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Publishers
Clearinghouse defrauds consumers with sneaky advertising
Information
courtesy of
ANSWERS.COM
http://www.answers.com/topic/publisher-s-clearing-house
Publishers Clearing House
Incorporated: 1953
382 Channel Dr.
Port Washington, NEW YORK 11050
Phone 1-516-883-5432
Fax 516-767-4567 (Fax)
Publishers Clearing House (PCH) is one of the largest magazine
subscription agencies in the United States. The company is known as
a "stampsheet" marketer for the perforated stamps consumers stick on
their subscription forms. Publishers Clearing House is best known
for its dramatic sweepstakes, a marketing campaign that offers
millions of dollars in prizes every year. In the mid-1990s, PCH
claimed to be reaching 75 percent of U.S. households with at least
one mailing per year.
However, the company's fortunes fell after a series of lawsuits for
deceptive business practices targeted it and its competitors in the
late 1990s and early 2000s.
While its major competitor ceased offering sweepstakes, PCH
continues to run its sweepstakes, best known for the ostentatious
Prize Patrol that disburses the winnings. PCH also sells consumer
goods through direct mail and through its Web site. Items include
videos, music, books, jewelry, health and beauty products, and
collectibles. The company operates as a limited partnership, and
members of the founding Mertz family still retain a majority
interest.
During the 1950s, salespeople, usually college students going door
to door, were the largest source of subscriptions for magazine
publishers, other than their own direct-mail efforts. Harold Mertz
was manager of some of the crews of foot soldiers who trudged
through residential neighborhoods to drum up business. In 1953,
however, he founded Publishers Clearing House in the basement of his
Port Washington, Long Island, home to sell magazine subscriptions
through the cheaper method of mail promotion. His simple, but
revolutionary, idea was to increase the chance of making a sale by
offering a selection of 20 magazines, rather than just one, in a
single mailing.
Mertz's first mail package was a simple white envelope containing a
folder depicting several magazines, an offer, and a reply form. In
1967, however, the company borrowed an idea that Reader's Digest
initiated in 1962 and began making sweepstakes promotions, offering
prizes to entrants who filled out a numbered entry blank and mailed
it to the company. "We started giving out bunches of singles, fives
and ten-dollar bills as prizes," a former PCH executive recalled in
1996. "It barely made a ripple, so we went up to $5,000."
Since the numbers were preselected, Publishers Clearing House could
promote the sweepstakes truthfully with the words, "You may already
be a winner!" According to a 1980 Advertising Age article,
direct-mail marketers had discovered that they could increase sales
50 percent more through sweepstakes than by any other promotional
technique. Cash, automobiles, and vacation trips were said to be the
most appealing and popular awards. As a sweepstakes, rather than a
lottery, the contest was open to all entrants whether or not they
chose to be customers. At first PCH did not feel obligated to award
prizes if no winning entry was received, but later a second random
drawing came to be held from entries submitted if no one turned in
the winning number for the top prize.
Publishers Clearing House had its chosen field to itself until 1980,
when a consortium of Time Inc., McCall's Corp., and Meredith Corp.
formed rival American Family Publishers. Still based in Port
Washington, where it now had 100,000 square feet of office and
warehouse space, PCH was representing nearly every major publisher
in the United States and was promoting some 395 magazines. Its
mailings were going to 40 to 60 million households a year, with the
addresses obtained from other direct-mail sources to take in people
who bought by mail, who had spent more than a specified amount in
the last few months, and who paid their bills promptly. PCH also had
its own mailing list of recent customers.
PCH normally conducted two major mailings a year at this time: one
around the Christmas/New Year's period and a second in early July,
each closely timed to television commercials telling viewers to be
looking for the mailing. Between 50 to 110 magazine subscriptions
were being offered in any given mailing. A typical sweepstakes
mailing contained up to eight separate printed pieces. One of these
was a sheet of gummed stamps offering the various magazine
subscriptions at discounted rates. Also essential were the order
vehicle (generally, a return card) and the sweepstakes offer, often
a four-color brochure. Occasionally, the mailing also contained
product coupons.
