Publishers Clearing House

Publishers Clearing House

382 Channel Drive
Port Washington, New York 11050
U.S.A.
(516) 883-5432
Fax: (212) 265-6736
Web site: http://www.pch.com

Private Company
Incorporated: 1953
Employees: 1,015
Sales: $325 million (1997 est.)
SICs: Catalog and Mail-Order Houses

Publishers Clearing House (PCH) is believed to be the largest agency for marketing magazine subscriptions. Twice every year it conducts a major direct-mail sweepstakes promotion in which it tries to entice Americans to sign up for magazines by offering millions of dollars worth of prizes. PCH claimed in 1995 to be reaching 75 percent of U.S. households with at least one mailing per year. The company also was making a similar offer in Canada, Great Britain, France, and other countries and was using the direct-mail sweepstakes concept to sell selected products offered by catalogers. In addition, the company was selling books, audio and visual items, and general merchandise by direct mail.

Publishers Clearing House to 1980

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 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 house 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.

Refining the Concept: 1981-93

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 selling 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 that listed a recipient’s sweepstakes numbers and could be hung from a television dial—had resulted in a five 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, continually failed to turn in entries or turned them in without ordering products. Mailings were aimed primarily at the middle-aged middle class 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 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-back” 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.

Problems of the 1990s

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 seven 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 five percent range and hence could not fully account for the drop in orders. The company, however, also had cut its advertising expenditures by seven 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 Workmen, 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 Workmen believed he had won, his belief was not reasonable.… If Workmen 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.

Further Reading

Berglund, Elizabeth, “Winning the Publishers Clearing House Printing Sweepstakes,” American Printer and Lithographer, September 1980, pp. 47–48, 50–51.

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.

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.

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.

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.

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.

Wells, Melanie, “This Loot’s for You,” Advertising Age, February 6, 1996, p. 42.

—Robert Halasz