Patagonia: Corporate social responsibility as a behavior-binding asset driving demand

“For nearly 40 years, Patagonia has prided itself on selling high-quality, high-performance outdoor apparel to dirt bags.”

 “For nearly 40 years, Patagonia has prided itself on selling high-quality, high-performance outdoor apparel to dirt bags.”[1]

From its 1970s roots as a clothier for purist alpinists, the last decade witnessed Patagonia become an unintentional luxury brand. Teasingly called “Patagucci”[2], the company vocally rejects non-utilitarian portrayals of its brand and products. Patagonia’s newfound cult status derives from its mission – to “[b]uild the best product, cause no unnecessary harm, use business to inspire and implement solutions to the environmental crisis.”[3] Quality matters, but recent appeal is mostly derived from the company’s multi-faceted commitment to corporate social responsibility.


Patagonia effectively and publicly aligns its business and operating models

to capitalize on consumer demand for responsibly made products.

Business Model: Patagonia manufactures, distributes, and sells responsibly sourced high quality outdoor clothing endorsed by mountaineering professionals at medium to high price points. Its global customer base is an often-overlapping mix of outdoor sports enthusiasts, environmentally conscious buyers, and a large pool of luxury consumers. Its long-standing participation in environmental and trade initiatives create for consumers products that combine a socially conscious ego-expression with a trending brand and quality materials. Patagonia has excelled in capturing this value, sustaining double-digit sales and profit growth since 2008.[4] This is either aided by or in spite of anti-consumerism efforts, such as Patagonia’s recent “Don’t buy this jacket” ad campaign, advocating repair and reuse of its products. Gauging the company’s success targeting these more sophisticated ethos-conscious customers to the exclusion of luxury buyers is challenging. Some doubt the effort’s earnestness – “Don’t buy this jacket” ads preceded a surge in jacket sales.



Operating Model:

Patagonia designs products in the U.S., outsources manufacturing to external suppliers in emerging markets with cheaper labor, and ships finished goods to developed markets for sale. The company screens suppliers through a “4-fold approach”: ethical sourcing, product quality, social responsibility, and environmental compliance. “All 4 areas have equal veto power” says Patagonia.[5] The business model’s credibility (adherence to ethical and environmental business practices) rests on adherence to these commitments within its operating model.

Social responsibility (environmental and labor initiatives, primarily) has become a greater competitive advantage for Patagonia than even product quality. Environmental commitments include sustainably grazed wool, 100% organic cotton, 100% traceable down, environmental audits of factories, and waste management technology.[6]

Patagonia’s labor commitments center around its participation in the Fair Labor Association (FLA). The FLA provides a credible, external third-party auditor and assessor of Patagonia and its suppliers. The FLA audits 5% of the supply chain annually and reaccredits the company every three years to ensure compliance with Patagonia’s own commitments.[7] Failing factories enroll in a “continuous improvement program” to resolve failing metrics.

These audit reports are public. This distinguishes Patagonia from other brands claiming social responsibility without verification. It also broadcasts vulnerability, motivating the company to progress in its stated goals. These efforts enabled Patagonia to successfully petition California for legal status as a Benefit Corporation (or “B-Corp”), providing legal safeguard to certain social commitments beyond profit-maximization.[8]

These models align well. Patagonia placed itself in a virtuous cycle that serves as its greatest competitive advantage. Perceptions of social responsibility increase sales, escalating the risk of non-compliance, which strengthens adherence and self-binding to social commitments, which grow these same perceptions and sales again. The risk here is real – the 2013 FLA audit publicized several failures by Patagonia to adhere to its commitments before eventually recertifying.[9] This business model frequently forces changes in the operating model. Last minute orders are often declined to avoid requiring manufacturer overtime in violation of fair labor commitments.[10] Additionally, efforts to burnish a luxury image have only increased luxury appeal, but have freed more capital for sustainability efforts central to Patagonia’s mission and promise. These long-term investments in socially responsible environmental and labor initiatives are Patagonia’s dearest asset, and have proved its greatest performance advantage.



[1] John Swansburg; Slate, March 15, 2012.

[2] Reena Jana, ZDnet, March 17, 2012.

[3] Company website.

[4] Approximate estimate derived from and, given that Patagonia is a private company with unpublished financial documents.

[5] Cara Chacon, Director of Social and Environmental Responsibility.

[6] Annual Benefit Corporation Report, FY 2013, Patagonia. Found at

[7] Patagonia Reaccreditation Report, February 2013, Fair Labor Association.

[8] Annual Benefit Corporation Report, FY 2013, Patagonia.

[9] Patagonia Reaccreditation Report, February 2013, Fair Labor Association.

[10] Cara Chacon, Director of Social and Environmental Responsibility.


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Student comments on Patagonia: Corporate social responsibility as a behavior-binding asset driving demand

  1. Great post! Besides the recent “don’t buy this jacket” campaign, has Patagonia done any marketing of their sustainable policies? Do you think Patagonia is getting full credit from the market for their operating model or do you think people are mainly buying because of the quality / luxury consumer trend?

