Industrial Marketing Management 40 (2011) 439–446

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Industrial Marketing Management

Generalized linear interactive model for market segmentation: The air freight market
Tsai Ming-Chih ⁎, Tsai Yi-Ting 1, Lien Ching-Wei 2
National Chung-Hsing University, Department of Marketing, 250 Kuo-Kuang Rd., Taichung City, 402, Taiwan

a r t i c l e i n f o a b s t r a c t

Article history: This study aims to provide a case study that improves the effectiveness of the macro segmentation approach.
Received 16 June 2009 Generalized linear interactive model is applied to link macro indicators with customer consumption under
Received in revised form 5 March 2010 the assumption of competition. The empirical portion of this study segments the air freight market of
Accepted 18 April 2010
Taiwanese high-tech industry. Five segmentation variables are identified and examined using 511 air
Available online 10 July 2010
shipment contracts collected from 151 high-tech manufacturers. The study results conclude that market
Keywords:
classification between forwarder and express is less clearly defined due to carriers' service enlargements and
Market segmentation customers' changing needs. Shipment destination and size may still serve as effective market classifications
Air freight to divide air freight market into twelve segments, whereas time in transit, shipment frequency, and product
Generalized linear interactive model status, have lost their validation in segmenting the market. The segmentation examinations may help air
carrier industry understand customer defection and attrition and provide strategic insights for targeting
segments and positioning service strategies.
© 2010 Elsevier Inc. All rights reserved.

1. Introduction 1998). Industrial market segmentation is primarily based on macro

Market segmentation is defined as the act of dividing a market into
distinct and meaningful groups of customers by definable consumer
characteristics to identify groups of firms whose purchasing require-
ments and responses to marketing plans are similar (Freathy &
O'Connell, 2000; May 1985; Reeder, Brierty, & Reeder, 1991).
Segmentation analysis can help companies appraise their capabilities
and design more suitable marketing practices. It is a logical
development of the marketing concept and remains a key decision
area for organizations undertaking marketing and strategic planning
to reduce operational costs via elimination of redundant efforts, as
well as to effectively allocate the firm's resources to target markets
(Berrigan & Finkbeiner, 1992; Dibb & Wensley, 2002; Dickson, 1982).
Industrial market segmentation is based on classifications of macro
segmentation and micro segmentation (Wind & Cardozo, 1974).
Macro segmentation centers on the characteristics of the buying
organization and the buying situation and thus divides the market by
such organizational characteristics. On the other hand, micro
segmentation requires a higher degree of market knowledge, and
focuses on the characteristics of decision-making units within a macro
segmentation including buying decision criteria, perceived impor-
tance of the purchase, and attitudes toward service vendors (Dibb,
⁎ Corresponding author. Tel.: +886 4 2285 1239; fax: +886 4 22860993.
E-mail addresses: mctsai@dragon.nchu.edu.tw (T. Ming-Chih), ettying@gmail.com
(T. Yi-Ting), williamfight@hotmail.com (L. Ching-Wei).
1
Tel.: + 886 4 2285 1239; fax: + 886 4 22860993.
2
Tel.: + 886 4 2285 1239; fax: + 886 4 22860993.
segmentation (Verhallen, Frambach, & Prabhu, 1998). Characteristics
such as the geographic and demographic features of a sub-population
are identified as the most common variables used in segmentation
studies to profile segments and thus enhance identifiability and
accessibility (Freytag & Clarke, 2001; Hassan, Craft, & Kortam, 2003;
Sudharshan & Winter, 1998; Wedel & Kamakura, 2000).
Nevertheless, the macro approach is not the most effective method
for segmentation (Dibb & Wensley, 2002). Practitioners appear to
prefer very simple approaches (Clarke & Freytag, 2008). ANOVA and
clustering analysis are often used in segmenting analysis. But they are
capable only of exploring the differences in the demographic referents
of the usage segments. Segmenting markets by customer consump-
tion can be quite insightful for understanding the customer mix and
provide strategic guidance to management (Weinstein, 2002).
However, the strength of the relationship between the macro
descriptors and the responses of customers is very limited (Powers
& Sterling, 2008). Besides, the macro approach does not consider
competition to provide basic information on segment formation and
facilitate the selection of promising segments (Powers & Sterling,
2008; SoÈllner & Rese, 2001). The presence and nature of potential
competitors will have implications for optimal competitive position-
ing and profitability of segments. To date, the segmentation literature
has generally ignored this issue (Steenkamp & Hofstede, 2002). In
contrast to customer analysis, the methodological consideration of
competitors is rather superficial and unsystematic (SoÈllner & Rese,
2001).
In addressing this lack, this study aims to provide a case study that
improves the effectiveness of the macro segmentation approach.

