Cutco Analysis

Ashton McCranie

Marketing Strategy- CTW

Barksdale

17 February 2015

Case Analysis: CUTCO

Situation Analysis:

1. Industry

1. Competitors: CUTCO, J.A. Henckels Zwillingswerk Inc., Wustoff-Trident, Shun Cutlery
2. Industry Sales for 2011:  $733,000,000 (appendix 1.1)
3. CUTCO’s revenue in 2012 was $250,000,000; Henckels was approximately the same. Shun Cutlery and Wustoff-Trident were unlisted, but combined can be estimated at approximately $233,000,000.
4. Marketing strategy:

1. Henckels, Wustoff-Trident and Shun Cutlery utilize department store sales and mass merchandising to market their products.

1. Pricing strategy:

1. CUTCO: highest prices in the market; list prices are valued anywhere from $30.00 (vegetable peeler) to $1,599.00 (signature set)
2. Henckels: List prices are comparable to CUTCO; street prices are valued at 25% less than list price.
3. Wustoff-Trident and Shun Cutlery- Valued well below CUTCO.

1. Company

1. History:

1. CUTCO Corporation: originally known as ALCOA (Aluminum Company of America), formed in 1902. ALCOA created the WearEver subsidiary and marketed aluminum cookware using in-home demonstrations.
2. In 1948, ALCOA and W.R. Case & Sons formed a joint venture, ALCAS. In 1972, Case sold 49% interest in ALCAS to ALCOA. 10 years later, ALCOA sold ALCAS in a leveraged buyout.
3. This was followed by a period of mergers, reorganizations, and acquisitions, which ultimately led to ALCAS being re-branded to CUTCO in 2005.

1. Revenues:

1. 2011: $260,000,000
2. In 2007, revenue was listed at $197,000,000; in the past 4 years, CUTCO has increased revenue by approximately 75%.

1. Product lines:

1. Basic set: 10 knives, can be purchased individually or in various sets.
2. Signature set: 10 knives, hardy slicer, santuko-style knife, cheese knife, shears, and 10 table knives displayed in a wooden block.
3. Additional products: 5 piece set of flatware, 6 piece serving set, a complimentary line of additional kitchen utensils, including: potato masher, pizza cutter, and cleaver. CUTCO recently added new types of santuko-style knives, as well as an explorer knife (CUTCO and KA-BAR joint venture)
4. In the past decade, product line has expanded up to 500 SKUs.
5. “Cutting edge” cutlery (exclude additional kitchen product) account for 90% of product sales

1. Pricing:

1. Retail prices range from $30.00 to $1,599.00
2. Because CUTCO knives are manufactured to be the best in the world, the price is increased approximately 5% every other year to offset one-half of rising labor and materials cost.

1. Marketing strategies:

1. Direct sales marketing
2. In home demonstration of products
3. Internet sales; page is taken down during summer months and
4. Catalogs
5. Marketing events, such as local fairs, where CUTCO products can be demonstrated

1. Trends

1. Other stores in the industry use retail stores to market, promote, and sell their product.
2. CUTCO brand has established itself as a high-end cutlery brand.

1. Other competitors have established themselves as lower cost, non-luxury cutlery brand.

1. Problem Definition

1. The most important strategic issue CUTCO faces is identifying what will be the company’s biggest growth driver for the next decade, and its subsequent implementation. CUTCO will be attempting to grow their revenue to 1 billion, and choosing the correct growth driver will be vital in growing revenue.

1. Alternatives: Identification

1. 6 strategic options:

1. Status quo strategy
2. Investment in recruiting approaches and structures
3. Investment in expansion of CUTCO brand recognition/preference
4. Expansion into International markets
5. Using supplemental sales channels
6. Full entry into retail sales channel

1. Alternatives: Analysis

1. Status quo strategy:

1. Maintain current production and selling levels, with no change.
2. 113 million households in the U.S.; median income $50,000+; 14 million college students
3. The market and sales representative pool is vast enough to carry CUTCO to their revenue goals.
4. With the economic downturn, a luxury item can be difficult to sell. However, CUTCO has had no trouble exceeding their numbers in previous years.

1. Recruiting approaches and structures:

1. Recruiting is considered a huge growth driver because of CUTCO’s direct selling model.
2. Already proactive with internet recruiting
3. Significant gains could be achieved through using newer web-based technologies, such as social media platforms.
4. Restructuring training methods for district managers is key to maintaining and improving retention.

1. Expansion of CUTCO brand:

1. Product line has grown exponentially in the past 20 years, with a minimal formal mass-market.
2. Brand-preference is very high, so there is the possibility of increasing it with relatively small additional expenditures.
3. By creating more customer exposure, CUTCO could experience long-term sales growth.

1. International expansion:

1. Achieved success in Canada; attempted to expand into North Korea, but did not achieve similar success.
2. The state of the global economy is such now that CUTCO could look into international expansion, specifically Asian countries.
3. China and Japan were discussed as being the top two choices for Asian expansion. Executives discussed taking a strategic partner to one, or both, of those countries.

1. Supplemental sales channels:

1. In addition to direct sales, CUTCO uses catalogs and the internet as their supplemental sales channels.
2. Catalog and online revenues could be increased substantially. The concern is that it will take away from direct sales revenue.
3. Minimal cash expenditures could fund the improvements to the internet and catalog sales channels. However, the strategy would have to be perfectly executed in order to yield the best results.
4. CUTCO is also considering taking a huge departure from their norm and is considering opening a retail channel.
5. This poses greatest risk/reward to their business.
6.  The biggest question here is: should it be a multinational brand? And, should CUTCO open their own stores, or should they sell their products through department stores or previously established retail chains?

1. Recommendation Statement and Reasoning:

1. Statement:

1. Considering all relevant alternatives, I think that CUTCO should implement a mix of the two strategies. I would invest in restructuring recruiting approaches and expansion of the CUTCO brand in the United States only.

1. Reasoning:

1. As shown in appendix 1.2, the expenditures for branding are minimal comparatively speaking, and the return is vast. For every one dollar spent in PR, there is the possibility of gaining at least ten back.
2. Large increases in brand recognition are highly likely using this strategy.
3. Restructuring recruiting approaches are more expensive (appendix 1.2), but as the sales force is vital to the success of CUTCO, it is crucial to expand knowledge of web-based technologies.
4. The status quo option is not as viable, because while it can maintain revenue and grow (in a thriving economy), the business does not expand. Without expansion of some kind, CUTCO could lose market share.
5. CUTCO has not been successful with their international marketing ventures, exception being Canada. They’ve suffered losses in Australia, Costa Rica, and Korea. This would be highly expensive, and given the results of previous international expansion endeavors, I am not confident that this would be anything other than an exercise in throwing money away.
6. Bolstering current supplemental sales channels (internet and catalog) is certainly important, but expanding into a retail outlet makes absolutely no sense given the way CUTCO is structured. CUTCO relies on their direct-sales channel as their primary source of revenue. Because they are the only cutlery company who uses the direct-sales channel, it differentiates them from the rest of the market. If they were to try and build their own store (opposed to selling through a department store), they may see some success; however, it may be at the expense of their direct selling force.

Appendices and Work Cited

Table 1.1

Retail sales of the U.S. housewares industry, by product type.

"Retail Sales of the U.S. Housewares Industry 2009-2012, by Product Type | Statistic."Statista. Web. 19 Feb. 2015. .

Table 1.2