What happens to that little scrap of paper when you redeem it?

Paul Bradbury/OJO Images/Getty Images

If you have ever used coupons at the grocery store, then you know the routine. You cut coupons out of newspapers and magazines, take them to the store and use them to get discounts on certain products. A coupon is the same as cash. For example, if you have a $1.00 off coupon on a box of cereal, the cashier takes the coupon as though it were cash. It's not that common any more, but some stores will even double a coupon's face value.

Once the cashier accepts the coupon, the store has a problem. It now has a small scrap of paper that is worth cash, but in order to get the cash the store has to mail the coupon to the manufacturer. On the back of most coupons in fine print, the manufacturer lists the mailing address and states that it will also reimburse the store some amount of money for processing -- typically 8 cents per coupon. Redeeming a coupon would not be that bad if there were only a few of them, but major grocery chains collect millions of them. At that scale it becomes a major headache! The whole process seems hopelessly antiquated, but coupons remain enormously popular and that is why they continue. A coupon is, essentially, free money, and free money is hard to stop...