A new study on gender and how it impacts pricing decisions helps explain a piece of the puzzle about the income gap between men and women. Management Professor John Slocum of SMU’s Cox School of Business – with coauthors William Cron of TCU, Mary Gilly of the University of California and John Graham of UC-Irvine – explains why women’s salary gaps continue to widen compared to men.
Women-dominated professions tend to have lower salaries than male-dominated professions, the authors found, and the ways in which women price their own services are a factor. Women who run their own professional-services businesses are found to employ the practice of “compassionate pricing” based on the characteristics of the client. A relationship orientation – a desire to develop and preserve relationships with others – is one aspect of this gender-pricing dynamic, the authors write. Women generally have a higher relationship orientation than men, which impacts their pricing decisions – and therefore their income.
The study was designed as an experimental simulation involving a national sample of more than 500 veterinarians who own and run their own practices. Compassionate pricing manifested in a female vet charging a widow only $270 versus $376 to a young professional for identical treatment. The gap in income between male owners and female owners came to $26,486 on average.
“Women prefer to establish long-term relationships, and therefore they don’t want to price so high as to make the client go elsewhere,” Slocum says. This desire not to be rejected shows up in women’s pricing decisions, especially when there is ambiguity about the pricing of certain services, and women are less likely to place demands on others that could potentially harm the relationship, he adds.
Charging a lower price can be a benefit in terms of building up a loyal client base, Slocum says. If the lower price enhances the positive outcomes associated with customer relationships, it can lead to greater long-term profits. On the other hand, if price-discounting behavior is not strategic but executed out of anxiety, its effects on financial performance are likely to be negative.