CASE STUDY: PATAGONIA - A HUMAN-CENTERED APPROACH TO MARKETING

CASE OBJECTIVES AND USE

The case can be used in a faculty seminar (such as a seminar on professional ethics or on teaching by the case method), a graduate class in business marketing, or a seminar for doctoral students (as they prepare to embark on their academic careers). The objectives are:

• Review the application of H2H marketing for managerial and ethical decision-making.
• Learn how to apply the concept to situations that involve ethical issues.
• Explore approaches that managers can use to help ensure those organizational members are sensitive to critical issues within an organization.

SYNOPSIS

This real company case, based on actual events and secondary information, describes a sensitive situation facing ... . Dean Schmidt has just completed his first year as Dean when the chairwoman of the Finance department makes him aware that faculty may have developed a casual attitude towards the intellectual property rights of others. The first reported incident deals with revising a case for use as an exam. The authors have

neglected to get the appropriate permissions (from either the author or the publisher).

Dean Schmidt's first reaction is that of disbelief. He thinks, perhaps this type of problem - which the

Finance chair believes represents a lack of respect for intellectual property -- is confined to her department. But, a later conversation indicates that these practices are widespread. Examples given by the Finance department chair include other faculty members making illegal copies of copyrighted cases, as well as professors using each other's' PowerPoint slides without attribution, displaying sloppy citation discipline when reporting on others' research and failing to list research contributors as coauthors on papers. As he considers each situation, Felix Schmidt thinks that many of them are relatively minor. But, taken together they form a disturbing pattern. As the case closes, Dean Schmidt has to decide what steps he should take to change faculty members' attitudes and behaviors regarding intellectual property.

On June 21, 2021, Ryan Gellert CEO Patagonia joins other businesses of the Voting Rights Groups in calling for US-Senate approval of the for The People Act (Patagonia/Press 2021). He did not shy away The authors developed this case for class discussion rather than to illustrate either effective or ineffective handling of the situation.

from divisive issues such as racial injustice, multiple environmental issue for saving the planet and guiding the company to greater heights in admirability and size.

In September 2020, Ryan became CEO in the middle of the Corona Pandemic and continued the mission of environmental conservation and activism. After 14 years in leading positions of the Patagonia's EMEA business, became the internal successor of Rose Marcario. Prior to joining Patagonia, Gellert worked for Black Diamond, including as Brand President (ISPO, 2020). At Patagonia, Ryan is CEO of the parent company Patagonia Works and Patagonia, Inc.

Today, Patagonia Inc. is a privately owned, American outdoor apparel and gear company headquartered in Ventura, California was founded 1973 by Yvon Chouinard. He dedicated the brand to tackle environmental challenges. Chouinard established a corporate culture over years, that could sustain the brand successfully until today and heavily differentiates it from other (apparel) companies.

Yvon Chouinard founded the company as an outdoor sport loving person with the vision to do as little harm to the environment as possible. He blamed traditional businesses for many of the world's economic, social, and environmental issues, yet believed that business also had the potential to alleviate these problems and inspire positive change (Chouinard, 2016, p. 3). This belief has since then shaped the company's culture and economic decisions.

The product range of Patagonia stretches from outdoor apparel for men, women and children, bags and sports gear to books and even food. They offer products for all varieties of "silent" outdoor sports: Climbing, hiking, surfing, skiing and snowboarding, mountain biking, trail running and even fly fishing (Patagonia, 2020).

Mid 2021, the company had over 2,300 employees and is active across five continents, with its major business still taking place in the US (Mason, 2017). Patagonia became a pioneer in many aspects of sustainable and human-centered businesses.

Patagonia's company philosophy

The company's mission is to "build the best product, cause no unnecessary harm, and use business to inspire and implement solutions to the environmental crisis" (Chouinard, 2016). Sustainability is deeply rooted within the company's value system and doing business with the most positive impact on the environment lies at the core of it. It also means, that traditional business manners did not apply to Patagonia's economic decisions and that in debt, sustainability would always be prioritized first.

Patagonia is active in environmental activism, pushes their educational work on climate change and supports non-profit organizations since day one. Patagonia has become famous for its striking anti- consumerism campaigns and political statements instead of traditionally publishing promotion campaigns for their latest collection. Obviously, the company exists to do change.