Publishers Clearing House's annual sales were about $50 million in
1981, when Robin Smith, a former Doubleday executive, became its
president and chief executive officer. Annual revenues passed the
$100 million mark in 1988. After American Family Publishers raised
its biggest prize from $200,000 to $10 million in 1985, PCH had to
follow suit. In 1987, the company added a "Catalog Clearing House"
sweepstakes that included inserts promoting 36 products from a
selected group of catalogers. It was mailed to more than 1.5 million
households and offered $10 million in prizes. PCH processed the
orders, collected the payments, and sent the orders to the
catalogers with an invoice representing the difference between the
product price and its advertising and acquisition costs. During the
late 1980s, PCH also expanded its product line to include books
(mostly children's and how-to books) and audio and visual items.
By late 1991, Publishers Clearing House had 700 full-time employees
at its 14-acre complex, plus another 700 part-timers hired during
promotional drives. The staff included about 12 copywriters and four
art directors. One of the company's brightest ideas--a tag listing a
recipient's sweepstakes numbers that could be hung from a television
dial--had resulted in a 5 percent increase in entries returned. By
then, PCH had distributed more than $50 million in prizes to more
than two million people, including $13 million in fiscal 1991.
The grand prize of $10 million was
being delivered since 1988, along with flowers, champagne, and
balloons, by a Prize Patrol clad in blue blazers--and a cameraman.
Advertising Director David C. Sayer, who said he personally had
handed out more than $30 million in his years with the company and
now headed the patrol, told a reporter, "The best part of my job is
seeing how people react. One woman didn't believe me at first, and
while I kept trying to tell her that she had just won $1 million,
she just kept doing her laundry."
By this time, Publishers Clearing House was receiving subscription
requests from eight million people each year through its 25 annual
mailings, which included millionaire-of-the month mailings, fast 50s
($50,000) for early entrants, and car giveaways. It was compiling
its database by processing 450 million names from its own list and
those rented from others, and it was dropping people who, after a
certain period, failed to turn in entries or turned them in without
ordering products. Mailings were aimed primarily at the middle-aged,
middle-class consumer and disproportionately outside "the more
skeptical and cynical Northeast," as Sayer put it. Prime
prospects--those who ordered frequently -- might receive 30, even
40, mailings a year.
The need to "mail smarter" had grown more urgent because the price
of a typical sweepstakes mailing had increased to between 40 and 50
cents. The stampsheets alone cost seven cents, but, said Smith,
"Every time we think about getting rid of them, testing always
proves they are worth the money." PCH planners also had found, over
the years, that given its middle-American target audience, cold
cash, rather than exotic prizes like a private airplane or a
thoroughbred racehorse, were the grabbers. Vice-president Tom Owens
told a Washington Post reporter in 1993, "You talk to winners, all
they want to do is pay their bills and do very mundane things."
The 1992 year-end package arrived with a new "snap-pack" on the
front of the envelope, which had to be peeled open to find the
finalist notification label to paste onto the finalist notification
certificate--in other words, the entry form. According to Owens, the
rationale behind the "snap-pack" was to make the recipient react at
once in the critical first step of opening the mailing. The pasting
regulations were described as "involving devices." As Owens
explained, "The longer you have someone looking at what you're
trying to sell, the better the odds are they'll make a purchase."
PCH's share of the subscription price ranged from 74 to 90 percent.
These subscriptions were being offered at deep discounts, and PCH
insisted on a magazine's lowest advertised price. Publishers,
therefore, collected little money directly, but the increase in
circulation allowed them to charge advertisers more money. PCH also
was endearing itself to publishers by paying the magazine's share up
front, and besides, as one magazine circulation manager said, "If we
mail one million names and get no response, we still have to pay for
the mailing. If Publishers Clearing House does the mailing, we don't
pay for anything." On the debit side, however, subscribers obtained
from stampsheet agents like PCH had a low percentage of renewals.
By 1994, Publishers Clearing House and its sweepstakes rivals were
running into three problems: contest fatigue, increased government
oversight, and private lawsuits and other bad publicity. Despite
relentless promotion of its sweepstakes, including expenses of more
than $20 million a year for advertising, response rates for PCH
mailings were said to have dropped by 7 to 12 percent, and perhaps
more, in 1994. Sales volume from the mid-1995 mailings of PCH and
American Family Publishers was reported to be down 22 percent. A PCH
executive acknowledged that the company had cut back some of its
mailings because of paper and postage increases but said these cost
reductions were only in the 5 percent range and hence could not
fully account for the drop in orders. The company, however, also had
cut its advertising expenditures by 7 percent in 1994.