0019-8501/$ – see front matter © 2010 Elsevier Inc. All rights reserved.
doi:10.1016/j.indmarman.2010.06.001
440 T. Ming-Chih et al. / Industrial Marketing Management 40 (2011) 439–446
Generalized linear interactive model (GLIM) is applied to link macro
indicators with customer consumption under the assumption of
competition. As a categorical data analysis tool, GLIM is widely used in
many fields. But it has yet to be applied in examining segmentation
practices. The empirical portion of this study segments the air freight
market of Taiwanese high-tech industry. Pacing the rapid growth of
international trade, air freight market growth has been exponential.
The delivery of high-value products is served mainly by air, satisfying
customers with rapid, secure, and punctual service. Two of the most
important types of firms serving this market are forwarders such as
Exel (DHL), Schenker and Ciba, and express companies such as Fedex,
UPS, and DHL (Bowen & Leinbach, 2004; Forster & Regan, 2001). But
competition between these two types of firms is fierce, forcing them
to constantly obtain new clients. Under such conditions, customer
markets become less and less well defined (Lobo & Zairi, 1999). Thus,
success depends to a large extent on the ability to effectively identify
and target potential customers. However, few studies have investi-
gated segmentation by air carriers under competition.
This case study uses a large sample to support a call for conducting
empirical segmentation practices (Dibb & Simkin, 1996; Hooley &
Saunders, 1993). Five hundred eleven recent air shipment contracts
(whose duration is more than one year) were collected from 151
high-tech manufacturers using face-to-face and telephone interviews.
This data on air freight segments is tested and the best segmentation
model is stepwise fitted using SAS 9.1 software. Statistical examina-
tions may clarify segments of the high-tech market in Asia that have
received increasing interest from both researchers and practitioners
(Ku, Liau, & Hsing, 2005; Li, Lam, & Qian, 2000). It is vital for air
carriers to understand the market and plan target strategies and
positioning policies.
2. Analytical model
2.1. Generalized linear interactive model (GLIM)
The segmentation model is expressed as a log-linear form of the
generalized linear interactive model (GLIM), a well-developed
categorical data analysis tool. The nature of this specification relates
to the association and interaction structure among the variables. The
parameters are calibrated by maximum likelihood estimation (MLE)
technique. Thus, the parameter values estimated are those that
maximize the likelihood of the models through a process of iteration,
given the data. The case study using GLIM is justified for the following
four reasons: (1) GLIM is capable of formulating the relationship
categorically. As macro variables are generally expressed in a
categorical form, they can be well expressed within the GLIM; (2)
GLIM allows the statistical significance of partial and marginal
association to be tested for a given combination of segmenting
variables. Thus, heterogeneity of segments can be examined in a more
careful manner; (3) GLIM can compare the market performance of
one serving firm to its major competitor. It may handle the non-
negativity of share rates between two service alternatives and clarify
the associations and interaction structure of the segmentation
variables (Fridstrøm, Ifver, Ingebrigtsen, Kulmala, & Thmsen, 1995;
Laberge-Nadeau, Dionne, Maag, Desjardins, & Vanasse, 1996; Sacco-
manno & Buyco, 1988); and (4) The parameters calibrated by GLIM
have been proven to be the best linear unbiased estimator (BLUE)
(Agresti, 1990).
Industrial customers tend to use a contract to purchase a product/
service for a specific period of duration, such as a year. Accordingly,
we define share rate to clarify users and non-users within a segment
for the duration of a given contract. The quantitative share rate may
better describe the consumption pattern of industrial customers, and
identify segments of users/non-users that are important classifica-
tions for usage segmentation (Weinstein, 2002). In the air freight
market, forwarders and express firms are the main competitors
(Bowen & Leinbach, 2004; Forster & Regan, 2001). Thus, in the
development of the GLIM, the share rate is measured by dividing the
number of shipments delivered by either express firms or forwarders
by the total number of shipments in a segment. As the choice is binary,
this study defines r as the share rate of express services, as indicated in
Eq. (1). The share rate of forwarders is then measured as (1−r).
c
r= ð1Þ
n
Where
r share rate of express services in a segment
c number of contracts delivered by express shippers in a
segment
n total amount of contracts in a segment
The GLIM model specifies how the size of a cell count depends on
the levels of the categorical variables for that cell. The GLIM is
expressed in a log-linear form to avoid negative numbers and behaves
as a Poisson-like function with values ranging from 0 to infinity,
reflecting a discrete outcome. The algorithm for calibrating log-linear
models of the share rate (r) permits the inclusion of the total amount
of shipments in a segment (n) as an offset in the expression, as
indicated in Eq. (2). The strength of the association between the
variables is expressed by the calibrated parameters of θr in which
variables may be a multiplying factor specified as the interactions
between the segmentation variables:
log ðrÞ = log ðcÞ  log ðnÞ
= θr ðD; S; F; T; P; DS; DF; DT; DP; :::; TP; :::DSF; DST; :::DSFT; :::; DSFTPÞ
ð2Þ
Where θr is a matrix of the calibrated parameters for share rates.
In exponential form, Eq. (2) can be rewritten as Eq. (3)
θr ðD;S;F;T;P;DS;DF:::::::Þ
r=e ð3Þ
2.2. Segmentation variables
So far, few studies have attempted to segment air freight market
using macro-level indicators. In order to determine the macro
segmentation variables, a focus-group style meeting was held. The
method is regarded as a typical method designed to investigate
exploratory and conclusive information and collect data through
group interaction on the topic determined. Seven senior managers
from forwarders and express firms who have had long involvement
with the high-tech market were invited for the meeting. At the
beginning of the meeting, a list of variables collected from previous
literatures on general industrial segmentation practices and logistics
studies (such as those indicated in Table 1) was provided as
references to inspire thinking. The participants were aimed to
comprehensively identify the segmentation variables. Therefore,
individual opinions were encouraged and the participants could
learn from others to explore specialty. Thereby, the importance of the
variables identified was individually assessed. The variations of
opinions were solved by elaborated communications. After several
iterations and feedbacks, a total of five macro variables were
confirmed by this group. Besides, categorical levels associated with
these macro variables were also defined to reflect the practical buying
situations of the high-tech firms. Because high-tech firms in science
parks are officially defined, meaning that firm demographics are
rather similar, the segmentation variables chosen are more closely
related to the firms' buying situation than the buying organization
itself. They include: shipment destination, shipment size, shipment
 T. Ming-Chih et al. / Industrial Marketing Management 40 (2011) 439–446 441

