August 08, 2006

WOMEN IN BUSINESS TEND TO UNDER-PRICE COMPARED TO MEN

Female sole proprietors in professional services tend to charge less for their work than do their male counterparts, but while it could seem they are doing themselves a disservice, the opposite may be true. 

So finds the first study to examine the effect of the gender of professional service providers on their pricing practices.

"A Behavioral Study of Pricing Decisions: A Focus on Gender," by Bill Cron, associate dean for graduate programs at the Neeley School of Business at TCU, along with John Graham and Mary Gilly of the University of California at Irvine, and John Slocum Jr. of SMU, will be presented at the national meeting of the Academy of Management on August 16, 2006, Atlanta, Georgia. The paper also has been submitted to Management Science, a prominent academic journal. 

"For decades, much has been made of the fact that women overall earn less than men, which has largely been blamed on gender discrimination," says Dr. Cron, marketing professor and holder of the J. Vaughn and Evelyne H. Wilson Professor in Business at the Neeley School. "However, this new research reveals that even when women have substantial discretion over the amounts they charge, they still make less. The effect is so striking that as various professions attract more women, with women sometimes closing in on becoming the majority, industry leaders are concerned the average incomes of entire industries may head south." 

This is notable because recent U.S. Census statistics indicate that professional service businesses account for approximately 11.4 percent of the U.S. economy. 

"Our major finding is that the gender of professionals has a strong direct impact on their pricing decisions," Dr. Cron continues. "Certain characteristics of some clients may lead women business owners to give them a price break," and women tend to be softer on prices in general in order to foster relationships. 

The upside is that while women professionals may sacrifice some income in the short term, striving to develop customer loyalty may lead to greater income stability and profitability in the long run. 

The researchers sampled 174 women and 362 men who own their veterinarian practices. (They used a single profession to mitigate any industry differences.) The women's self-imposed under-pricing revealed a number of results, including the possibility that the apparent gender income gap isn't quite what it seems. 

"While male veterinarians had average incomes much higher than female veterinarians, this could be because many of the women had fewer years in business and smaller practices. As the women gain more years in business and build larger practices, the income discrepancy may vanish," says Dr. Cron. 

The implication is that, while men are more focused on maximizing income and women are motivated by building and maintaining relationships, the two approaches may eventually arrive at income parity, suggests Dr. Cron. Also, he says, women professionals may experience greater job satisfaction than men, due to the quality of the relationships formed with their customers.

That shouldn't let women off the hook, however, when it comes to their price negotiation skills. "Female professionals should become more aware of when and why they offer discounts to customers, to avoid needlessly giving away some of their income potential," Dr. Cron says.

He suggests negotiation training may help women professionals resist offering price concessions unnecessarily. The goal would be for them to sharpen their distinction between when giving a discount is a good business decision and when it's not, and to hold their ground on pricing when the situation indicates.

Other factors influencing income are the negotiations regarding amounts paid to employees and suppliers. "We only looked at the pricing of services, but similar dynamics likely come into play with employee contracts and vendors," says Dr. Cron. "It all affects the health of the business. The underlying principles are bigger than just the pricing."

The authors of the study suggest that future research be conducted in other professions (such as medical and legal) to expand upon their findings.

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MEDIA CONTACT:
Elaine Cole
Public Relations Manager
Neeley School of Business at TCU
817-257-5724
e.cole@tcu.edu