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Cutco Corporation—Sharpening Your Market Entry
This activity is important because, as a manager, you must be able to understand the decision of which foreign markets to enter, when to enter them, and on what scale. In addition, managers need to recognize the advantages and drawbacks of each market entry mode.
The goal of this exercise is to demonstrate your understanding of market entry decisions: which markets to enter, the timing of entry, and the scale of entry.
Read the case below and answer the questions that follow.
The name Cutco comes from “Cooking UTensils COmpany,” a name once owned by Alcoa. Alcoa is a U.S. company now concentrating on work with lightweight metals and advanced manufacturing techniques. Together with W. R. Case & Sons Cutlery Company, Alcoa created the joint venture Alcas Corporation in 1949, which subsequently became Cutco Corporation in 2009.
Cutco Corporation includes the wholly owned subsidiaries Vector Marketing Corporation, which it acquired in 1985, and Cutco Cutlery Corporation. Vector Marketing is the U.S.-based sales arm of Cutco Corporation, which is headquartered in Olean, New York. More than 700 manufacturing and administrative employees work at the Olean location.
Cutco is now the largest manufacturer of high-quality kitchen cutlery in the United States and Canada. The product line includes kitchen knives and utensils, shears, flatware, cookware, and sporting knives. Look around your house and your friends’ houses, and you are likely to see one of their well-known blocks of knives in the kitchen! The price for one of the blocks with a dozen or so knives ranges from about $100 to upwards of a couple of thousand dollars. Some 16 million people have bought Cutco knives.
Originally, Cutco was created as a product for Wear-Ever Aluminum (a company focused on cookware), which at the time was a division of Alcoa. Cutco evolved from there, eventually adding its signature Wedge-Lock handle and Double-D recessed edge on some of its knives. Two things that have never changed are Cutco’s commitment to fine craftsmanship and the Forever Guarantee. The guarantee means what it implies—that Cutco stands behind its knives’ performance and sharpness forever. They also have a forever guarantee of replacing their knives for any misuse or abuse at half the cost.
Cutco, as it operates today, was formed in 1982 following a management buyout that took the company private. As with any employee or manager buyout, it was a leap of faith for the team that bought the company. But based on the company’s story, it was also the moment that secured Cutco’s future for generations to come. In this process, in 1985, Vector Marketing Corporation became the exclusive marketer of Cutco products directly to consumers via sales representatives located throughout the United States and Canada. Cutco International Inc. is responsible for international marketing.
Annual sales for Cutco now stand at about $200 million worldwide, but mainly in the United States and Canada. The product line includes more than 100 choices under the Cutco name alone. The extended line includes kitchen utensils, gadgets and flatware, sporting and pocket knives, and garden tools. For the Cutco line, the products are marketed via what is called “direct selling” (marketing of products directly to the consumer away from a fixed retail location). Internationally, outside North America, Cutco has independent office arrangements in Australia, Costa Rica, Germany, South Korea, and the United Kingdom. Puerto Rico also has independently run sales locations.
In the United States and Canada, Vector Marketing Corporation typically employs college students in the 18-to-24 age range part-time during the school year and full-time during the summers to be part of their direct sales force. The sales pitch to students is good pay, flexible schedules, personal growth, no experience needed, great training, and engagement with quality products. In fact, 85 percent of the sales force at Cutco is college-aged individuals.
This sales force is a drastic change from the early days of the company. Early on, Cutco had hundreds of small independent sellers of the company’s knives and other products. Vector Marketing became one of these sellers in 1981 and stayed in this role until 1984. In 1985, Cutco bought out Vector Marketing, and Vector became the sole channel for sales across the United States. As a core member of the Direct Selling Association, Vector Marketing Corporation drives Cutco sales using college-aged students whom they pay $12 to $20 per hour in a direct-to-customer business model. But internationally, Cutco products are still sold via a myriad of independent sellers in Australia, Costa Rica, Germany, South Korea, and the United Kingdom.
Sources: Cutco website, www.cutco.com; Vector Marketing Corporation, http://vectormarketing.com; “Company Overview of Cutco Corporation,” Bloomberg Business, March 24, 2016; J. Berghoff, Cutting Edge Sales: Confessions of Success, Influence & Self-Fulfillment from the World’s Finest Knife Dealers (New York: Morgan James Publishing, 2009); and “Bringing Help to Haiti: Vector Marketing Sales Record Holder Michael Arrieta,” PRweb, September 15, 2015.
The Cutco brand is affiliated with Cutco Corporation, Vector Marketing Corporation, and Cutco Cutlery Corporation. It seems overly cumbersome for customers to understand that Vector Marketing Corporation is selling Cutco knifes! Meanwhile, Cutco is now the largest manufacturer of high-quality kitchen cutlery in the United States and Canada. How would you structure Cutco’s branding if you entered a new international market?