Competitive Analysis And Core Competencies Of Patagonia Outdoor Clothing Brand

Task 1: Examining external environment and industry competition

The outdoor clothing industry is growing at a magnificent rate in US as well as Europe (Zhou, 2017). This is owing to the changing lifestyles and shifting interests of consumer towards outdoor recreational sources. Retail sales value of outdoor apparel in UK from 2008 to 2015 and moved from 795 million to 825 million (Appendices 1). Hence came the business of selling outdoor apparels, accessories and other merchandise. Patagonia outdoor is one of the leading brands in the outdoor sports clothing business. The firm was founded back in 1973 and since then has progressed to selling from 68 different shops across the globe (Hepburn, 2013). It is a unique brand with a strong value system in place. Patagonia is well known for the unmatchable quality of its products and unique marketing strategies. This case study analysis throws light on the external competitor and industry analysis as well as internal core competencies of Patagonia.  

An analysis of external environment is crucial for any business (Dobbs, 2014). There have been various strategic tools to understand and analyze the external environment. This analysis helps firm get a clearer picture of the industry they are operating in and hence gives them an opportunity to work towards gaining a competitive advantage (Appendices 2).

To gauge an idea of the factors affecting the industry of outdoor clothing, PEST analysis tool was used. This provides a clear indication and helps identify factors that are directly or indirectly affecting the performance of the industry.

1. US-UK political relations: The relationship between the two nations is smoothly largely because of the shared history, the common shared language and cordial trade relations (Gilpin, 2016). Patagonia is a US based firm and even after Brexit, has received immense support from the UK to widen its business horizons.
2. Ease of doing business: The process of starting a new business and becoming functional is politically and legally easy and this makes it convenient for new entrepreneurs to enter the market (Canare, 2016). UK ranks 7 in the world when it comes to ease of doing business (World Bank, 2017).

1. Increasing interest rates: Economically, US fed has been increasing interest rates after a long period of quantitative easing. This increase in interest rates can adversely impact businesses’ available income and their ability to pay receivables.
2. Increasing inflation: US has been targeting to raise its inflation rates. This rise in inflation increases prices of products used by consumers and hence reduces demand which adversely impacts businesses (King, 2014).

1. Increasing purchasing power of customer: US is a developed country and hence the purchasing power of people specially the target customers of outdoor apparel is high (Lacoste, 2015).
2. Increasing health consciousness among consumer is another reason why the demand for outdoor apparel is consistently on a rise. This demand is majorly influenced by peers and thus the outlook of the same also appears to be increasing (Akhondan, 2015).
3. McKinsey conducted a survey to establish the forecast of the outdoor active wear industry along with business of fashion. The survey determined a positive outlook as given in the (Appendices 3)

1. Increasing usage of mobile applications: Increased usage of applications on mobile phones has made shopping more convenient and products just a click away from their consumers. This has positively impacted the industry and has helped increase demand for the same.
2. Developing e-commerce: the recent shift from offline to online stores has ensured that shopping is a convenient experience. The same product can now be bought from different websites (Europe, 2015). This makes sure that the marketer has more opportunities to sell their products to a larger audience.

1. Patagonia has been doing immense work to support the environment. Their products are made in factories that have efficient waste management as well as pollution control systems in place.
2. Patagonia was the first brand to launch products in pesticide free cotton. All its products are built from raw material that is ethically sourced and environment friendly.
3. Patagonia’s “1% for the planet” approach has dedicatedly spent one percent of all their total sales for the betterment of the environment

1. The environment protecting laws of the UK provide Patagonia with a competitive advantage against its competitors as they are already producing environment friendly products.
2. UK and EU have confirmed to sign a free trade agreement post Brexit. Which signifies that Patagonia would not be losing customers in that region.

The PESTLE analysis throws light on the external factors in the environment that affect Patagonia. For a more thorough analysis of the industry, Porter’s five force model analysis can be conducted. This model indicates how various aspects of the industry function and the impact that they have on every firm of the industry.

Porter’s five force analysis was conducted as it is an efficient marketing tool that gives a clear idea about the level of industry competition (Porter, 2014) (Appendices 4).

The threat of new entrants is high for the active apparel industry in which Patagonia functions. The ease of doing business in UK is high and hence the barriers to entry for a new business are much lower. The brand loyalty solely depends on the consumer as the cost of switching brands for them is very low. The profitability of the industry is very high which entices new entrants and their entry is further made easier via effectiveness of the distribution channels and developed Ecommerce platforms.