Government officials seemed to be casting a jaundiced eye at
Publishers Clearing House's promotions. The Federal Trade
Commission's expert on sweepstakes said the odds of winning could be
one in 100 million or worse. Being labeled a "finalist," he
declared, generally merely meant that the contestant had sent in a
previous entry. It was also noted that the $10 million prize was
not given in a lump sum, but over 30 years, with $2.5 million not
paid out until the final year. Million-dollar winners received only
$50,000 in the first year.
In 1994, PCH agreed to pay $490,000 to 14 states to settle
allegations that it used deceptive advertising in its annual
sweepstakes. The company agreed to stop using the word "finalist" on
most solicitations and to employ the phrase "final round" only in
the last weeks of the promotions. Some states had reported that all
persons receiving sweepstakes entries were identified as finalists.
PCH also agreed to explain to consumers that if they were dropped
from the mailing list they could write the company to be reincluded
in the sweeps and then entitled to all entry mailings produced for
the next 12 months.
A lawsuit was filed in 1992 after New York City sanitation workers
found several thousand Publishers Clearing House envelopes discarded
by a roadside and "literally blowing in the wind." PCH settled the
suit by agreeing to enter the names and addresses of everyone who
had received mailings between February and October 1992 for the
January 1993 $10 million contest and April 1993 $1 million contest
whether they had returned their entries or not. The company said it
had discontinued its use of outside processors, one of which it
blamed for improperly handling the discarded entries.
Disgruntled contestants were a fact of life for all sweepstakes
agencies, but Publishers Clearing House could have done without the
page-one Detroit News story in April 1997, in which Stephen Worhatch
complained he had waited in vain for the Prize Patrol in response to
a PCH letter asking him and his wife--bed-ridden with multiple
sclerosis--to draw a map to their West Bloomfield home so that the
patrol could deliver a check for the first installment of a $10
million prize. A company executive pointed out that the fine print
in the entry form said the patrol "would come to your house if you
were selected the winner." He added that the map request was merely
"a fun way to get them interested ... in the spirit of fun and
entertainment."
Another disappointed Michigan contestant, Raymond Workmon, sued PCH
in federal court for breach of contract and violation of the state
consumer protection law. He was turned down for the second time by
an appeals court in 1997, which declared, "Although Workmon believed
he had won, his belief was not reasonable. ... If Workmon read the
entire certificate, he would have known, or reasonably should have
known, he was not automatically the winner." An attorney for the
company said that it was only the third time in 20 years that a
contestant had sued PCH and that all three had lost.
By January 1996, PCH had awarded more than $92 million in prizes
since instituting its sweepstakes. The $10 million prize winner that
month was presented in a 30-second spot aired shortly after the
completion of the Super Bowl. Camera crews from Dateline News and
Extra were present, giving the event even more publicity. Like a
majority of sweepstakes winners, the lucky recipient, Mary Ann
Brandt of Phoenix, had not ordered a magazine with her entry and had
been selected in the alternate drawing from entrants after the
holder of the first randomly assigned number had failed to return
his or her entry.
Publishers Clearing House's offerings in 1997 included not only
magazines but such items as a Cal Ripken, Jr., commemorative
baseball, a Star Trek Communicator pin, a "6 in 1" hose nozzle, a
reversible lint brush, and a collection of five mercury dimes. The
company began selling subscriptions through its Web site in 1996.
This site offered sweepstakes promotions (including Internet-only
offers), discounted subscriptions to 300 magazines, and general
merchandise.
By the late 1990s, only about 12 percent of total U.S. magazine
subscription sales came from the stampsheet purveyors, including
principally PCH and its main rival, American Family Enterprises. PCH
was thought to have revenue of $345 million by 1997, and this year
was the last before the start of a rough patch, defined by numerous
lawsuits and a steep drop in subscription orders. The troubles were
actually sparked by American Family but spread to PCH as well. PCH
had settled a significant lawsuit as recently as 1994, but state
attorneys general were not done with the company. In 1997, an
American Family sweepstakes contestant, 88-year-old Richard Lusk,
flew from his home in California to Tampa, Florida, in the belief
that he had won an $11 million prize. Unfortunately, Lusk had not
perceived the fine print, which stated only that he might be a
winner. His odds of winning were actually in the range of 150
million to one. The incident got wide media coverage and started a
new round of state lawsuits against both American Family and PCH.
