CutCo Business Case

What is direct selling

Direct selling is the face-to-face selling away from a business location. It is technically a form of non-store 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 sellthe 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 placedin person or via the consultant’s 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 recognizedsales method, where friends, family or acquaintances get together for a few hours to learn about orsample a range of products or services. However, the majority (about 70%) of the direct selling industry’s sales actually occur using a one -to-one approach where one seller may present the productsor services to a single consumer.

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According to the direct selling association (DSA), some recent statistics are as follows- 85% of the sellersreport a good, very good or excellent experience with direct selling. 74% of U.S. adults have purchasedproducts from a direct seller. 70% of direct selling takes place in a residence, and almost two-thirdstakes place on a one-to-one basis.The popular form of direct selling is multilevel marketing. Multi-level marketing, which is commonlyreferred to as MLM, is one type of distribution method found in direct selling. You may also hear of theterm multilevel used to refer to a type of compensation plan that pays its representatives based on the individual’s product sales as well as that of their “downline,” which refers to a group of people thatconsultants bring into a company to generate sales.

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-levelmarketing company Vector Marketing, KA-BAR Knives Inc. and Schilling Forge. Its primary brand is alsothe name Cutco. The company was founded in 1949 by Alcoa and Case Cutlery (hence "Al-cas") tomanufacture knives. The management purchased the company from Alcoa in 1982, and the companyacquired Vector Marketing Corporation in 1985. In early 2009 Alcas changed its name to Cutco, thename of the primary product.

More than 100 kitchen cutlery products are sold under the Cutco name, as well as a variety of kitchengadgets, utensils and flatware. The company also carries a line of cookware, sporting and pocket knivesand garden tools. As of 2012, Cutco was purchased by more than 15 million satisfied customers. Over700 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 CorporationVector Marketing is both a multi-level and direct sales company that sells Cutco. Earlier on there werehundreds 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, CutcoCorporation (back then it was called Alcas Corporation) bought the company from its owners toreplicate Vector’s success across the nation.

Vector is now the exclusive seller of Cutco

Cutlery. Vector’s home office is in Olean, New York, and has over 250 year-round, independently run locations throughout the United States, Canada, and PuertoRico. 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 intotwo 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 Cutcocutlery by cutting unconventional materials such as rope and leather. The operating margin of VectorMarketing is approximately 7 percent. Vector also runs a catalog to maintain a continuing relationshipwith customers after the summer peak season. Sales representatives continue to receive commissionson catalog sales as long they maintain a modest sales level. Vector also runs a website to recruitstudents and service current customers and provide product information.

How is Cutco Cutlery marketed

Cutco cutlery was designed to be the finest cutlery in the world. Cutco cutlery has always beenhistorically marketed through direct selling primarily via Vector Marketing Corporation. The peopleactually selling Cutco cutlery are independent contractors who effectively operate their own business.Sales RepresentativesThe sales representatives (mainly students) are paid a commission on the products they sell but do notreceive a salary from the company. These sales are made through in-home presentations in which salesrepresentatives validate and prove the superiority of Cutco cutlery through demonstrations. The onlydownfall to this method is that many of these college students join as a Cutco representative to makemoney for the summers and the customers they create often lose contact with Cutco products and thecompany afterwards.

Catalog SalesCutco created a small catalog mailing in 1985 that is now sent to 4 million customers around four timesthroughout the year. In 2011, this catalog generated 120,000 orders and approximately $18 million insales. This is important to continue because, as stated before, sales representatives often lose contactwith customers after the summer and this is a great way to retain customers and continue acquiringnew customer in the September through December months.Internet ActivitiesInitially 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 resultedin a closed customer site in 2000, in which only existing customer were allowed to view prices and placeorders. As of 2011, approximately 56,000 purchases were made online generating revenues of $8.7million and operating margins of 9 percent.Other Marketing initiativesThese included booths at county fairs and shows. In 2011, nearly 1,800 fairs and shows were bookedand revenue exceeded $9 million. Another initiative existed where realtors purchased Cutco products asgifts for potential customers/clients generating $4 million in revenue. Cutco also used other avenuessuch as Cutco retail locations to reach customers and social media to reach future representatives andcurrent customers to keep them abreast developments in product line changes and updates viamediums such as Facebook and Twitter.

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 consumersare willing to spend their income on cutlery.
• Sustainability of brand recognition and brand presence. This needs to be considered becausewith virtually no mass-market marketing, word-of-mouth becomes very important to spread theword about the brand and its offerings.
• Creating more consumer exposure to the brand wouldbe 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 thenumber of recruits increases; the potential number of impressions can be increased.
• Investing in diverse recruiting procedures and multi-channel approaches to acquiring potentialrecruits instead of web-only efforts could be considered.
• Potential entry into international markets via joint ventures could be considered. This wouldobviously dependent upon the state of the global economy .
• The cost to expand supplementary channels (internet and catalog) and the potential impact ondirect sales.
• Effect of aggressive marketing on field sales and potential conflict arising from sales throughretail stores.

What growth driver(s) should serve as a strategic focus

Growth drivers for strategic focus should be as follows:

1. Increasing the number of recruits will directly drive Vector’s revenue growth. Additional growthcan be achieved through investment and energy to improving recruiting approaches andstrategies.
2. To generate more consumer product sales in the future, Cutco must invest in brand recognitionefforts. Consumers are more likely to buy a brand that they are familiar with and recognize. Ascompetition increases in the future, this will be one of the determining factors in increasingsales in a fragmented environment.
3. 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 thecompetition.
4. Traditionally direct sales representatives could sell to homes easily since one key decision makerin the family was always at home. Today with dual-earning households, supplementary channelssuch as the internet and catalogs are necessary to reach households.

One of the riskiest strategic options is a retail channel. However, in today’s micro -segment retailenvironment consumers need choices and strategically this could easily complement the directsales efforts of Vector to reach more consumers and increase revenue. Co-branding withcelebrity
chefs is one example of taking advantage of a pull-marketing retail environment.