Table 1 2002). Taiwan's science parks provide an important resource network

Segmentation variables and levels defined. for the development of high-tech industry in Taiwan (Tsai, Wen, &
Variables Levels Descriptions Symbols Sources Chen, 2007). They are officially defined as offshore economic zones
that offer complementary business services and promising financial
Shipment 1 North America D (4) (5)
destination 2 Europe (11) (13) incentives to high-tech manufacturers. Such science parks are
3 Asia (excluding China) categorized by their high-tech product focus into six groups:
4 China integrated circuits (IC), optoelectronics (OP), biotechnology (BI),
Shipment size 1 Small (≦70 kg) S (2) (7)
telecommunications (TE), precision machinery (PM) and computer
2 Medium (N 70 kg, ≦ 225 kg)s (9) (11)
3 Heavy (N225 kg) and peripherals (CP) (Science Park Administration, SPA, 2006).
Frequency of 1 Less-frequent F (3) (6) As of December 31, 2008, 613 high-tech firms resided in the three
shipment (≦5 times per month) main science parks, generating total sales of US$58.50 billion
2 Frequent (N 5 times, per month) (8) (13) (National Science Council, NSC, 2008). In consideration of the time
Time in transit 1 Speedy-service (≦ 2 days) T (1) (3)
and form values of high-tech products, many of these high-tech firms
2 Ordinary-service (N 2 and≦4 days) (6) (10)
3 Slower-service (N 4 days) (14) use air transport for product delivery. Pacing the rapid development
Product status 1 Work in process P (9) (11) of the high-tech industry, which grew at an average annual rate of
2 Final goods (12) 10.3% from 1996 to 2007, the air freight services market has grown
References: (1) Bolis & Maggi, 1999; (2) Bond & Morris, 2003; (3) Danielis, Marcucci, & 16.1%, annually (Civil Aeronautics Administration, CAA, 2008).
Rotaris, 2005; (4) Hlavacek & Ames, 1986 (5) Jain, 1989; (6) Maier, Bergman, & Lehner,
2002; (7) Murphy & Wood, 2004; (8) Perreault & Russ, 1976; (9) Shapiro & Bonoma,
1984; (10) Shinghal & Fowks, 2002; (11) Tsai, Wen, & Chen, 2007; (12) Webster, 1979;
(13) Wind & Cardozo, 1974; (14) Witlox & Vandaele, 2005.
3.2. Data collection