The bad publicity had an immediate effect on subscription orders.
Magazine industry sources claimed that orders were down by
between 30 and 50 percent by late 1998. PCH officials admitted
that orders had fallen off but would not confirm a figure. A PCH
executive told Advertising Age (October 19, 1998) that subscription
volume was down, but "certainly nowhere near the neighborhood of 40
percent." This seemed to argue for 30 percent, by any measure a
significant loss. The bad publicity seemed to be the primary reason
for the slacking of orders, but other factors may have been at work
as well. Some magazine industry analysts suggested that consumers
were tired of the whole sweepstakes phenomenon and needed something
new. Another factor may have been the widespread legalization of
state-run lotteries. Consumers may have been less likely to fill out
a laborious magazine sweepstakes form when they could easily buy
a lotto ticket for a cash prize equal to or better than what the PCH
contest offered.
The lawsuits continued to pile up. Magazine industry sources
reported a 30 percent drop off in PCH subscription sales for 1998
and flat sales for 1999. The fall off in magazine sales also
presumably led to a decline in sales of PCH's merchandise. In August
1999, PCH settled a federal suit against it, agreeing to pay $5.5
million to cover claims of some 40 million consumers. Two months
later, its main competitor, American Family, announced it was filing
for bankruptcy, unable to handle the expenses of litigation. PCH
ended 1999 with the vaunted relaunch of its Web site. The company
hoped this would be a new way to entice consumers to buy its
magazine subscriptions and goods. Yet in early 2000, the company
announced it had taken a drastic cost-cutting measure, laying off
about a quarter of its employees. Later that year, PCH settled
another raft of lawsuits, paying $18 million to 24 states and the
District of Columbia. The settlement came with a new set of rules,
such as that PCH would no longer use "involvement devices" such as
the 1992 "snap-pack" or other game pieces that seemed to offer an
increased chance to win. The company also agreed to stop contacting
its so-called "high activity" customers--people who mailed in with
extreme frequency to increase their chance of winning.
PCH continued to run its sweepstakes, including the offer of a large
prize at the annual football Super Bowl. Its competitor American
Family declared it would exit the sweepstakes business in 2000,
leaving PCH alone on the field. In 2001, PCH settled an additional
round of lawsuits, paying $34 million to 26 states. The company
agreed to another set of rules governing its contests and also set
up a "special compliance counsel" for continuing liaison with the
states. By this time, it had settled with all fifty states and the
District of Columbia, so the litigation seemed to be at an end. The
company had released no financial information after the late 1990s.
PCH continued seemingly much as usual after it put its litigation
problems behind it. The company celebrated its 50th anniversary in
2003, with festivities in Port Washington. In 2004, the company's
Prize Patrol delivered a $25,000 check to a retired Wichita couple
who had been married for more than 50 years. The husband was 91
years old and hoped to put the money away for a rainy day.
Further Reading
Alberta, Paul M., "PCH Blind-Sided by Latest Lawsuits," Direct,
March 15, 1999, p. 22.
Berglund, Elizabeth, "Winning the Publishers Clearing House Printing
Sweepstakes," American Printer and Lithographer, September 1980, pp.
47-48, 50-51.
Bounds, Wendy, "Subscriptions Drop off as Sweepstakes Soften Sell,"
Wall Street Journal, October 19, 1998, p. B1.
Conlon, Thomas J., "Sweepstakes Rank as Tops," Advertising Age,
October 6, 1980, pp. 54-55.
DeHaven, Judy, "Sweepstakes 'Winner' Feels Deceived," Detroit News,
April 18, 1997, pp. 1A, 7A.
DeMarrais, Kevin, "Sweepstakes-Sponsor American Family Enterprises
Files for Bankruptcy," Knight Ridder/Tribune Business News, November
1, 1999, p.OKRB99040E3.
Egol, Len, "Stamps of Approval," Folio's Publishing News, November
15, 1991, pp. 43-44.
Freedman, Eric, "PCH Superprize Claimant Loses Again," Folio, March
1, 1997, p. 22.
Gattuso, Greg, "PCH Agrees to Modify Copy," Direct Marketing,
October 1994, p. 6.