Nevertheless, profitability was never disregarded as Chouinard stated: "It's okay to be eccentric, as long as you are rich; otherwise, you're just crazy." (Chouinard, 2016, p. 160). To be noted as a serious player in the market, the company's financial situation needed to keep pace with its competitors. Still, Patagonia is a private company till today and management has rejected venture capital or other external investments, in order to be self-responsible and autonomous in its decisions. Some experts assume that the fact Patagonia was privately-owned was the reason that it could pursue environmental sustainability. They suggest that in some cases its actions towards more sustainability took place at the expense of its growth or financial performance. Yet, Patagonia stated that their efforts in increasing attention to environmental issues was never at odds with optimal financial performance (Reinhardt et al., 2010, p.3 quotes from Earnest, 2005).

Yvon Chouinard, published the book "Let my people go surfing" in 2016, in which he outlines his approach to a responsible and sustainable business. The idea of founding a business that could do different was born in nature and is bound to nature until today. Chouinard's management style was heavily influenced by his experiences he took from his outdoor trips and applied them to business, he e.g. learned to take decisions "as risk-free as possible" through climbing (Reinhardt et al., 2010, p. 3). When the waves were brilliant for a surf, Chouinard's initial retail shop was closed and the employees could enjoy their surfing session. This philosophy of a balanced and healthy work-life balance has been maintained until today, which is a major reason why Patagonia is one of the most popular employers (Reinhardt et al., 2010, p. 7).

Value-driven management has shaped the company's culture: An enthusiasm for outdoor sports, the environment, and the will to do business better than the norm, is prerequisite to become part of the management or sales team: This belief in cases also led to a lack of human resources in the top management level. Chouinard explains: "We've rushed through a lot of CEOs and a lot of management teams that didn't understand what we're about ... The values here are so deep ... [and] it is hard to find a CEO that will grow with the company." (Chouinard, 2016 2002).

This also applied for the choice of business partners, which has always been driven by values, not "commercial efficiency" (Reinhardt et al., 2010, p. 6 quotes from Cohen, 2010).

Summarizing, Patagonia's business philosophy is heavily driven by the will doing least harm to the environment by long-lasting, innovative and high-quality products while actively supporting initiatives and actions to save the planet and its natural resources.

Patagonia is a pioneer within innovative, human-centered business manners and thereby a perfect example for a Firm of Endearment (FoE). Not only is it purpose-driven and actively cares about their people, moreover the company strives to act with a positive footprint and pushes environmental activism towards a more sustainable economic landscape. Examples that underline its role as a FoE will become clear throughout the analysis, nevertheless, shall be marked at this point. Patagonia does not exist to push consumerism and drive highest sales it possibly can without respecting its footprint and the people who make it possible, their employees. Not only the firm benefits from its operations, but all affected stakeholders are actively considered. Also, Patagonia achieved to be a renown and trusted brand that means it seriously and has earned a place in many customer's and employer's hearts.

The following definition of FoEs shall be considered during all content going forward, underlining Patagonia's role in that context:

"Earn a place in the customer's heart and she will gladly offer you a bigger share of her wallet. Do the same for an employee and the employee will give back with a quantum leap in productivity and work quality. Emotionally bond with your suppliers and reap the benefits of superior offerings and responsiveness. Give communities in which you operate reasons to feel pride in your presence and enjoy a fertile source of customers and employees." (Mackey & Sisodia, 2014, p.7).

Patagonia's approach to the H2H Marketing Model

The H2H Marketing Model (Bangalore Model)

The H2H Marketing model is the theoretical framework for the H2H Marketing approach (Kotler, Pfoertsch, Spohnholz, 2020; called Bangalore Model in Pfortsch & Sponholz, 2019) presenting a human-centered approach to business, specifically in Marketing terms. The company Patagonia Inc.

shall be outlined along its factors "Design Thinking", "Service-Dominant Logic" and "Digitization" in the following. A brief overview about the main factors to consider are (Pfortsch, 2019, p. 23):

Design Thinking

- Human centeredness

- Marketing as an iterative innovation process

Service-Dominant Logic

- Theoretical foundation

- SDL as a mindset

- Importance of Customer Experience

Digitization

- Technical prerequisite for H2H Marketing

- Dematerialization

- Importance of trust

The paper focuses on how Patagonia applies the H2H Marketing model of the H2H marketing mindset and principles of the firms of endearments. Chapter 0 analysis the three components of the H2H Marketing Model within Patagonia, chapter 0 evaluates on further recommendations that can be derived from the analysis. Chapter 4 closes the case study with further outlooking questions to consider based on the results.

