Hasan Khan (212636692)

A) Achieving Growth, being Profitable, and minimizing Ecological Expenses – somewhat

contradictory goals – yet achieved by Patagonia. Its business model(1) is based on the philosophy

that calls for making minimum environmental impact along overall value chain engagement to

increase the productivity of natural capital. At the core of this business model is the company’s

value proposition – Sustainability, which acts as both the primary source of its competitive

advantage and the basis of its differentiation strategy. To differentiate itself, Patagonia has

effectively positioned itself as a supplier of superior quality products and at the same time it has

continued its commitment towards minimizing its impact on environment – even if it calls for

Tradeoffs (e.g. by not using anti-odor chemicals or not using conventional cotton). Supply side

of the business comprises of activities and relationships along the value chain that provide the

finished goods and create value. Patagonia has been able to create value by creating Integrity in

its product and product’s performance, effective Signaling (e.g. through warranty and

replacements), using quality inputs (e.g. organic cotton), influencing customer experience (e.g.

catalogues), and linking its value chain to that of its suppliers (e.g. strict standards for quality and

social & environmental responsibility). On the Demand side Patagonia has created a social &

psychological factor through advertising that includes educational messages, environmental

grants, donations, campaigns, & green benefits for its employees etc. This helped Patagonia

capture value because the differentiation resulted in consumers’ willingness to be associated with

purchasing a superior quality product from a company that they trust cares for the environment,

& such consumers are also willing to pay (2) more for Patagonia’s products.

B) Patagonia aspires to build a sustainable business model which is profitable, grows, and solves

environmental crisis. It includes value propositions that are social, environmental & economic.

To be successful, the model should be able to distribute these values along the whole market

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 Hasan Khan (212636692)

chain that includes suppliers, competitors, customers, employees and external environment.

Patagonia selected suppliers who were driven by the same set of values, and through selectivity

Patagonia enabled suppliers create value for various players along the value chain as this

selectivity ultimately resulted in lower defects for its products. Customers got a brand they can

trust for product quality and environmental wellbeing. The company thrived as reflected in

consistent growth in sales (6%) and gross margin (50% to 55 %), and employees benefited as

reflected in low annual turnover rate (5%). Patagonia also influenced the external environment

positively by providing advice on organic cotton to competitors such as Nike and Gap, on

environmental practices to Levi Strauss etc., and on strategy to senior executives of large

companies such as Walmart. Since Patagonia has positively influenced various players both in

the internal and external environment, so we can confidently say that it has been able to achieve

its goals.

C) Patagonia’s Product Lifecycle Initiative challenges the marketing principle of maximizing

consumer repeat purchases. This will be a Bikini business model – Sell Less, Make More. On

one hand the company intends to sell less of the physical product by extending its use through

repairs and reuse. On the other hand it aims to charge more by differentiating its product through

quality and value added (environmental benefits through recycling, reduced use of material etc.).

Patagonia may in-fact see an increase in sales through increase in number of buyers – attracted

through positive word of mouth publicity, or it could extend its reduce, repair, reuse, recycle

model in the backward direction of its value chain – working for retailers to recycle clothing that

is too worn to be sold. Either way, the Product Lifecycle Initiative aligns well with the existing

positioning of the company, and will act as a strong additive to its existing differentiating factor,

thereby adding to its competitive advantage(3).