The fact that stores are struggling to find the right balance between pricing and profits during the holiday season is no surprise. They've been doing that since the dawn of department stores in the 1800s. Perhaps the biggest change occurred in 1975, when the Consumer Goods Pricing Act repealed state fair trade laws, allowing stores to sell items at whatever price they want instead of what manufacturers dictate.
Prices like "$19.99" instead of "$20" sprang up because as Baba Shiv, a marketing professor at Stanford University who focuses on neuroeconomics, puts it: "When you see something for $9.99, the brain categorizes that as being $9 rather than $10," he said. "Those things are still effective."
But at a time when shoppers are more price sensitive, some stores have gotten rid of the ubiquitous "99 cents" in prices in favor of flat prices. In fact, Kmart played up flat prices in its advertising and in-store deals on Black Friday with signs that read: "Experience our $5, $10, $20 Freak Out Pricing."
"The effort was around being able to communicate clearly to our customer in gift denominations they commonly think within," said Tom Aiello, Kmart's spokesman. "Nothing against the ".99."
Last weekend, tables at Forever 21 in New York's Times Square had clothes with prices that ended with "50 cents" -- for example, "$10.50 and up" or "$17.50 and up." Steve Martin, a 27-year-old resident of Scranton, Pa. who was shopping there, said people aren't fooled by fractional prices.
"I think most people are rounder-uppers," said Martin, who's looking for a job.
But if the price is right, shoppers will scoop up items. Twenty-somethings Malia and Kyra Bennett were out at Lloyd Center Mall in Portland, Ore., recently when they spotted workout shirts at H&M for $5 that they had to buy. "We didn't come to buy those, but they are only $5," Malia Bennett said.
Candice Choi in New York and Sarah Skidmore in Portland contributed to this story.