Design-Thinking Customer-focused product development The idea of design-thinking is rooted in Patagonia's business structure without the term itself being present within the company:

Products are designed with the needs and aspirations of "climbers and surfers" in mind and product features they truly appreciate. Certainly, the company is led and operated by "climbers and surfers" themselves. Utility and simplicity have always been key to product-related decisions matching the makers' and the customers' needs. A direct customer value-add is highly prioritized in product development (Saad, 2015).

Product Innovation

Part of Patagonia's business philosophy is continuous improvement (Chouinard, 2016, p.114). This mindset leads to new product developments improving their ecological footprint and setting new standards in sustainable apparel. Patagonia has included innovative methods and materials such as non-harmful dyes and minimal packaging. They are constantly testing and researching new methods that can even do better and therefore been able to create more long-lasting and innovative products for the market. Examples for functional or sustainable product innovations are:

- Personal Surf Inflation: An inflatable safety vest for critical surf conditions

- UPF-fabrics: Products which provide built-in sun protection that won't wear off

- Polartec Windbloc: Fabrics that block 100% of the wind for maximum protection

- H2NO Performance Standard: Waterproof, breathable and durable fabrics for long-term

performance (Patagonia Inc., 2020)

In order to proof highest longevity to their products, Patagonia has established the 'Ironclad Guarantee'. This highlights products which are especially durable, functionable and resisting. This label is another proof for Patagonia's user-centricity and a visual promise for trust in their products and promises.

Open-Source Philosophy

Patagonia has not only innovated new-to-the-market sustainable product technologies (see chapter 0) and further developed the possibilities of positive environmental impact of apparel companies, but they also shared their insights to competitors in favor for the bigger impact. Patagonia acts as a "change agent to lobby other [...] outerwear retailers" (Golovin et al., 2016, p. 3). Whenever the proof-of-concept has been built, they shared their insights and could integrate feedback and hence enlarge the product's impact.

Furthermore, Patagonia included field-testing ambassadors for their innovations and therefore could integrate direct customer feedback into the product development. Reinhardt et al., 2010, "Patagonia is leveraging the power of open innovation because the likelihood of the solution existing inside the R&D department of one company is extremely low.", summarized Robert Strand, Executive Director, Berkeley-Haas Center for Responsible Business (Beckman et al., 2019, p. 2).

Interdisciplinary Teams

Interdisciplinary teams are key to Patagonia's human resource strategy. Employees are chosen by their value-match, entrepreneurial spirit, and environmental concern instead of their academic or educational degree. This leads to diverse teams regarding their functional backgrounds, yet they share the same vision for what they are working on (Reinhardt et al., 2010, p. 7). The willingness to learn is appreciated much more and different people with various backgrounds contribute to interdisciplinary teams, which enrichens workflows and outputs.

"You can teach a dirtbag how to do business, but you can't teach an MBA grad how to climb."(Chouinard, 2016)

Even though Patagonia has increased to hire people for their technical expertise, they stick to what originally proved to be successful: "Hiring people with diverse background brings in a flexibility of thought and openness to new ways of doing things, as opposed to hiring clones from business schools who have been taught a codified way of doing business. A business that thrives on being different requires different types of people." (Chouinard, 2016, p. 159). Interdisciplinarity is a key criterium by definition for Patagonia and enables open and innovative developments within the company, closely relating to the design-thinking approach per definition.

Iterative change Mindset

Patagonia's constant market success over years has shown that the team has an attitude of change rather than resisting: "Because the world is changing, we can never assume that the way we have done things in the past is adequate for the future." (Chouinard, 2016, p. 119). Founder Chouinard observes other businesses to learn and adopt what they do successfully, e.g. McDonalds in terms of just-in-time inventory and supplier relationships (Chouinard, 2016, p. 119). Being willing and able to change, not only as a founder but as a team, has proven to be prerequisite to the company's long- lasting success.

