be recycled for a better and healthy society(Antwerp Management School, 2019).

2. Competitive advantage of Patagonia in terms of shareholder and sustainable value
The sorts of sustainable strategies adopted by Patagonia paid off well as it undertook the circular business model. The phenomenon of reduced consumer buying worked in its favour as its sales increased by 30% owing to the “Buy Less Campaign”. Initially, it was criticised as a marketing stance by the company but with the passage of time, it was considered as an effective circularity and sustainability branding phenomenon. The mission statement of Patagonia noted in the Patagonia case study thrived to initiate minimum harm to the environment and inspire the community to strive for business in an alternative way(Pies, et al., 2010). The environmental concern coupled with sustainable branding strategy helped to establish a niche for itself in the competitive market. Patagonia endeavoured to innovative itself with the passage of time to reduce the environmental impact as much as possible positioning it as an ethical company on the global platform(Rattalino, 2018).

The sustainability initiatives went well with the customers as they were pleased of the fact that though the Patagonia products are highly priced,they are long-lasting. This sort of product quality are very much desirable on part of the customerstending them to establish brand loyalty resulting in an increasing number of sales for Patagonia(Ying & Li-jun, 2012). The “Buy Less” campaign of the company led to 30% increase in its sales in 2012 owing to a strong customer relationship as the customers are willing to pay for sustainable products. So the shareholders are assured of a greater return on their investment as Patagonia owing to its sustainable sourcing and innovation was able to raise higher standards for itself(Chouinard & Stanley, 2013). In this process basis the scenario of Patagonia case study, the company partnered with retail giant like Walmart, and Levi Strauss for the purpose of Sustainable Apparel Coalition. The phenomenon led to enhancement of sustainability initiatives with the ultimate goal of improving efficiency and cost-effectiveness of its supply chain process.

The shareholder value in terms of Patagonia could be understood by its innovative business sense that it has been able to attract efficient workforce from the open market.The phenomenon is also useful tomotivate them fordelivering an enhanced level of productivity(Barton & Wiseman, 2014). The aspect of productivity comes in terms of innovative product design encasing a competitive edge in business by delivering a higher level of brand management leading to improved level of customer awareness. In this Patagonia case study analysis, the circular business model evolved Patagonia to initiate significant business changes, say in terms of ethical sourcing and environmental commitment to secure a strong market position for itself (Unruh, et al., 2016).Patagonia though a commercial establishment has not ignored its social and environmental vow through various programs like “Don’t Buy This Jacket” and “Buy Less” campaign to provide sustainability to the communities.So the organisation has rightfully connoted itsenvironmental commitment along with product innovation to deliver a direct connection between the shareholder value and its sustainability programs.

3. Strategic and operational dimensions in implementation of Patagonia’s business approach
Patagonia since its inception has been instrumental in striving a sustainable business through its circular business model by means of sourcing eco-friendly raw material suppliers. The strategicstance has been phenomenal for the company in having recycled materials like the recycled plastic bottles making way to fleece to be used in its clothing manufacturing(Amit & Zott, 2012). It is the strategy discussed in the context of Patagonia case study not to compromise on the quality of the raw materials irrespective of the fact that it might cost higher. For instance, Patagonia to reduce the impact of harmful chemicals like pesticides, and insecticides, replaced the traditional cotton with organic cotton though the latter costs 50% to 100% more. Initially, the suppliers were reluctant but Patagonia strategized the matter by increasing the price of the final products by 8% to compensate the distributors well(Porter & Kramer, 2011). The phenomenon worked in favour of the company as the distributors’ margin were unaffected, rather they were benefitted as Patagonia recorded a 20% increase in its sales.

Patagonia envisioned an effective operational instinct through its Common Threads Initiative program with the intention of saving energy by 75%. Accordingly, the company vowed for the “reduce, repair, reuse, and recycle” initiatives to have the raw materials of highest standard but with lesser environmental impact. It led to the product differentiation strategy in line with the “reduce” strategy of Apple(Ciravegna, 2012). The company committed for superior level of manufacturing guarantee strengthening the phenomenon with its “Worn wear” strategy. It was effective in establishing directrelationship with the customers and motivating them to use the apparel for a longer time and the company extended its support by offering low-cost repairing of the products. Patagonia associated with the online partner, eBay in its Common Thread Initiatives to generate greater level of customer awareness(Bocken, et al., 2016). So Patagonia redesigned its operational aspect uniquely to earn a greater customer following for its sustainability initiatives.

