In the 1960s, lottery-like contests designed to publicize products through sweepstakes competitions spread rapidly. In the 19th century, every state banned lotteries—defined as competitions in which chances to win prizes were sold—to protect citizens. In 1868, Congress prohibited the distribution of lottery materials through the mail. The mid-20th century sweepstakes, however, did not require contestants to purchase tickets or products to win prizes and were thus considered legal. In 1966, the number of national sweepstakes exceeded 600 and consumer groups accused them of deceptive practices. An FTC investigation in 1968 into sweepstakes from oil companies and supermarket chains found evidence of deception. In the following testimony to Congress in 1969, two executives representing firms that conducted large promotional sweepstakes defended them as fair and beneficial to consumers. Congress failed to pass a regulatory bill that year, and by 1998, the FTC estimated that more than 400 million sweepstakes flooded the mail annually and that consumers lost more than $40 billion each year through sweepstakes and telemarketing scams. In 1999, Congress passed the Deceptive Mail Prevention and Enforcement Act. Among other consumer protections, this Act required sweepstakes materials to clearly state odds of winning, value of prizes, and rules.
TESTIMONY OF EDGAR H. LOTSPEICH, GENERAL ADVERTISING MANAGER, THE PROCTER & GAMBLE CO., CINCINNATI, OHIO; ACCOMPANIED BY ROBERT J. WATKINS, COUNSEL . . .
Mr. LOTSPEICH. Before responding to your questions, I would like to make a brief statement concerning Procter & Gamble’s use of sweepstakes promotions. This, I believe, will be helpful in understanding my company’s administration of these promotions and its viewpoint toward them.
Our household products are all low in cost, are purchased with great frequency, and are in constant competition with other manufacturers' brands. In this kind of marketplace situation, we have learned through long experience that we must periodically offer special inducements through retail stores to encourage potential new users to try our brands and to encourage former users to try them once again.
We, therefore, as a supplement to our regular advertising campaigns, conduct a program of periodic in-store promotions.
These promotions also benefit the retail trade by providing a special merchandising opportunity to interested stores. The dealer is constantly looking for ways to attract new customers and for ways to make his store an attractive place for his regular customers to shop, and our promotions can often help him attain these goals.
Over the past several years, we have used sweepstakes as one way in which we can provide this kind of inducement to the consumer and opportunity to the trade. There are many other ways as well—including coupons, mail-in offers, and premiums, to name a few.
Our many years of business experience has led us to conclude that for our kind of products a varied mix of different promotional appeals is the best way to attract the maximum number of consumers, so sweepstakes are but one part of our promotion program—and a minor part at that.
Because consumer tastes are constantly changing, and since interest in any kind of promotional event tends to come and go, our own promotional programs are under continual review. A few years ago, consumer research conducted by Procter & Gamble indicated that sweepstakes seemed to have real appeal among a significant portion of the adult population. In addition to this consumer research, our sales organization determined that sweepstakes promotions had considerable appeal to the retail trade as a potentially useful traffic-building event. With all this information in hand, we decided to include sweepstakes as part of the promotional program for several of our brands.
As I am certain you understand, there are basically two types of sweepstakes. The first type involves a drawing. In this case, an entry blank is made available to consumers through a variety of ways. If she wants to participate, she fills it out and returns it. At the conclusion of the promotion, winners are determined by a random drawing. It is inherent in this type of promotion that all prizes announced are awarded.
The second type, and particularly true in a grocery retail outlet, they had to compete. In this type, coupons or leaflets bearing both winning and nonwinning numbers or symbols are placed into the hands of consumers by mail, through printed advertising, or through in-store display material. For example, in the case of a sweepstakes distributed by mail, consumers are instructed to see whether the number on their coupon or leaflet is a winning number.
They can do this by visiting stores where lists of winning numbers are posted, or by requesting a free list of winning numbers from the company’s independent judging organization. In this type of sweepstakes, a prize can only be awarded when the consumer comes forward to claim it.
We have submitted to the committee information on 13 sweepstakes promotions covering the 24-month period beginning July 1, 1967. Of these, 12 were the “check your number” type, and one was the “drawing” type.
As with any type of promotion, some of these, “check your number” sweepstakes were less successful than others—part of which we attribute to a decline in both trade and consumer interest. As our observations continued, we concluded that—on balance—this kind of promotion for our kind of products had pretty well run its course.
Therefore, several months ago, we decided to discontinue “check your number” sweepstakes, and to date we have no specific plans to resume them. However, we would not rule out their possible future use if at some point in time there appeared to be renewed consumer and trade interest in this type of promotion.
With this background in mind, let me now discuss how we administered these promotions.