The drive for change has been actively communicated by the marketing campaign "Don't buy this jacket" from 2011, which led to high awareness across the globe. The campaign was spread along with the Common Threads Initiative encouraging consumers to "reduce, repair, reuse and recycle" clothing (see page 9). No brand before would have promoted their products while advising

consumers against buying. A clear act of change - with the effect of raising attention to anti- consumerism in order to cause less harm to the environment. Patagonia as the sender of this message might seem diluting, yet as one considers the company's environmental activism and sustainable manners in the industry, the message appears honest and clearly change-driven.

User-centricity in Human Resources

Not without reason Patagonia was listed on various "best-company-to-work-for" lists and receives about 10,000 applications annually for very limited positions. Benefits and an enjoyable work environment have high priority, including home office and flexible working hours. The company facilitates sabbaticals of up to two months to work for environmental organizations of their choice. Furthermore, they subsidy environmental-friendly private investments and actions, such as hybrid- cars or consequences of non-violent activist arrests. Patagonia was one of the first American companies, to install an on-site childcare for their employees instead of losing their female staff (Reinhardt et al., 2010, p. 7, Chouinard, 2016, p. 162). Clearly, the users' - in this case employees' needs - are central to Patagonia's human resource strategy.

Service-dominant Logic Customer Experience Patagonia understood early that they do not only sell products, but a lifestyle and brand experiences. Simply selling and pushing commerce speaks against the value set of Patagonia. Their retail strategy is more a point-of-experience than simply a point-of-sale as their customers can gather and feel home with a bunch of friends. The first shop designed to that idea was opened in 1970ies in an old garage off the beaten shopping tracks of San Francisco (Chouinard, 2016, p. 127). Today, they also integrate local environmental organizations or movie screenings into their stores. Patagonia owns 52 retail stores worldwide, thereof 26 retail stores in the US (Reinhardt et al., 2010, p. 5).

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For Patagonia, the retail store represented not merely a place for commercial transaction, but a physical representation of the brand.

(Reinhardt et al., 2010, p. 5-6)

Every store is meant to look different, honoring all types of outdoor content needs to find a place in the stores (Chouinard, 2016, p. 129).

Image 6: Patagonia Store in San Francisco in an old service station (URL 4)

Environmental Initiatives

Patagonia is not only known for its sustainable and innovative product range or its support for environmental activism. The brand launched several environmental initiatives with global impact. They all show, that executing service is essential to the brand when selling a product, underlining the increasing relevance of S-DL businesses - customers receive added value, the brand takes a stand and the value-driven connection between them is strengthened. Two significant examples briefly described:

Common Threads Program

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The Common Threads Initiative was launched in 2011 with the mission to "reduce, repair, reuse, recycle, reimagine". Its first aspect was to encourage customers to fix damaged clothing by themselves. Patagonia therefore collaborated with iFixit, an American-based online platform for repair-guides, who worked out a do-it-yourself clothing repair guide for Patagonia. Customers were able to repair broken zippers or patch holes, Patagonia assisted them doing so with detailed step- instructions. In case the repair was too challenging, Patagonia took over the shipping costs for customers to send their garment to Patagonia's repair facility and let it be fixed against a fair wage.

Secondly, Patagonia set up a second-hand market for Patagonia garments which did not fit anymore and were no longer worn. The collaboration between eBay and Patagonia enabled customers to sell their garments on a curated online platform. Clothes which were beyond repair were repurposed by Patagonia (Dossa, 2015, p.4).

Worn Wear Initiative

The initiative was created to support the idea of Common Threads and is still active (2020). Worn Patagonia products can be returned to the store and are treated in order to sell them to a second user afterwards. The products are washed, repaired or simply repurposed, but always made to be worn again. The claim of the initiative is: "Better than new" and support the durability of Patagonian products and opens the possibilities to a new lifecycle once thought to be ended (Patagonia Inc., 2020).

For marketing and on-site repair purposes a camper named Delia drove around the country in the US to repair clothes directly, may it be Patagonia garments or not (Saad, 2015). Customers were involved and received several services in order to lengthen the lifetime of Patagonian clothes. Above all, Patagonia collected and curated stories of people experienced while wearing their garments (Patagonia Inc., 2020).

