Cutco Case Write-up

Rutgers Business School: Marketing Channels

1. What is direct selling? Direct selling is the face-to-face selling away from a business location. It is technically a form of nonstore retailing. The manufacturer sells directly to the consumer or business customer as does Dell, Inc. Direct sellers are not employees of the company. They are independent contractors who market and sell the products or services of a company in return for a commission on those sales. Direct selling is a push-marketing strategy where there are no physical stores. Orders are usually placed in person or via the consultants Web page. Sometimes the phone is used to place orders or reorders, but only about 12% of sales take place this way. Home shopping parties are the most widely recognized sales method, where friends, family or acquaintances get together for a few hours to learn about or sample a range of products or services. However, the majority (about 70%) of the direct selling industrys sales actually occur using a one-to-one approach where one seller may present the products or services to a single consumer. According to the direct selling association (DSA), some recent statistics are as follows- 85% of the sellers report a good, very good or excellent experience with direct selling. 74% of U.S. adults have purchased products from a direct seller. 70% of direct selling takes place in a residence, and almost two-thirds takes place on a one-to-one basis. The popular form of direct selling is multilevel marketing. Multi-level marketing, which is commonly referred to as MLM, is one type of distribution method found in direct selling. You may also hear of the term multilevel used to refer to a type of compensation plan that pays its representatives based on the individuals product sales as well as that of their downline, which refers to a group of people that consultants bring into a company to generate sales. 2. How would one respectively characterize Cutco Corp. and Vector Marketing Corp? Cutco Corporation, formerly Alcas Corporation, is the parent company of Cutco Cutlery Corp., multi-level marketing company Vector Marketing, KA-BAR Knives Inc. and Schilling Forge. Its primary brand is also the name Cutco. The company was founded in 1949 by Alcoa and Case Cutlery (hence "Al-cas") to manufacture knives. The management purchased the company from Alcoa in 1982, and the company acquired Vector Marketing Corporation in 1985. In early 2009 Alcas changed its name to Cutco, the name of the primary product. See Figure 1

Figure 1

www.cutco.com/aboutus

More than 100 kitchen cutlery products are sold under the Cutco name, as well as a variety of kitchen gadgets, utensils and flatware. The company also carries a line of cookware, sporting and pocket knives and garden tools. As of 2012, Cutco was purchased by more than 15 million satisfied customers. Over 700 manufacturing and administrative people are employed at the Cutco/Vector headquarters in Olean, N.Y. Cutco products are marketed directly, by appointment only, to consumers in the convenience of their homes, at fairs and shows, and sold in specialty Cutco retail stores located in: St. Louis, MO, Indianapolis, IN, Lansing, MI, Erie, PA.

Vector Marketing Corporation Vector Marketing is both a multi-level and direct sales company that sells Cutco. Earlier on there were hundreds of small independent sellers of Cutco. In 1981, Vector was created as an independent seller. From 1981 to 1984 Vector sold way more than all the other independent sellers. In 1985, Cutco Corporation (back then it was called Alcas Corporation) bought the company from its owners to replicate Vectors success across the nation. Vector is now the exclusive seller of Cutco Cutlery. Vectors home office is in Olean, New York, and has over 250 year-round, independently run locations throughout the United States, Canada, and Puerto Rico. Vector has over 300 more temporary locations that open each year for the peak summer season. The sales efforts are organized by geographic location. Currently six regions exist and are combined into two companies-Vector East and Vector West. The sales representatives are primarily students who sell Cutco products during their summer vacations. Sales are made through in-house presentations in which representatives display the superiority of Cutco cutlery by cutting unconventional materials such as rope and leather. The operating margin of Vector Marketing is approximately 7 percent. Vector also runs a catalog to maintain a continuing relationship with customers after the summer peak season. Sales representatives continue to receive commissions on catalog sales as long they maintain a modest sales level. Vector also runs a website to recruit students and service current customers and provide product information. 3. How is Cutco Cutlery marketed? Cutco cutlery was designed to be the finest cutlery in the world. Cutco cutlery has always been historically marketed through direct selling primarily via Vector Marketing Corporation. The people actually selling Cutco cutlery are independent contractors who effectively operate their own business. Sales Representatives The sales representatives (mainly students) are paid a commission on the products they sell but do not receive a salary from the company. These sales are made through in-home presentations in which sales representatives validate and prove the superiority of Cutco cutlery through demonstrations. The only downfall to this method is that many of these college students join as a Cutco representative to make money for the summers and the customers they create often lose contact with Cutco products and the company afterwards.

Catalog Sales Cutco created a small catalog mailing in 1985 that is now sent to 4 million customers around four times throughout the year. In 2011, this catalog generated 120,000 orders and approximately $18 million in sales. This is important to continue because, as stated before, sales representatives often lose contact with customers after the summer and this is a great way to retain customers and continue acquiring new customer in the September through December months. Internet Activities Initially a customer-oriented website focusing on customer service and product information only, customers soon started wanting to order directly off the website. This demand for e-commerce resulted in a closed customer site in 2000, in which only existing customer were allowed to view prices and place orders. As of 2011, approximately 56,000 purchases were made online generating revenues of $8.7 million and operating margins of 9 percent. Other Marketing initiatives These included booths at county fairs and shows. In 2011, nearly 1,800 fairs and shows were booked and revenue exceeded $9 million. Another initiative existed where realtors purchased Cutco products as gifts for potential customers/clients generating $4 million in revenue. Cutco also used other avenues such as Cutco retail locations to reach customers and social media to reach future representatives and current customers to keep them abreast developments in product line changes and updates via mediums such as Facebook and Twitter.

4. What factors should be considered when evaluating the possible growth drivers? Several factors should be considered when evaluating potential growth drivers: The current economic situation is an important factor in determining how inclined consumers are willing to spend their income on cutlery. Sustainability of brand recognition and brand presence. This needs to be considered because with virtually no mass-market marketing, word-of-mouth becomes very important to spread the word about the brand and its offerings. Creating more consumer exposure to the brand would be needed to be evaluated to gain customers in the direct selling environment Availability of recruits is another factor that can influence potential growth drivers- as the number of recruits increases; the potential number of impressions can be increased. Investing in diverse recruiting procedures and multi-channel approaches to acquiring potential recruits instead of web-only efforts could be considered. Potential entry into international markets via joint ventures could be considered. This would obviously dependent upon the state of the global economy . The cost to expand supplementary channels (internet and catalog) and the potential impact on direct sales.

Effect of aggressive marketing on field sales and potential conflict arising from sales through retail stores.

5. What growth driver(s) should serve as a strategic focus? Why? Growth drivers for strategic focus should be as follows: Increasing the number of recruits will directly drive Vectors revenue growth. Additional growth can be achieved through investment and energy to improving recruiting approaches and strategies. To generate more consumer product sales in the future, Cutco must invest in brand recognition efforts. Consumers are more likely to buy a brand that they are familiar with and recognize. As competition increases in the future, this will be one of the determining factors in increasing sales in a fragmented environment. Dependence solely on the domestic economy could spell disaster for sales. Therefore, expanding to international markets could be key for the brand in order to gain an edge on the competition. Traditionally direct sales representatives could sell to homes easily since one key decision maker in the family was always at home. Today with dual-earning households, supplementary channels such as the internet and catalogs are necessary to reach households. One of the riskiest strategic options is a retail channel. However, in todays micro-segment retail environment consumers need choices and strategically this could easily complement the direct sales efforts of Vector to reach more consumers and increase revenue. Co-branding with celebrity chefs is one example of taking advantage of a pull-marketing retail environment.