There are practically no substitutes to active wear clothes. And hence this leads to an increased competitive rivalry among firms.

The quality and uniqueness of the fabric required makes the bargaining power of suppliers much stronger. However now there is an increasing competition among suppliers which makes it easy to switch from one supplier to another. But Patagonia as a brand has been loyal to its suppliers which makes their long term relationship very solid.

Bargaining power of the buyers is very strong. There are many alternative brands available for them and the cost of switching brands is very low. The current demography is leading to an increased demand and this is following more competition in the industry.

Task 2: Company resources and competencies

REI, VF Corporation, The north face, Timberland, Nike are top competitors. One of the biggest risks faced by the industry in general is the risk of products becoming commodities (Bartram, 2015). The cost of marketing the product is very high and the industry is consistently innovating. Therefore the competitive rivalry is very strong.

Together Porter’s five force model and the PESTLE analysis give a clear picture about the industry and the environment within which Patagonia functions. A detailed understanding of the above two can help a business gain competitive advantage over other players of the industry.

Company resources

Any economic or productive factor that is essentially required to complete, fulfill or accomplish an activity is termed as a resource. The following are predominant resources of Patagonia:

Human resource

Human resource includes all the employees who are associated with the company. Patagonia’s employees are youthful and energetic. They associate well with the brand and hence have a higher sense of ownership for the larger purpose of the brand (Armstrong, 2014).

Financial stability

Patagonia’s books are debt free which in itself is a major resource for the firm specially in the face of increasing instability in the industry. A strong financial support is one of the biggest resources for any business.

Distribution channels

Distribution channels are the way of reaching out to customers (Hollensen, 2014). Patagonia’s distribution channels are strong, safe and extremely effective. They have a large number of stores in US as well as Europe. Besides that they have tied up with several ecommerce websites for the sale of their products. They have a special tie up with EBay to sell worn clothes to fans of the brand who cannot afford it.

Competency refers to the ability to accomplish something effectively and successfully. Every company has certain core competencies that the firm can leverage to create a competitive advantage. The competencies of Patagonia are listed as below:

Patagonia is extremely strict about the quality of apparel it sells to its consumers. In order to protect the environment. Patagonia was the first brand to launch products in pesticide free cotton. All its products are built from raw material that is ethically sourced and environment friendly. The consumers of the brands find it difficult to switch to another brand owing to the unmatchable quality of Patagonia’s products.

Patagonia consistently strives to make innovative and unique designs for their merchandises. They have a dedicated team that solely researches on upcoming trends and designs. This ensures a consistent interest in the brand by offering something new to consumers.

Patagonia has a young and enthusiastic culture which is full of energy. Their organizational structure is flat and hence provides employees a chance to foster their creativity and innovation.

The environmental friendly approach of Patagonia is one of its biggest competency. Patagonia’s “1% of the planet” initiative mas made the brand pledge 1% of their total sales to the environment by contributing it to agencies and organizations that work for the restoration and preservation of environment (Patagonia, 2017).

Innovating marketing strategies implemented by Patagonia have always grabbed the consumers’ attention. On the eve of black Friday, the newspapers carried a page long picture of “Do you need this jacket”, indicating users to ponder over their shopping expenses and refrain from buying unnecessary things. This was a one of kind marketing initiative that garnered huge response and respect from the consumers.

In 2015, a camper truck was seen taking a cross country road trip that repaired outdoor gear for free for everyone. In the process they also sold various used Patagonia clothes (New Yorker, 2015). This helped increase brand awareness and brand value for the firm and strengthened its position in the minds of consumers.

