Five reasons why gender pricing may occur

Having identified the potential extent of gender pricing penalties in the UK for Aviva in our previous blog entry Gender based pricing research shows women pay more than men, what can we say about why it might be occurring, and to what extent might it be “justified”?

Essentially, we think that there may be up to five different reasons why gender pricing may be occurring with some products or services.

1. Risk pricing

The rational explanation as to why some financial services products such as insurance were priced differently for men and women was because either the risk of claims were different between the sexes, or the pricing reflected demographic factors such as the longer life expectancy for females. However, the EU Directive has made the pricing of risk factors based purely on gender illegal.

2. Different costs of service provision

For some products or services, such as dry-cleaning or hairdressing services, differences in pricing between genders may be explained by the different costs of service provision. For example, although the cost of providing a service such as haircut and blow-dry at a unisex salon (such as Toni & Guy) may on the face of it appear to be the same for men and women, hairdressers explain that women tend to have longer hair than men, stay longer at the salon and have more care products used on their hair. This, they claim, justifies the 17%-25% difference in the pricing of such a service to their customers that our research found.

For dry-cleaning, men’s business shirts tend to be a standard design, but women’s shirts/blouses tend to be more differentiated in style, with some being more pleated, frilled, darted or buttoned than others. For dry-cleaners, this appears to mean that dry-cleaners are less able to use standard equipment for women’s garments compared to men’s, and their justification is that the service should be priced accordingly.

3. Willingness to pay

For other products, such as toiletries (e.g. deodorants, shampoos, etc.) the price differentials that are apparent for some products etc. appear to be based on a greater willingness to pay on the part of some female customers. In business school language, manufacturers of such products appear to have successfully created price segments for some of their product lines that are more appealing to females. Such products, while being essentially the same in terms of active ingredients, are differentiated through use of colouring, scents and/or packaging that make the products more appealing to female purchasers. Obviously, some women will be more driven by price, and realizing the essential sameness of the product will buy the standard line, but for those where more “femininity” in the packaging, colouring or scenting etc. is appealing, they may be willing to pay a small proportion more.

In this case, the companies are clearly doing nothing illegal or underhand, they are simply giving their customers a choice.

4. Negotiation skills

Most products – such as those sold in supermarkets etc. – have a standard price and as customers we can take it or leave it. Other items, mainly big ticket items, can be subject to a certain amount of negotiation. The purchase of a new or used car is a case in point. Cars in a showroom may have a price flagged up on the windscreen, but dealers are usually willing to negotiate.

In such situations, males may tend to have an advantage, as more males than females appear to be willing to bargain aggressively to gain a price advantage. This may also explain some of the differences in male vs. female pay: research suggests that whereas 40% of males are confident about their negotiating skills in pay rounds, only 26% of women were similarly confident.

5. Information asymmetries

It appears that some service providers (such as tradesmen and car mechanics) are willing to take advantage of information asymmetries that exist between themselves and their customers, and in some of the areas the gaps are more common for female customers rather than male customers.

For example, research in the US and the UK indicate that some mechanics quoted female customers a higher charge to fix a given problem than they did for males who arrived at the workshop with a same car with the same problem. In this case, the unscrupulous mechanics were over-charging female customers because they assumed they had less mechanical knowledge and would be less likely to challenge an inflated quotation for parts and/or labour.

The same research found that younger males can also experience over-charging compared to older males (the latter were presumably assumed to have greater knowledge).

Of the drivers of gender price differentials that we have found, it is this final area – information asymmetries – that has the most resemblance to genuine unfairness and inequity.

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