Jaffe, Greg, "Sweepstakes Industry May Not Be a Winner!," Wall
Street Journal, February 18, 1998, p. B1.
Kahn, Joseph P., "Super Bowl Is at Six," Boston Globe, January 28,
1996, pp. 1, 16.
Kelly, Keith J., "Mags Stamped by Dramatic Drop," Advertising Age,
October 30, 1995, pp.> 1, 4.
Krol, Carol, "Dismal Year for Sweepstakes Doesn't Signal a Demise,"
Advertising Age, October 19, 1998, p. S24.
"The Law: Sweeping Up," Promo, October 2000.
Lehman, R.J., "Raising the Stakes on Circulation," Folio, October
2000, p. 12.
Levere, Jane L., "Publishers Look to New Medium to Rekindle Sales in
Older One," New York Times, December 1, 1997, p. D11.
Meier, Barry, "You're All Finalists!," New York Times, January 27,
1996, pp. 33, 35.
Miller, Paul, "Strong Response for Catalog Clearing House Sweeps,"
Catalog Age, January 1987, p. 11.
"PCH Reaches $34 Million Sweepstakes Settlement with 26 States,"
Direct Marketing, September 2001, p. 6.
Rothenberg, Randall, "Read This and Win $10 Million!!," New York
Times, January 31, 1989, pp. D1, D21.
Saslow, Linda, "It's Sweepstakes Time, and It's a Frenzy," New York
Times (Long Island Weekly), January 20, 1991, pp. 1, 4.
Schnuer, Jenna, "Are the Stampsheets Licked?," Folio, May 15, 1995,
p. 17.
Span, Paula, "Sweep Dreams, America!," Washington Post, January 28,
1993, pp. C1, C8.
Walzer, Robert, "PCH Cleans House, Goes Virtual in Profit Play,"
Long Island Business News, February 18, 2000, p. 4A.
------, "Prize Patrol Lumbering Along," Long Island Business News,
October 22, 1999, p. 1A.
Wells, Melanie, "This Loot's for You," Advertising Age, February 6,
1996, p. 42.
More research
In the 1990s, controversy arose over allegations that Publishers
Clearing House's marketing techniques deliberately mislead
customers. Later lawsuits would allege that PCH profited greatly
from "…misleading consumers into believing they had already
won millions or that buying magazine subscriptions would better
their chances of winning…"
An investigation sparked by a lawsuit against Publishers Clearing
House in Iowa determined that "… more than 1,900 Iowans had
purchases of $1000 or more from PCH in 1996 or 1997, or possibly
both, according to PCH's own records. [Also] 289 Iowans made
purchases of $2500 or more in one or both of those years. [Another
survey by the same office] of almost half of those Iowans revealed
that 83% were age 65 or older."
Class action lawsuit and settlement
Class action lawsuits were filed in 26 states against Publishers
Clearing House with the aid of consumer protection agencies. The
lawsuit was settled between PCH and many of the states. PCH, by
terms of the settlement, ended up paying $34 million. The settlement
included that "… PCH (would) also … pay $13 million for consumer
education, costs and attorneys' fees, $1 million for civil penalties
and $1 million for the administration of the restitution."
Other terms as part of the settlement include:
The phrases: "You Have Not Yet Won. All Entries Have the Same
Chance of Winning...", "Enter for Free. You don't have to buy
anything to enter....", and "Buying Won't Help You Win. Your chances
of winning without a purchase are the same as the chances of someone
who buys something." must now be located somewhere in each
sweepstake mailing.
Mandatory prevention of misrepresenting "how close" somebody is to
winning. It follows that PCH shall not lead someone to believe that
the "Prize Patrol" is going to visit them soon. PCH is also
forbidden from simulating attention to a specific person (i.e., a
check made out to John Smith) or that a letter needs "Urgent
Attention".
Universal entry form. (Previously, people who had not ordered
received a small entry form; people who did order received a more
elaborate entry form with colors, etc.)
This settlement went under review and was accepted by the attorneys
general of Arizona, Arkansas, Colorado, Connecticut, Delaware,
Florida, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland,
Massachusetts, Michigan, Minnesota, Missouri, New Jersey, North
Carolina, Oregon, Pennsylvania, Rhode Island, Tennessee, Texas,
Vermont, West Virginia, and Wisconsin."
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