The basic principles which guided our administration of check-your-number sweepstakes were as follows:
1. Winning numbers or symbols were mixed, distributed, and dispersed according to a numeric formula which assured random distribution and which assured that every recipient had an equal chance of winning.
2. There was a winning number or symbol in distribution for every prize announced.
3. We took every reasonable measure to assure that a consumer who wishes to participate could determine if she had won. For example, when we mailed numbers to consumers, lists of winning numbers were widely distributed throughout retail outlets. Further, the rules under which these sweepstakes were conducted clearly stated that consumers could discover if they had won simply by writing to our judging organization. They didn’t even have to visit their retail store.
4. It was made clear to participants that prizes had to be claimed in order to be awarded. This, by the way, was a necessity since the distribution process made it impossible for Procter & Gamble to know who held the winning numbers.
5. Every announced prize would be awarded if claimed. We stood ready to award the full prize structure on every sweepstakes we sponsored.
6. Our sweepstakes were administered by outside, independent organizations, and everyone involved—from printers to mail handlers to independent judges who verified the winners—operating according to detailed and scrupulous procedures. But I would like to emphasize that Procter & Gamble assumes full responsibility for the manner in which these sweepstakes were conducted.
Moreover, it was our policy to clear each sweepstakes promotion with the Office of the General Counsel of the Post Office Department to make sure that it complied with the Federal lottery law. [18 U.S.C. 1302.]
In short, every consumer who held a winning number and wished to take advantage of it, had full opportunity to collect her prize. This opportunity was in no way influenced by how many other people collected their prizes. Furthermore, there was no cost or other consideration for any participant—winner or loser. And no one had to risk anything more than postage to participate.
In addition, each of these promotions enabled us to make the local grocery outlet the focal point of our promotion. This benefited the trade, as I have noted, by increasing traffic in their stores. . . .
We have since discontinued any immediate use of this type of promotion. The principal reason, as I have discussed at some length, was the decreasing effectiveness of “check your number” sweepstakes for our kinds of products—in terms of quantifiable consumer response. A second reason, I might add, was our growing concern that the public criticism of certain types of widespread games might be tarnishing the reputation of all sweepstakes promotions. This, in turn, could have caused public and trade relations problems that we saw no reason to encourage.
Mr. Chairman, the view that has been expressed that this type of promotion is inherently wrong from the consumer’s standpoint. I think it would be inappropriate for me to conclude my statement without saying that my company does not share this view. If we felt that these promotions were inherently wrong for our customers, we would never have run them.
We ourselves have the strongest possible motivation to deal properly with our customers, because the reputation of our brands—some of which have been virtually household words in this country for years—is at stake. The consumer reputation of these brands and the continuing good will of our customers is the very lifeblood of our business. . . .
Mr. POTVIN. It seems to me, sir, that what we arrive at is this. Procter & Gamble is a great company. It has an unsurpassed reputation. There are those of us in my age bracket who grew up believing that, boy, I suppose Ivory soap was the next most American thing to apple pie. We believed that. We carved little statues out of it in school and so on, and it is really sort of sad to look at a statistic which shows you are giving away rather less than 2 percent of the prizes you have mentioned. Isn’t this the box we find ourselves in, sir? You offered in 1967, 50 first prizes, gave none, the next one offered five, gave none. The next one offered one, gave none, next one offered five, gave none, next you offered one, gave none.
Now, we get down to the next one, when you offered a first prize. Didn’t you have to wonder whether you were really going to give it away, or if it was just a glittering headline without any real substance? Would it be unfair to characterize by saying that you might have had some suspicion that you were going to talk about it but maybe you weren’t really going to give it away?
Mr. LOTSPEICH. I am not sure I understand your question. I think the answer is “No.” Are you saying—
Mr. POTVIN. In other words, you are aware of your own track record, how many prizes you have offered, how many you have given, aren’t you?
Mr. LOTSPEICH. Yes, yes, indeed.
Mr. POTVIN. So after you have had a long series of contests in which your promises were up here, your performance was down here, then would you not think it fair of an objective observer to conclude the next time you made the offer, since you knew about your own track record, that you would assume the results would be not dissimilar to those in prior contests, that is, that you would be giving away only a tiny percentage of what you had offered in the ad?
Mr. LOTSPEICH. Yes; except you characterize that as our performance, and I would like to go back, if I may, to my statement, where I said that we are firmly convinced that this type of promotion as we have run it for our products is not a disservice to our consumers, or we never would have done it.
Mr. POTVIN. I certainly would not venture to say “disservice,” sir. I am simply saying that when the brochure said $50,000 first prize or whatever, you have a long string of them not having been awarded. One has to take cognizance of the fact that you quite probably knew it would not be awarded. You, therefore, were holding out the large array of glittering prizes for the impact they had on consumption and you were pretty statistically secure in the knowledge that only an infinitesimal fraction would actually have to come out of Procter & Gamble coffers. I do not think that is unfair, is it?
