Female sole proprietors in professional services tend to charge less for their work than their male counterparts. But while it might seem women are doing themselves a disservice, new research suggests that the opposite may be true.
For decades, much has been made of the fact that women overall earn less than men, something that has largely been blamed on gender discrimination. But according to a team of U.S. researchers, even when women have substantial discretion over the amounts they charge, they still end up making less.
The revelation that women are under-selling themselves even when they have the option not is the startling conclusion of "A Behavioral Study of Pricing Decisions: A Focus on Gender," by William L. Cron of Texas Christian University in Fort Worth, John L. Graham and Mary C. Gilly of the University of California at Irvine, and John W. Slocum Jr. of Southern Methodist University in Dallas, Texas.
The effect is so striking, the paper says, 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 be driven downwards.
This finding is of particular interest because recent U.S. Census statistics indicate that professional service businesses account for approximately 11.4 per cent of the U.S. economy.
To mitigate industry differences, a single profession was sampled for the current study. The research looked at 536 veterinarians (174 women and 362 men) who own their practices.
The examination of women's self-imposed under-pricing revealed a number of intriguing results, including the possibility that the apparent gender income gap isn't quite what it seems.
"Our major finding is that the gender of professionals has a strong direct impact on their pricing decisions," said William Cron, , Associate Dean of graduate programs at Texas Christian University M.J. Neeley School of Business.
Certain characteristics of some clients may lead women business owners to give them a price break, he suggested, while 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 study found that while male vets who own their practices have average incomes much higher than their female counterparts, a large portion of this may be due to the women often having fewer years in business and smaller practices.
But as the women gain more years in business and build larger practices, the apparent income discrepancy may vanish.
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, Dr. Cron said.
What's more, he suggested, women professionals may experience greater job satisfaction than men, due to the quality of the interpersonal relationships formed with their customers.
But all that doesn't let women off the hook, when it comes to their price negotiating skills, Cron added. 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.
"Seeking training in negotiating may help women professionals resist offering price concessions unnecessarily," he says. 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."