    Also, do you know anything about the price difference Patagonia sees by using fair trade / sustainable policies relative to its competitors?

    1. Thanks for the comment CBR – Yes, Patagonia has done marketing of their sustainability policies. For example, they initiated a marketing campaign similar to their “don’t buy this jacket” one. Called the “Better than New” campaign, it promoted recycling products. In doing so, it also highlighted the durability of these same products. Here is a link talking about this initiative:

      Their self-generated marketing campaigns, I would argue, are not their most important. Achieving B-Corp status, along with their FLA accreditation, generated more WOM awareness than any of their paid media efforts.

      As far as price differences go, I am not entirely sure how this breaks out. Maybe a partial answer to your question is that Patagonia and the North Face have really emerged as the two leading players in high-quality, sustainable outdoor clothing. Arc’Teryx is probably the closest competitor outside this top tier, but doesn’t have the same sustainability reputation. Given that Patagonia and the North Face are similarly priced (on the high end), but also both engage in very public sustainability efforts, it is hard to break out exactly what price premium derives to the sustainability portion of their operating model. I hope that helps!

  2. Really interesting read. Given the importance of social responsibility to the health of the brand, I wonder how difficult the decision is to keep manufacturing outsourced to third parties vs. vertically integrating its manufacturing operations? Even if the Company kept operating in low cost geographies, owning the operations would increase control and could potentially mitigate the risk of non-compliance even further. Obviously there are large upfront and significant ongoing costs to bring an operation like that in house, but I wonder how hard that tradeoff is for them to make.

    1. Good point, BT. I am not sure exactly what capital cost math they have done regarding the decision not to bring manufacturing in house. I will say that Patagonia represents a very unique business opportunity to third party suppliers for two reasons: sustained double-digit growth (in sales, and therefore in orders), and high margins that pass through to suppliers. Because Patagonia incorporates sustainability compliance into their grading of suppliers (alongside cost), there is remarkable competition between potential suppliers to meet FLA and environmental guidance. The thorough screening of potential suppliers and the frequent auditing of existing suppliers are the most effective mechanisms enforcing this.

      Reading through the FLA reaccreditation report makes it sound harsh. That being said, Patagonia is a founding member of FLA, and one of the FLA’s flagship brands. I would imagine Patagonia brings as much awareness to FLA as the FLA brings credibility to Patagonia. This is not to say there are incentives to overlook small grievances that would otherwise impugn compliance. Quite to the contrary, the codependence of these two organizations ensures that compliance credibility is paramount. It is of existential importance to each party at this point. Suppliers recognize this fact, and when they don’t Patagonia quickly cuts ties. As a result, I doubt Patagonia would move to bring manufacturing in house. They have built sufficient enforcement mechanisms into their current operating model.

  3. Thanks for the interesting post. I noticed that Patagonia uses a 3rd party partner to certify its labor practices. Do they do something similar for their environmental practices, or do they perform the necessary audits, inspections, and certification themselves? Do you think they could outsource this function as well? Given their experience and knowledge, could they offer “certification-as-a-service” or “environmentally-friendly-sourcing-as-a-service” to other firms in the garment industry to achieve even greater impact on their B-corp goals? Do you think doing so would undermine their competitive advantage?

  4. I think another part of their operations is how well designed their products are. They know their users and how they will use their gear. In fact, their employees are some of their heaviest users. They allow their employees to leave the office and go hang out at the crag for a week to test gear, connect with nature, and remember why they do what they do. This results in happy employees, great designs, and ultimately happy customers. See:

  5. Great write up! It’s a very interesting phenomenon that a company who advertises to a certain customer base that wants high performance outdoor apparel then becomes a wildly popular luxury brand. This shift speaks to something that is happening in the athletic apparel industry at large, with Nike and others becoming more focused on being a “lifestyle brand”, in part because people simply don’t dress up as much as they used to and want comfortable clothing. With two conflicting customer bases, one a group of wealthy people who aren’t particularly outdoorsy, and the other a group of hard core outdoors adventurers – I could see a conflict between the two. People buy brands in part because they want to be seen in that brand, and with conflicting customer bases you could lose the image of what the company stands for.
    I wonder if this shift to a larger customer base will stress the capacity to meet demand. Patagonia works with specific groups of external suppliers, who must meet stringent criteria and I think it will be difficult to quickly expand and police this network as it demand increases (especially with their desire to stay away from too much overtime). Not meeting demand could eventually drive away customers.
    A key advantage, that Meghan mentioned is the work environment for employees. Volunteer days, grants, bike to work weeks, employee runs and internship programs are all appealing things that Patagonia offers to employees ( This is critical to keeping and recruiting talent that drive to built the best products possible in a sustainable way. This environment will attract employees who genuinely believe in company’s mission of quality and responsibility.

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