Mr. LOTSPEICH. What are you getting at, sir? Are you asking me what I think of the ethics of this? Are you?
Mr. POTVIN. Basically, yes, sir.
Mr. LOTSPEICH. All right, fine.
Mr. POTVIN. Without trying to be either abrasive or offensive.
Mr. LOTSPEICH. I would be glad to comment on this. I feel all right about the ethics of this, because you have got to be talking, the way we have done it, you have got to be talking about an individual consumer. To deceive someone you have got to deceive an individual. Now, there are two ways that a consumer can respond to these things. Let me remind you they are not even exposed to them unless they are also exposed to the winning number or symbol.
They can be indifferent to it and do nothing, in which case I do not think anyone is deceived, and I feel perfectly OK about my relationship with that consumer.
The other thing they can do is they can participate, and they can take the number and go to their store and they can do that with the sure knowledge that they have as good a chance as anybody else in the United States to win that prize, and that, if they have a winning number, the prize is going to be delivered and this is the case regardless of whether their neighbors up and down the street entered into it.
Mr. POTVIN. Don’t you feel, though, that the average person when he sees that name Procter & Gamble, with its tremendous record of integrity and performance, and he sees that there are going to be, as an example, $1 million worth of prizes given, because people do not read all of the fine print. If they did, we would not need the legal profession after all, would we? Isn’t what he really thinks, that somewhere, someone who participates in the game is going to win each and every prize?
Mr. LOTSPEICH. I do not know the answer to that, but I would have no discomfort at all about revealing to consumers that all the prizes are not claimed. I would have no discomfort at all. This is one reason, as you may notice in looking through our exhibit, we have tried all kinds of different structures. I think we submitted two promotions where there was only one prize category, where everybody who entered could win a Kodak, another one everybody who—who had a winning symbol, excuse me, could get some toy dolls. We have tried various things to try to increase the level of acceptance, and we know, because it is our business to be in touch with our consumers, through research, through observations in stores, we know that there is not a big wave of consumer frustration about Procter & Gamble promotions of this type, and we are in business to know things like that. . . .
Mr. WILLIAMS. Could you tell us again the reasons Procter & Gamble decided to abandon “preselected winners” promotions?
Mr. LOTSPEICH. I think I said there were two. Let me say that first of all this particular type of promotion is not basic to our operation by any means. There were two reasons. One was frankly declining effectiveness in terms of the business measurements that we put against these things.
The second one was our concern about public criticism. We felt that it was not particularly desirable to be associated with a form of promotion which was being criticized so broadly, whether or not we agreed with the criticism. . . .
TESTIMONY OF GORDON GROSSMAN, VICE PRESIDENT AND CIRCULATION DIRECTOR, THE READER’S DIGEST ASSOCIATION, PLEASANTVILLE, N.Y.; ACCOMPANIED BY W. BARNABAS MCHENRY, GENERAL COUNSEL, AND TIMOTHY J. MAY, A MEMBER OF THE FIRM OF PATTON, BLOW, VERRILL, BRAND & BOGGS, WASHINGTON, D.C.
Mr. GROSSMAN. We requested this opportunity to testify before your committee; and we appreciate your consideration in hearing us. As one of the first users of sweepstakes promotions through the mails, we have developed a considerable amount of information about sweepstakes over the years. We hope you will find this information useful.
We think properly designed and properly conducted sweepstakes are a benefit, not only to those of us who use them in promotional material, but to the consumer—the person who receives our mailings and who may buy our products. We think the record will show that our sweepstakes have been well designed and properly conducted.
We are proud of them. Not only because we have given away almost $4 million in prizes to over 300,000 people. But because we have succeeded in improving them over the years; using a system as nearly foolproof as it is humanly possible to be. Improvements are continuous. We are pleased to announce here today that in our sweepstakes starting January 1, 1970, we will give away all advertised prizes.
We always wanted to give away all of the prizes advertised in our sweepstakes, particularly since we are increasingly aware of the goodwill generated by the hundreds of thousands of prizewinners we already have. However, the usual system of preselected numbers meant that we could give away prizes only in proportion to the number of people who responded to our promotion.
This number is by no means small. Over the past 7 years, we have awarded over 40 percent of the prizes we have advertised, in number and in value. And by value, I mean actual cost to us, not retail value, however it may be determined. Nevertheless, the system itself makes it difficult to award all of the prizes.
