As their numbers grow, women are increasingly making pricing decisions in the professions. But the role gender plays in the income-gender disparity is still not well understood. A new study on gender and how it impacts pricing decisions helps explain a part of the puzzle about the income gap between men and women. In "Pricing Decisions and Income of Professional Service Providers: A Focus on Gender," Management Professor John Slocum of SMU Cox and co-authors explain why women's salary gaps are widening compared to men, even though their years of experience are increasing.


Why the Lower Prices?

Women dominated professions tend to have lower salaries than when it's a male-dominated profession. For one, women who run their own professional services businesses are found to employ the practice of "compassionate pricing" based on the characteristics of the client. Second, a relationship orientation-a person's desire to develop and preserve relationships with others-is one aspect of this gender-pricing dynamic. And, women have a higher relationship orientation than men generally. This relationship orientation of women impacts their pricing decisions, and therefore their income. Slocum says, "Women prefer to establish long-term relationships, and therefore they don't want to price so high as to make the client go elsewhere." This desire not to be rejected shows up in women's pricing decisions, especially when there is ambiguity about the pricing of certain services. They are less likely to place demands on others that could potentially harm the relationship. For instance, fear of negative evaluation has been found to be associated with lower managerial aspirations and performance.

The study at hand was designed as an experimental simulation involving a national sample of more than 500 practicing veterinarians who own and run their own practices. Compassionate pricing manifested in the female vet charging a widow only $270 versus $376 to a young professional for identical treatment. A very important gap in the income of male compared to female owner income was revealed by the study: on average, the difference in income was $26,486.


Price and Income

The authors found that when setting transactional prices, price level is influenced by characteristics of the market, the customer characteristics involved in the transaction, the treatment procedure specified, and by the presence of associates in addition to gender. Women have a tendency to charge lower prices to individual customers because they attend to their relationships with customers and associates more than men do. While relationship orientation is related to lower prices and lower prices are related to lower income, relationship orientation also has a positive direct impact on income. This orientation can also contribute to greater word-of-mouth and customer loyalty.

Women veterinarians in the study systematically asked for higher prices when they represented more associates, while male veterinarians made no such adjustments. The "gender-related discount" appears to fade as representational responsibilities grow, ie.,  as more associates are added to the payroll. In terms of owner income, therefore, gender accounts for $10,400 of the lower female owner income, while relationship orientation and pricing tendencies explain only $528 of the differences observed in owner income.

Charging a lower price can be a benefit though in terms of building up a loyal client base, says Slocum, to gain market share. However, the resulting growth of the business would mean adding staff, and therefore raising prices as she becomes responsible for more employees. "In this current economic climate, charging higher prices may make clients walk," Slocum adds. "It could be a vicious cycle."


Managerial Implications

If the lower price enhances the positive outcomes associated with customer relationships, then it can lead to greater long-term profits. On the other hand, if price discounting behavior is either not strategic in nature, but executed out of anxiety, then its effects on the practices' financial performance are likely to be negative. Accordingly, training in bargaining skills (or a discussion of the study's findings) would be an important avenue for minimizing any disadvantage associated with having a greater relationship orientation.

Training in negotiations could be a primary means of getting over the "anxiety of asking." Women professionals with a greater relationship orientation can learn to ask for higher prices from customers and perhaps negotiate more favorable pricing levels and contracts with vendors and employees as well. These findings apply to other fee-for-service professional services in similar circumstances such as legal services, cosmetic surgery and accounting. With twice as many women as men starting up their own business, re-thinking the motivations behind pricing decisions may be in order.


"Pricing Decisions and Income of Professional Service Providers: A Focus on Gender" by William Cron of Texas Christian University, Mary Gilly of University of California, John Graham of University of California (Irvine), and John Slocum, Jr. of SMU Cox School of Business is forthcoming in Organizational Behavior and Human Decision Processes.


Written by Jennifer Warren.