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    Hannah Reinecke
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    CUC is a membership-based marketing company formed in 1973 that sells discounted products through independent vendors. It relies on annual membership renewal fees for profitability, as acquiring new members costs $2 while renewing members generate $27.36 in net cash flow. While CUC's accounting practices were approved by auditors and regulators, analysts questioned the valuation of large marketing expenditures and whether returns from new products justified capitalizing these costs, given write-downs other companies had taken on similar assets.

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    CUC is a membership-based marketing company formed in 1973 that sells discounted products through independent vendors. It relies on annual membership renewal fees for profitability, as acquiring new members costs $2 while renewing members generate $27.36 in net cash flow. While CUC's accounting practices were approved by auditors and regulators, analysts questioned the valuation of large marketing expenditures and whether returns from new products justified capitalizing these costs, given write-downs other companies had taken on similar assets.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    9 views5 pages

    Business Description of

    Uploaded by

    Hannah Reinecke
    CUC is a membership-based marketing company formed in 1973 that sells discounted products through independent vendors. It relies on annual membership renewal fees for profitability, as acquiring new members costs $2 while renewing members generate $27.36 in net cash flow. While CUC's accounting practices were approved by auditors and regulators, analysts questioned the valuation of large marketing expenditures and whether returns from new products justified capitalizing these costs, given write-downs other companies had taken on similar assets.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    Business Description of CUC

    Formed 1973 markets membership programs to credit card holders of major financial, retailing and oil companies Most popular product is Shoppers Advantage
    Consumers pay annual membership fee to buy products online and via phone 7 days a week with attractive discounts No inventory since purchase orders are executed through independent vendors who ship directly to customers

    Key Success Factors

    Membership renewal rate determines profitability


    new

    member incurred cash outflow of $2 in first

    year net cash inflow of $27.36 for each renewing member Marketing outlays to maintain high sign-up and renewal rates

    Lemons Problem

    Companys auditors agreed on CUCs accounting practices and SEC viewed accoutning policy as acceptable However, there were no accounting standards on the topic in CUCs case to provide basis for audit opinion and SEC decision Analysts did not believe in CUCs auditors expertise to accurately judge the value of marketing outlays

    Information Mismatch

    CUCs managers believed that payoffs from new products far exceeded marketing costs reported outlays as assets on companys financial statements Safeguard Services Inc., a credit card registration company also capitilized membership acquisition costs, but had to take significant write-down on this asset Analysts equate the two cases

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