The brand has devised unique strategies to sell their products. Their tie up with EBay has led to the creation of “Patagonia used clothing store”, that allows customers to sell their used clothes at a lesser price to fans of the brand who cannot afford new products. In the first year of the launch, the brand brought over 42000 products back in circulation (Wall Street Journal, 2012)

Current mission statement: “Our mission is to build the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis”

The mission statement is clear and explicitly throws light on the value system of Patagonia. However, the statement shows no sign of future growth or expansion plans. The statement can be reframed as below:

“Our mission is to provide the best quality product to our customers, expand our network across the globe, continue to innovate new products, ensure efficient customer service and implement as well as inspire solutions to environmental crisis”

The statement emphasizes on few important details as below:

1. Quality of products
2. Expansion of customer network to other parts of the world besides Europe and US
3. Innovation and introduction of new products and consistently offering something fresh to customers
4. Once the products have been sold, ensuring efficient after sale service
5. Making sure that the customer experience is smooth and convenient
6. Playing an important role in solving the environmental crisis by implementing environment friendly strategies

SWOT analysis is performed by firms to get a clear understanding of their strengths and weakness which can be controlled by the firm and opportunities and threats which exist in the industry and cannot be controlled by the firm (Appendices 5).

Strengths

1. Strong brand name of Patagonia is one of its biggest strengths. The value and positioning of the brand is so efficiently done that it has now become the biggest strength for the firm.
2. Informal culture at Patagonia fosters creativity and provides a platform to innovation of young employees who work together in a flat culture.
3. Efficient hiring policies used by the firm have ensured that the employees working for Patagonia are young, enthusiastic and energetic. The employees are passionate about outdoor activities and hence feel a larger sense of ownership for the firm.
4. Patagonia has always been uncompromising with the product quality. They believe in selling the best product at a higher price. This has ensured the brand has loyal customers.
5. CSR activities of Patagonia has increased their goodwill in the market and has created a positive outlook for the firm.
6. Excellent marketing strategies used by Patagonia has attracted many million loyal customers from across the globe and ensured higher sales. These effective marketing strategies have targeted various customers and has ensured a higher brand awareness specifically in US and Europe.

Weaknesses

1. Anti-corporate attitude, uncompromising policies and extreme corporate social responsibility might limit growth for Patagonia as compared to its competitors
2. Despite the higher reach, the company is not listed on either of exchanges and hence is unable to raise money from general public.

Opportunities

1. Using ecommerce as a distribution channel is a definite opportunity for a brand like Patagonia. Most outdoor apparel brands are using ecommerce as a tool to reach out to customers and an increased usage of the same can help increase customer reach.
2. Social media marketing is one of the marketing tools that Patagonia can work upon especially because its target market is essentially made up of youngsters with high social media usage in their everyday lives (Tuten, 2014).
3. The outdoor goods market in terms of sales is very large and offers many opportunities. The European market is $12 billion euros while the US market is $6.5 billion (Reuters, 2013). Many analysts have indicated a saturation in the European market and hence Patagonia can increase focus to newer markets in Asia and Middle East.

Threats

1. The outdoor active lifestyle industry is highly competitive and has now created a red ocean. This is an increasing threat to Patagonia as the firm must be on its toes at all times and work towards gaining a competitive advantage.
2. Low barriers to entry in the industry has made it easy for various small and large businesses to enter the industry leading to increased competition (Dobscha, 2015).
3. Brand loyalty is nonexistent in the outdoor active lifestyle industry due to low cost of switching or shifting brands by customers
4. Industry demands continuous innovation due to high competition and increasing demands of customers. The threat of going obsolete or out of fashion is a constant fear for the brands.
5. Low priced options available against Patagonia’s high priced products.

Conclusion

Patagonia is one of the leading brands in the apparel wear industry which has made a significant mark in Europe as well as US and UK. The current marketing strategies adopted by the company are truly distinct and have garnered magnificent attention from the consumers. The quality of Patagonia products is one of the business’s biggest strengths. It is the kind of product that sells itself. Patagonia has used a price skimming strategy and promised to deliver quality products to its consumers for the price they pay. The environmental initiatives by the brand has provided it with a much needed edge against its competitors. Along with that, the increasing laws on environment protection have dropped the ball in Patagonia’s court.

The competition in the industry is cut throat especially because it is so easy for new brands to enter the industry. This competition has led to the advent of various low priced product which have a clear price advantage over Patagonia. However, the brand has defied to budge from the high price high quality stance. How Patagonia faces and responds to the competition from the low priced options is yet to be known.

The strong value system of the brand and CEO’s policies has made Patagonia one of the most ethical brands in the industry and there is no better route the company could have taken for it long term success. The company’s debt free books are a clear indication about the business’s growth and development. And lastly, the unique advertising strategies adopted by Patagonia have ensured them a safe spot in the minds of the consumers with a high TOMA (Top of mind awareness) score.

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