Image 7: Promotion of the "Worn Wear" Initiative (Patagonia Inc., 2020h)

Co-Creation and Customer Integration

In research, no proof has been found that Patagonia considers co-creation in terms of product development. But they do open up for different kinds of cooperations, especially in terms of

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storytelling and activism. Patagonia makes stories and brand fans part of their own brand identity by letting them become official brand ambassadors, other consumers feel related to:

Patagonia Brand Ambassadors

Image 8: Snowboard Brand Ambassadors (Patagonia Inc., 2020d)

By presenting Patagonia faces who are active sports-driven people across the globe, consumers feel as being part of the movement and can relate to their stories and experiences as a "Patagonia ambassador" themselves.

Storytelling

How Patagonia leveraged this effect of storytelling to the broad masses, is illustrated under "Digitization", as is directly connected to its digital execution, yet is a perfect example for co-creating brand content.

Donation as a Service

Not only receive customers a product and a good after-sales service when purchasing Patagonia - you even do actively good with it. 1985 Patagonia has started the "1% for the Planet" initiative: With every sold product they donate 1% to environmental alliances helping to save the ecological biosphere. Clearly, it is an act of making a statement on their concerns about environmental issues and taking responsibility. Furthermore, they support consumers contributing to it easily - as a service.

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Image 9: Promoting the 1% for the Planet initiative (Patagonia Inc., 2020b)

On Black Friday 2019 Patagonia donated 100% of their turnover to charity associations (Patagonia Inc, 2020).

Activism as a Service

Environmental activism has existed in Patagonia's history since day one. Today, they support customers making donations (1% for the Planet), they also encourage their employees to take an active role in environmental activism. In the respective employee activism program, every employee is able to choose an initiative they want to support for several weeks (Patagonia Inc., 2020). Again, work and financial security is not the ultimate quid pro quo employees receive, it is more the opportunities to live a fulfilled and enriching life whilst working.

Same accounts for the customers - When purchasing Patagonia, consumers make a statement for environmental protection without necessarily speaking out loud. Patagonia uses its reach and takes the lead in terms of activism; may it be physically or symbolically by marketing activist campaigns instead of promoting the newest collection presentation (Chouinard, 2016, p. 185). Patagonia calls themselves the "Activist Company" (Patagonia Inc., 2020), which offers a value-based customer experience. It can be understood as an additional educational service Patagonia delivers for their customers. On their website, Patagonia promotes the Patagonia Action Works Campaign ("Act Now"), where interested persons find regional environmental initiatives, they can get become active in.

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Image 10: Patagonia Action Works Interface (Patagonia Inc., 2020c)

Digitization

For Patagonia digitization works as a tool for implementing and achieving their set goals, simply seen in a functional role whenever needed. Patagonia is not a "digital native" by definition, neither have they innovated in terms of digital opportunities. Nevertheless, they have not missed to keep pace with latest technologies and innovations in the e-commerce sector.

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Transparency

The relevance of information provision is strikingly important for Patagonia in order to fulfill their promises of transparency. Patagonia uses their online channels, such as their website to publish information about their products' supply chains (Kammen & Hendricks, 2018, p. 28). Consumers receive detailed information about materials, technologies, processes and certifications (extract):

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Image 11: Materials & Technologies Transparency (Patagonia Inc., 2020f)

Dematerialization

Digitization has been an accelerator to broadcast stories about Patagonia and enabled the brand to become as value-rooted across the globe. For the initiative Worn Wear, Patagonia e.g. set up a separate online presence (see Image 12) Image 7 and could accelerate its impact, not only essential for branding purposes but again also in terms of sustainability. The messages could be easily spread by certainly related hashtags, such as #wornwear. Therefore, the products were dematerialized into stories and values, creating additional branding effects.

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Image 12: Instagram "Worn Wear" Page (Patagonia Inc., 2020a)

By publishing customers' stories about their experiences, they have had while wearing Patagonia, consumers feel integrated and appreciated. Every individual can contribute to the overall mission Patagonia leads and become an integral part of it. This shows exemplary, how digitization has created an individualization of the brand messages as customers' affairs are included into the campaign globally and digitally. Consumers do not simply consume the products but become part of the community and consume services and lifestyles. Digitization has proven to be the ideal accelerator for Patagonia's impact.

