Cutco: Scam or Not, The Quality is There
Have you ever heard of Cutco? If so, your mom or uncle probably has some Cutco knives in their kitchen. You might even know about Cutco Cutlery from receiving letters in the mail to sell their product. The latter is how I know about Cutco, and that letter is what sparked my short summer stint as a Cutco salesman and my detailed knowledge of the product.
I should first begin this post by mentioning the company’s legitimacy. If you search “Cutco scam” in Google, a whole slew of online reviews can be found that aggressively ridicule Cutco’s sales tactics and foundational structure. Because the company relies on young, college-aged salespersons, many customers end up being the close family and friends of new representatives. The complaints range from “guilt-driven” purchases to lies found in the recruitment letter regarding wages. Even though some people think the company’s sales technique is sleazy, the product quality and customer service are undeniably phenomenal.
http://www.cutco.com/products/video.jsp?play=modern-marvels
The word “quality” is mentioned three times in this short video above and is the clear choice as Cutco’s primary competitive priority. So how does Cutco deliver quality to their customers? They do it by managing their external failure costs and by perfecting their total quality management (TQM). External failure costs arise whenever a customer notices a defect or problem with the product after it has been purchased. External failures are rare for Cutco products, but when they do occur, it’s typically years after the original purchase date. By this time, the warranty that accompanies other top-selling brands has worn off, but not Cutco’s. Cutco is so confident in the quality of their product that if anything breaks at any point in time, they will replace it at no cost to the customer. Discussing this “Forever Guarantee” warranty with customers was always a crucial selling point during my historic career as a Cutco salesman and often closed a lot of deals. Check out this link to hear from an actual customer:
Compared to their competitors, Cutco’s warranty and management of external failure costs separate the company’s product as top quality. The “Forever Guarantee” keeps the customers happy, and as a result, Cutco successfully completes the first aspect of TQM. The second aspect, employee involvement, is ensured by Cutco in two different ways. First, Cutco employs quality inspectors who check the quality at the source at the production facility in Olean, NY. Second, Cutco encourages employees and salespersons to work together and coach each other. I always received advice about how to improve sales, and as time went by, I would coach the new team members on how to best connect with customers. Cutco would even go as far as hosting a “summit” for all young salespersons across the country. These summits were designed to increase networking, improve teamwork, and inspire drive in each attendee. I don’t think any other competitor would go to the lengths Cutco regularly does to ensure employee involvement.
The third and final piece of TQM is continuous improvement. The most important way that Cutco continuously improves is by looping back to customer satisfaction. As time progresses, technology improves, and customer preferences change, it is crucial for companies to continuously gauge their standing with customers. Even though Cutco already provides the “Forever Guarantee”, they have recently implemented new strategies like free, in-home sharpening for busy customers and a 15-day money back guarantee for customers who want to send any purchases back. These major improvements have proved to complete Cutco’s mastery of TQM. Because Cutco is able to mitigate external failure costs through their “Forever Guarantee” and perfectly blend customer satisfaction with employee involvement and continuous improvement, they successfully and consistently deliver a high-quality product to the market.
Additional link: https://www.cutco.com/customer/guarantee.jsp#sm.000vhcjvo18onf56vgp15nbr1j2jy
Nick,
It is certainly interesting to hear how such a controversial method of sales leads to such a successful business. I wonder how something like this impacts reputation. Even if they have a high quality product, and this “forever guarantee” I’m not sure this can overcome the hole this company has dug for itself. This article (https://www.thedailybeast.com/cutco-probably-asked-you-to-sell-knives-now-its-getting-sued) talks about the lawsuits which vector marketing has dealt with in the past months. There was the lawsuit dealing with how the students which were being used to sell the cutco products were classified as independent contractors, not employees. This distinction allowed Vector to cut around some of the payment requirements of a regular employee and mislead people. Right after that lawsuit was settled (and note that Vector still did not admit that what they were doing was out of line) another was brought up with a similar problem. The mangers were also considered contractors, and were having similar problems as the salespeople were. Can the quality of a product be enough to overcome internal problems in the company? Especially when they are hemorrhaging money to these lawsuits and they are missing a component of the total quality management, which is employee involvement. The employees handling the sales of the product aren’t even considered employees, so how can they contribute to this process?
I really found your post fascinating, especially considering the focus of the post is about a somewhat boring household item. For a brand like CutCo, I would think that continuous improvement would be a challenge. There isn’t that much new technology that would change how a knife would work or the benefits that it would offer a customer. Customers consider knives everyday household items and don’t purchase them as frequently as most other consumer products.
How can a company like this be continuously improving? I related this to my Market Research class and how certain marketing tactics allow for consumer goods companies to create innovative, new products that appeal to consumer-changing preferences. And how they stay ahead of competing brands.
