Patagonia Hbs Case
Question 1: How successful has Patagonia been as a company? Evaluate Patagonia's strategy.
Analyzing the industry using Porter’s Five Forces, it can be seen that the Outdoor Apparel industry is very competitive. The threat of entry is very high, with several large conglomerates making acquisitions in the industry and established apparel companies such as Polo Ralph Lauren making expansions into sports apparel. With several brands such as North Face in the high end of the industry, as well as Columbia and several private labels dominating the middle and lower ends, a large number of substitutes are available. Buyers have large bargaining power, as end consumers could easily switch to another brand, while at the same time wholesalers are able to demand low prices from Patagonia for access to valuable shelf space. Most suppliers do not have strong bargaining power, as many of the fabrics are commoditized and there is competition from foreign producers. However, Patagonia uses specialist producers, which gives those suppliers more bargaining power. Finally, internal rivalry is very high, with high demands for quality and innovation among the high end companies and high marketing costs.
Relative to other companies in the Outdoor Apparel Industry, Patagonia is performing extremely well. Across most key metrics (Exhibit 1 from case), from Gross Profit Margin to Return on Equity, Patagonia outperforms its peers. Perhaps more impressively, Patagonia was able to achieve a high level of Net Income Growth (20.8%) while only achieving 1.6% 12-Month Revenue Growth. The driving strategy behind Patagonia’s success has always been producing the highest quality product possible and charging a premium of more than 20% over the other specialist outdoor apparel companies. The flip side of this strategy is that cost control and maximization of quantity sold are not key strategic factors for Patagonia.
Patagonia was able to establish their competitive advantage of being a premium
Analyzing the industry using Porter’s Five Forces, it can be seen that the Outdoor Apparel industry is very competitive. The threat of entry is very high, with several large conglomerates making acquisitions in the industry and established apparel companies such as Polo Ralph Lauren making expansions into sports apparel. With several brands such as North Face in the high end of the industry, as well as Columbia and several private labels dominating the middle and lower ends, a large number of substitutes are available. Buyers have large bargaining power, as end consumers could easily switch to another brand, while at the same time wholesalers are able to demand low prices from Patagonia for access to valuable shelf space. Most suppliers do not have strong bargaining power, as many of the fabrics are commoditized and there is competition from foreign producers. However, Patagonia uses specialist producers, which gives those suppliers more bargaining power. Finally, internal rivalry is very high, with high demands for quality and innovation among the high end companies and high marketing costs.
Relative to other companies in the Outdoor Apparel Industry, Patagonia is performing extremely well. Across most key metrics (Exhibit 1 from case), from Gross Profit Margin to Return on Equity, Patagonia outperforms its peers. Perhaps more impressively, Patagonia was able to achieve a high level of Net Income Growth (20.8%) while only achieving 1.6% 12-Month Revenue Growth. The driving strategy behind Patagonia’s success has always been producing the highest quality product possible and charging a premium of more than 20% over the other specialist outdoor apparel companies. The flip side of this strategy is that cost control and maximization of quantity sold are not key strategic factors for Patagonia.
Patagonia was able to establish their competitive advantage of being a premium