So the circular business model considered in the Patagonia case studyto have a sustainability business outlook paid off well as it brought in forth a positive business model, right from sourcing ethically to providing recycled materials to the targeted customers.In a way, such sustainable strategies enabled the organisation to enhance its sales proceeds and earn a reputation in the market as a responsible company(Barton & Wiseman, 2014). The circular business model led to business sustainability for Patagonia which went well with the community through various measures like “Don’t Buy This Jacket” and “Buy Less” inculcating means to use its clothing product for a longer tenure. Patagonia strategized this means by raising the price of its product in lieu of a product that would be endured for a longer time and motivate to reuse the old products by offering lower repair costs(Antwerp Management School, 2019).

4. What are the opportunities and challenges addressing the ethics and sustainability issues mentioned in the Patagonia case study?
The information provided in the Patagonia case study illustrates that Patagonia came across unique business scenarios as it strived for greater level of business sustainability through its actions and business operation initiatives. The opportunities could be counted as greater means to innovate materials that could be rightly used for manufacturing purpose(Unruh, et al., 2016). The opportunities lay in providing longevity and enhancing the product quality for a better sales proposition and it rightly paid off as sales for the Patagonia product increased by 8%. The business proposition also came across challenges as products made of the traditional cotton items yearned 20% of sales or $20 million revenue(Preston, 2012). So it posed a huge risk for the organisation as it made a major move from one sort of raw material to an innovative one, but the sustainability move of the market were well accepted in the market.

The innovative spree of Patagonia helped it to get a record number of sales besides,collaborating with partners like Walmart and Levi Strauss in terms of responsible producing and delivering sustainable supply chains. Notable among various initiatives are “Don’t Buy This Jacket” and “Buy Less” campaign, which led to better level of customer awareness in the market(Rattalino, 2018).Initially, it was feared that such initiatives would lead to reduction of the sales of Patagonia items, but with the passage of time, the sustainability strategy yielded positive outcome(Barton & Wiseman, 2014). The stakeholders, say the shareholders were apprehensive of the increasing cost of the raw materials and focus on sustainability over profit maximisation.

The challenges illustrated in the Patagonia case study also lay in convincing the suppliers on organic cotton over traditional cotton as the latter was already in use and cheaper in price. But Patagonia took the risk by enhancing the price of the final products by 8% to accommodate the margin of the distributors. It is the innovative spree in terms of sustainability that was well accepted in the market and emancipated in a greater pace to help out the customers and communities alike (Khavul & Bruton, 2013). Patagonia’s risk taking abilities was not only limited to its product innovation, rather it provided greater working flexibility and liberty to its workforce. It is seen in the Patagonia case study that such initiatives helped the company in strengthening its human resources and deliver greater level of productivity.

Patagonia has been a pioneer in its innovation spree and alike every sort of innovation, its innovation strategies has come under severe criticism. But the organisation has kept its goal intact to address the sustainability issues over and above profit maximisation tactics, despite the intervention of the shareholders(Chouinard & Stanley, 2013). Patagonia was able to convince the shareholders and this has been possible owing to the vision of its owner, YvonChouinard. The sustainability aspect though was challenging but enabled the company to strengthen its business relationship in the market owing to greater brand loyalty of the customers and suppliers alike.

CONCLUSION:
As per the Patagonia case study analysis, Patagonia right from the beginning was sure of its sustainability traits and it feed the market accordingly by delivering environment-friendly materials that was acceptable to the customers. The company started with the suppliers by keeping them in confidence of its grand initiatives in delivering a better product to the market and enhancing their margin in due course. The strategy followed in the Patagonia case study yielded positive results as the quality product of Patagonia along with its sustainability programs like “Don’t Buy This Jacket” and “Buy Less” campaign increased its sales. So it resulted in a greater revenue for the suppliers, motivation for its employees and better return for the shareholders along with greater customer satisfaction. ?

REFERENCES
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