"When they're not out climbing mountains and skiing Alpine slopes, Patagonia's customers are all too willing to share about their experiences with the brand and its impact on their lifestyle." (Burkard, 2016)

Marketing and advertising investments are less than 1% of Patagonia's sales, which is comparably low in the apparel market. Social media and other online channels act as platforms incorporating educational messages for all stakeholders to make their advertising statements visible (Reinhardt et al., 2010, p. 6).

Content Management

In terms of content management, Patagonia has set up a blog collecting all lifestyle topics concerning the true Patagonia brand lover: It's called "The cleanest line".

Ahead of retail-based communication, the company uses its digital platform to educate, inspire and assist in planning processes for the next outdoor experience or to inform about environmental

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activism progress: "The cleanest line is a collaborative lifestyle guide for the modern day adventurer that discusses products, sports, and related environmental issues" (Burkard, 2016).

Image 13: Blog "The cleanest line" (Patagonia Inc., 2020i)

Location-based Services

Patagonia targets a global community of outdoor fans, which leads to the fact that temperature differs between their customer's home regions heavily. Therefore, they adapt their newsletter

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marketing according to regions and recommend different products per climate zone (Chouinard, 2016, p.126).

Future challenges and recommendations

Patagonia is an exemplary case for other companies to adopt more human- and environmental- centeredness into the core of their businesses. Patagonia clearly stands up for their purpose-of-being and inherited values. The satisfaction of shareholders has never been essentially to their business success, but the satisfaction of all stakeholders. Patagonia uses their power to do good without primarily financial or profitable interests, but in order to do change in the system. Future-looking, this business model is clearly the only reasonable option on how to set up an economic organization that is least responsible for the decay of our planet.

The time speaking to social- and environmentally conscious consumers has never been better. Climate crisis is on the political agenda, but active solutions have not been truly committed to. In a society, in which people search trust in brands rather than states or politics, Patagonia's positioning is future-leading. Generations are searching for identification, active role-models and change. A value-based communication is more empathic and connecting in today's rushed society, which is why purpose-driven companies will take the lead. Consequently, Patagonia clearly is guiding the industry into a more trust-dominant logic, in which the honest relationship to people and planet comes first (Pfortsch & Sponholz, 2019, p. 563). Patagonia gives customers a reason for being and the possibility to actively shape the sustainable future of our planet.

Therefore, Patagonia should continue to keep with their values and convictions. In order to do so and to accelerate their impact, they need to increasingly embrace possibilities of digitization in order to market their ideas to a broader public. Their marketing philosophy needs to continue to be honest and sincere instead of diluting, as the fear of getting mixed up with imitators and me-too strategies in the market is increasing.

Furthermore, individualization could be another potential segment for Patagonia. Co-creating or customizing products with their customers, who want to get involved, could increase brand loyalty and trust even more.

Still, sustainability is at the core of the company's purpose and therefore, any product development decreasing the product's harm to the environment needs to be first on the management agenda. Investments have proven to be a beneficial differentiation criterium for further market success - and as long as market success leads to positive impact for our planet, it can be evaluated as a responsible and reasonable business.

Summarizing, the following statements outline Patagonia's human-centered approach to business and what we learn from it in a nutshell (OpenIdeo, 2012):

We need to treat people like people.

We need to acknowledge that what is good for people is good for a business.

What is good for the environment is good for people.

Create quality products people can be proud of.

Further questions

Patagonia was analyzed by the main theoretical influences for H2H Marketing along the H2H Marketing model. Its marketing strategy could be further investigated, which is not in the scope of this case paper. Yet, in order to encourage further food for thought about Patagonia and its human- centered approach to business and marketing, please consider the following questions for self-study:

1) How can Patagonia achieve its goal of curbing consumerism to decrease the negative environmental footprint to which it contributes?

2) How can the H2H mindset be kept within the company's culture while growing over proportionally?

3) How do you rate the conflict between marketing anti-consumerism ("Don't buy this jacket") while generating +40% sales related to the same campaign?

4) Which marketing initiatives could further leverage Patagonia's potential of brand community and brand trust?

5) From your perspective, how should Patagonia balance its sales- vs. the activist-driven marketing communication?

6) Consider the possibility to establish a "Patagonia sustainability academy" in order to do teach change, sustainability and responsibility not only within the company's scope of business, but in the entire apparel sector.

7) How do you evaluate H2H mindset, management and processes within Patagonia?