Analyzing gender income gaps
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Who’s at blame when self-employed professional women make less than their male counterparts?
It’s well documented that women often earn less than their male colleagues. That gap may even widen as experience levels increase in some professional service sectors.
But when women are the owner or boss, professionals such as lawyers, physicians and veterinarians can hardly put the blame for lower incomes on airtight glass ceilings.
A study co-authored by William L. Cron, Neeley’s associate dean of graduate programs and the J. Vaughn & Evelyne H. Wilson Professor in Business, attempted to tease out the reasons for the income gap between male and female veterinarians.
“Out of the simple question we started with, the research kind of went down a nice path,” Cron said of the five-year study of veterinarians, which revealed few answers but lots of questions about things like “compassionate pricing” and “relationship orientation.”
When it comes to income disparities, simple comparisons have often led to simple conclusions: Discrimination or parenting duties. But it’s definitely more complex, Cron said, especially in fields like veterinary medicine, where almost two-thirds of the students in veterinarian school are women.
They began by looking at pricing — it would have a significant impact on incomes because out-of-pocket costs for any particular procedure are typically small for veterinarians.
“What you’re paying for is their professional expertise,” Cron said. “As a result, they have a tremendous amount of pricing flexibility — at least from a cost standpoint. So they have this ability to adjust price because the costs are so low relative to their price.”
To explore pricing behavior, Cron and his team developed a field study targeting veterinarians practicing in the $4.5 billion “companion pets” category. Designed as an “experimental simulation,” the study involved a national sample of more than 500 sole-proprietor veterinarians — that is, vets who own and operate their own practice.
Surveyed by mail, the veterinarians were given a clinical situation involving a longtime client who brings in a female dog with advanced kidney failure. Cron chose this ailment based on experience with his family’s dog.
The vets were asked which of three common treatment options they would recommend and what price they would charge. (The Federal Trade Commission prohibits professional veterinarian associations from setting standardized prices.) The treatment options were created by practicing veterinarians for this study.
There was one twist: Half of the veterinarians were told the dog’s owner was a “young professional”; to the other half, she was an “elderly widow.”
“So probably people arrive at the conclusion that the widow does not have that much extra money, and here it is such a sad situation with her dog,” Cron explained. “What we found was that women were much more likely to discount, and discount at a higher level as a result of that situation.”
“Young professional” price quotes were very similar: $393 from male veterinarians and $376 from female. Although both genders lowered their price for the “elderly widow,” the women vets offered a much greater discount — $270 compared to $368 by the male veterinarians.
“That’s why we call it compassionate pricing,” Cron said. “And it leads to differences in income.”
Because of tax laws, most vet practices are set up as limited liability corporations. Any profit pulled out of the firm gets taxed as personal income. Any profits left in are taxed as company profits and then taxed again if they’re pulled out for personal income.
“So profits of the company and income of the owner are pretty much the same thing,” Cron said.
Which means pricing does impact income.
Cron and his colleagues sent their findings to journals and made presentations at conferences, where they won several awards, including the Best Paper Award at the 2007 Academy of Management Conference.
“The journal editors said, ‘Well that’s nice, but why? Why are women more prone to compassionate pricing than men?’ And so that’s what we worked on,” Cron said.
The team began looking at how compassionate pricing is related to the concept of customer orientation or “relationship orientation” — and whether women might be more relationship oriented.
“On average, women are much more tuned in to other people. They take other people’s actions more into account and likewise are more interested in establishing a constructive type of relationship,” he noted. “They are also much more likely to not want to offend. In other words, they worry about the emotional reaction of the other party.”
The team concluded that women do tend to be more relationship oriented than men. “The more sensitive a person is to relationship orientation, then the more likely they are to discount price in this compassionate situation. Which makes sense,” he said.
But here’s the kicker: While relationship orientation will cause a reduced price that drives down income, the “caring about other people” that comes with that also has a direct positive impact on income — such as establishing long-term relationships with customers, reducing customer turnover, improving customer loyalty and possibly generating better customer word-of-mouth.
“So what leads them to discount the price — which reduces income — is also something that helps them increase their income. That was the part that really sort of put it over the top,” Cron said. “Interestingly enough, at the end of all that, we were entirely unsuccessful in explaining very much of the difference in income because we had both a negative and a positive, and they kind of washed each other out. So the initial question is still open.”
That initial question also extends well beyond the borders of veterinary medicine, stretching into most any professional service practice, such as medicine, law, accounting, dentistry — all professions that are seeing increasing numbers of women enrolling in their schools.
“It’s been an interesting study. It came about in such a serendipitous way that it captured our attention, but for the most part, I work in other areas. But it’s been a lot of fun,” Cron said, noting that he has done radio interviews on the research and presented in Switzerland as well as in England at the University of Warwick, where a woman responded, “Well, Bill, I never knew you were a feminist.”
Ultimately, Cron hopes, this study will lead to others doing more research in this direction.
“I’ve learned a lot more about the feminist research stream in business and would be very open to continuing in this research,” he said.
In the near term, Cron’s research efforts are dominated by his more traditional areas of expertise — sales force strategies and capabilities in business-to-business settings.
Contact Cron at b.cron@tcu.edu.
Comment at tcumagazine@tcu.edu.
“Gender Differences in the Pricing of Professional Services: Implications for Income and Customer Relationships” will be published this summer in Organizational Behavior and Human Decision Processes. Cron’s co-authors include Mary C. Gilly and John L. Graham both of the University of California, Irvine, and John W. Slocum Jr. of Southern Methodist University. Brakke Consulting, Bayer Corp. and SMU’s Cox School of Business funded the study.
William L. Cron is a professor of marketing and associate dean of graduate programs at the Neeley School of Business. He received his undergraduate degree from Xavier University and his master’s and doctorate in business from Indiana University. His areas of expertise and research include marketing strategy, marketing of medical supplies and equipment, and sales management and wholesale management issues.
