Cutco Corporation

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Strategic Marketing Problems
CUTCO Corporation

1. Situation Analysis
In 2007 the direct selling industry had approximately $30.8 billion in sales. Direct sellers are almost entirely independent contractors.
Virtually any product can be sold via direct selling.
Internet Sales accounted for 11.4% of direct selling dollars in 2007, however most direct selling websites focus on company information and distributor contact information.

CUTCO Corporation is a private company that is a parent holding company for: CUTCO Cutlery Corporation, KA-BAR Knives, CUTCO International, Vector Marketing Corporation and Shilling Forge. Employs over 800 people at headquarters in Olean, New York and revenues are over $200 million. Knives account for 90% of sales.

Product prices increase 5% every other year to offset half of increased costs. In 2008 there were over 700,000 orders, approximately a 27% increase from 1999. Direct sellers are almost entirely college students.

90% of Vector Marketing Corporation sales occur in the summer. International expansion has been considered successful in Canada and Korea and unsuccessful in the UK, Germany, Costa Rica and Australia. Operating Margins for the various segments of the company are available in Table 1 of the Appendix. Revenues for the various segments of the company are available as a percent of total revenues in Table 2 of the Appendix.

Over the past decade:
the direct selling industry has an annual growth rate of approximately 3.2%. the number of direct sellers has increased approximately 57% from 8.5 million (1996) to 15 million (2007). CUTCO has double the number of SKU’s to over 500.

2. Problem Statement
CUTCO Corporation must identify a major growth driver that they wish to focus on. Once this driver has been selected, CUTCO Corporation must begin planning on how to best implement it.

3. Alternative Evaluation
Increase cutlery manufacturing capacity.
Would fulfill additional capacity needed for projected growth. Poor economy allows for a good deal on an acquisition.

Cost of $10-$15 million would deplete cash deserves by 50-75%. Dilute the company’s focus.
Possible that there would be no additional net revenue growth.

II.Recruiting Approaches
Previous initiatives resulted in significant sales gains.

Investment of $5-$10 million is necessary.
Possible challenges with training and retaining district managers.

III.CUTCO Brand Recognition
Cost effective, one member believes that an investment of $1-$2 million could increase revenues by $10-$20 million.

New strategy with relatively unknown outcomes.

IV.International Expansion
Large market potential.

Out of the 6 international ventures that have been attempted only 2 are considered to be successful. Investment of $10-$15 million for each country.

V.Supplemental Sales Channels
Cost effective, minimal invest of $3 million covers both catalogs and internet. Potential to generate higher profit margins.

Devastating impact on Vector Sales Force.
Moving away from the company’s principles.

VI.Retail Sales Channel
Potential to triple revenues.
Small investment of $100,000 per store with annual revenues of $250,000 to $300,000. Neutral effect on direct selling sales.

Radical departure from past experience.
Managing a retail store requires an entirely different skill set.

4. Recommendation

At this point in time, CUTCO Corporation should focus on the growth drivers of Brand Recognition and Retail Sales Channel. Currently the other strategic options are not viable either because they: are too costly (acquisitions, international expansion), have too much risk (supplemental sales channel) or have a smaller potential (recruiting approaches). Regarding...
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