Therefore, we have decided to improve the system. For our January 1970 sweepstakes, the winning numbers will first be preselected in the usual way. Then, after the entries are in, the judging organization, R. H. Donnelley, will hold a random drawing from all entries toward all unclaimed prizes. Thus, all prizes will be given away. . . .
The random drawing will be made by R. H. Donnelly from all eligible entries. Briefly summarized, it consists of drawing, from batches of entries contained in boxes on skids, a sample which finally will total at least twice as many entries as needed to award the unclaimed prizes. Subsequently, when the actual number of unclaimed prizes is known, the winners will be drawn from a thoroughly mixed drum in sequence, to distribute the balance of the prizes.
The first numbers drawn will receive the most valuable unclaimed prizes, and so on until all prizes have been distributed. By this method all prizes will be distributed, according to a completely fair and random technique, insuring equal treatment of each and every entry.
The prizewinners have now been designated. Each prizewinner is asked to sign an affidavit stating that he is not a Reader’s Digest employee or an employee of the judging organization. The affidavit goes into file, the relevant social security number for large prizes is forwarded to the IRS for tax purposes, and a letter goes to the winner advising him that he is a winner and is responsible for the taxes on his prize.
Then we begin our prize fulfillment operation. Although locating winners is not always difficult, we do have regular procedures for the hard-to-find ones. In case someone has moved, we institute a tracing operation that includes field investigations by the Burns' Agency to locate big prize winners. To locate small prize winners, we write postmasters, neighbors, and even local police chiefs.
So running a sweepstakes is not as easy as it may seem. Not if it is to be run fairly and honestly. Not if the rights of each entrant are to be protected. And certainly, we at the Reader’s Digest believe that any person who takes the trouble to enter a sweepstakes does have the right to be sure that any lucky number he returns has an equal chance of winning, and that he receives any prize to which he is entitled. It is our responsibility to protect this right, and it is a responsibility we do not take lightly.
All of which raises the question: Why does Reader’s Digest use sweepstakes promotions? What part does the sweepstakes play in selling Reader’s Digest products? The answer, of course, is that a sweepstakes attracts attention. It adds drama to our mailings, help make people aware of our sales story.
It has the same function as a brass band at a political rally, or a Macy’s Thanksgiving Day parade. As we say in our letters, “We use the sweepstakes to dramatize the many values to be found in Reader’s Digest and its products.”
What happens next is up to the person who has received our letter. He decides: Shall I enter the sweepstakes or not? Shall I buy the Reader’s Digest or not? He gets our letter at home. He makes his decision at home. By himself. Without pressure. There is no salesman standing by. Nobody is twisting his arm. Our letter makes it very clear that he has an equal chance of winning a sweepstakes prize whether he buys our product or not.
“Noes” are treated the same as “yeses.” In fact, we know that more prizes are won by “noes” than by “yeses.”
In other words, our sweepstakes can call his attention to our mailing. But it cannot make him buy our magazine, and it certainly cannot make him like our magazine. Only the magazine itself can do that. So it is interesting to see what has happened after a sweepstakes entrant has subscribed.
Most of our new subscribers in the past 7 years have been introduced to Reader’s Digest through introductory mailings that have included a sweepstakes. At the end of 1963, for the first time, we had the computers necessary to calculate our overall renewal percentage. The renewal percentage is based upon the number of subscribers whose subscriptions expire in a 12-month period, and the percentage of these people who subscribe again.
We have had this figure audited by the Independent Audit Bureau of Circulations regularly since 1963. The renewal percentage of Reader’s Digest at the end of 1963 was 72.29 percent. The corresponding figure for the year ended June 30, 1969, is 74.90 percent. The renewal percentage is the best single yardstick available of the overall health of our business. The best measures of how well our customers like our magazine is how many of them come back to buy it again and again.
The fact that our renewal percentage has actually increased during this period proves that our sweepstakes mailings have attracted readers; readers who become loyal subscribers once they have been introduced to our magazine. Readers who renew their subscriptions year after year after year.
In conclusion, I would like to offer the following points for your consideration:
1. Since we first began using sweepstakes at Reader’s Digest, we have awarded $3,792,000 in prizes to 306,577 people. To our knowledge, there has never been an instance of fraud in these Reader’s Digest sweepstakes.
2. Starting in January 1970, we will begin to use a form of sweepstakes in which all of the advertised prizes will be awarded and distributed. . . .
Source: Congress, House, Select Committee on Small Business, Investigation of “Preselected Winners” Sweepstakes Promotions: Hearings before the Subcommittee on Activities of Regulatory Agencies Relating to Small Business of the Select Committee on Small Business, House of Representatives, 91st Cong., 1st sess., Washington, D.C., November 12, 13, and 14, 1969 (Washington: Government Printing Office, 1970.