Besides offering new product ideas, Cutco can analyze their product marketing and utilize market research and big data to gain insights into their consumers. Gathering enough information will allow them to better tailor their selling tactics, create a better relationship with the buyer, and ultimately continue their cycle of continuous improvement.
Nick,
I thoroughly enjoyed learning about how Cutco implements total quality management. Like many, I have experienced my share of Cutco-employed friends from whom our family felt pressured to buy knives (and did). Being sold knives from a teenager, rather than from a store with kitchenware, led me to believe that the knives were cheap and low quality. I thought to myself, “if they were good knives, why can’t they just sell them in stores? Why have teenagers sell them?” Obviously I was surprised to read about their shocking level of quality management. From the way you describe it, it seems like Cutco is doing everything right in order to provide the highest quality guarantee out there.
One thing that caught my attention is their “forever guarantee.” If I were to buy a product with such a guarantee, I would expect the highest quality. Even if it wasn’t the highest quality, this guarantee would lead me to believe that it is. Until just five days ago, L.L. Bean was famously known as the leader in quality guarantees with their lifetime 100% satisfaction guarantee. Customers could trade in any L.L. Bean item for a replacement if it did not live up to their expectations with no questions asked; they could do this regardless of how old the item was. Now, after all these years, they are removing this policy and instituting a more regular return policy due to more customers improperly taking advantage of the former policy’s leniency (http://www.businessinsider.com/ll-bean-kills-lifetime-return-policy-2018-2). Obviously they had good reason to cut their old policy, but it does make me wonder if they are beginning to cut corners on quality in order to stay competitive.
For me, total quality management is not just about providing a high quality product. It is also about showing that you are continuously improving and finding ways to keep quality and satisfaction high. Cutco seems to be doing everything right in that respect, while L.L. Bean has taken a step backwards in my mind.
Nick,
Honestly, this post was so surprising to me. Even though my family has had Cutco products in the house before, I never truly appreciated its quality. This is partially due to the fact that we owned Cutco products when I was younger and did not use the knives for much of my life, however I always saw the name. The “scam” persona that Cutco has developed is so interesting compared with the success they have had. I agree that must of their sales comes from “guilt-driven” purchases, but in order to be success, they must generate sales from having quality products.
As far as the quality is concerned, you hit the nail on the head Nick. After reading your article, I looked more into Cutco’s main salespeople: college students. A particular article, published all the way back in 2008, followed a day in the life of a college junior selling Cutco during the summer. In only two months, Derek Kernus managed to make nearly $32,000 worth of cutlery. To me, this is utterly shocking, but the true quality of the Cutco products makes this possible. As the article says, his scheduled meetings could include a 40-minute product demonstration, meaning he is showing off the quality of these products for the entire time. After this presentation and answering any questions, Kernus closes the sale nine out of ten times.
Finally, I think Cutco has also found a way to maximize the companies profits from salespeople who do not stick with them for very long. For example, the compensation makeup is 10% for those who sell up to $1,000, 25% for those who collect between $6,001 and $10,000. However, those who sell more than $20,000 get to keep 30% or more as commission. Above all else, Cutco is clearly successful because they were able to make a quality product, while keeping the labor costs for their salespeople relatively low. Thanks for sharing.
WSJ article for reference: https://www.wsj.com/articles/SB121788532632911239
Nicholas, I think this is a well thought out post and I love the personal insight into CutCo’s operations and quality management techniques. As we discussed in class, managing quality is an important part of any company’s operational structure. Your consumer base is not going remain loyal and consistent if you are offering products deemed poor in quality and cheap in nature. I think it is of the utmost importance to focus on the quality driven competitive priority if you are offering a product to consumers. This is not to say that quality must mean the highest positioned product in the industry, however. Quality can be seen as a trait of top end companies like Rolex or Porsche but can also be exhibited in the form of consistent quality in terms of taste or style. For instance, as we discussed in class McDonald’s demonstrates good quality in the consistency of the food they offer by way of taste and experience. One may not think that McDonald’s would be perceived as a quality driven enterprise, but in viewing their structure this would become apparent. I like that you mention the lifetime guarantee that is provided by CutCo. This makes me think of a company that I am very loyal to. Osprey Packs offers a quality driven guarantee that allows consumers to have peace of mind when buying from them. Operating in the backpacking and camping market, Osprey operates under their “All Mighty Guarentee,” which allows customers to have their packs repaired whether it was purchased in 1974 or in 2018. I think these types of qualitative aspects are important to have, and I enjoyed this post discussing that aspect of CutCo.
https://www.osprey.com/us/en/customer-support/all-mighty-guarantee