We collect service contracts between air carriers and high-tech

frequency, time in transit, and product status, as indicated in Table 1.
These five variables consist of 144 (or 4 × 3 × 2 × 3 × 2) segments for
examination. According to the senior managers joining the focus
meeting, this scale is far greater than the number of segments in
practice and thus may support a rigorous test of segment
heterogeneity.
The shipment destination consists of four levels: North America,
Europe, Asia (excluding China), and China, excluded from Asia
because of Taiwan's heavy trade dependence on China, which takes
40.6% of Taiwan's total exports (MOEA, Ministry of Economic Affairs,
2007). Shipment size is divided by three levels using the two critical
figures of 70 kg and 225 kg, based on a previous study (Murphy &
Wood, 2004), and agreed on by participants at the focus meeting. The
variable of shipment frequency is divided into two levels by the
median of the shipment frequency (5 times per month) used in local
market statistics. The less-frequent shipment category (≦ 5 times per
month) indicates that the number of the shipments is less than once a
week, while frequent shipment (N5 times per month) indicates more
than once a week. Time in transit indicates the length of time required
by a shipper for delivery. Based on most service contracts in the
industry, this study uses 2 days and 4 days as critical values to divide
this variable into three levels, including speedy-service (overnight
delivery, ≦ 2 days), ordinary-service (3 to 4 days), and economical-
service (N4 days). Finally, product status is categorized into two
levels, based on the product forms of high-tech industry: work in
process (WIP) and final goods. WIP is delivered to downstream
manufacturers, whereas final goods are shipped to regional distribu-
tors for their inventories.
firms that have duration of more than a year. Contracts are classified
by three independent variables deployed by this study, including
shipment destination, shipment size, and time in transit. These macro
data are clearly identified and easily accessible from a service contract.
Through personal interviews, the remaining two independent vari-
ables of product status and shipment frequency were collected.
Respondents were carefully selected. High-ranking managers in
charge of the company's freight decisions were invited for interviews.
Their business titles ranged from division chief (namely division of
logistics management (38.7%), transportation (16.3%), or material and
global logistics (34.7%), to deputy general manager or above (11.3%),
with a long history of service in the high-tech industry (9.7 years on
average).
In total, 545 service contracts were collected. However, 34
contracts were considered invalid due mainly to missing data. The
remaining 511 contracts commissioned by 151 Taiwanese high-tech
manufacturers were considered valid for analysis. On average, the
high-tech firms surveyed produce 3.4 service contracts from their
service commissions of the recent 3 years. The sample counts by
categorical levels of variables are expressed as indicated in Table 2.
Based on the statistical law of large numbers, the statistics present a
robust picture of the air freight market of Taiwanese high-tech
industry.
Table 2
Statistics of the 511 valid service contracts.
Variables Levels Counts Ratios

Independent variables D (Shipment destinations) 1 121 23.7%

3. The data 2 91 17.8%
3 159 31.1%
3.1. Taiwanese high-tech industry 4 140 27.4%
S (Shipment size) 1 247 48.3%
2 76 14.9%
Over the last two decades, the high-tech industry has become the
3 188 36.8%
mainstream of Taiwanese international trade, accounting for 44.6% of F (Frequency of shipments) 1 240 47.0%
total exports (WEF, World Economic Forum, 2008). In 2007, for 2 271 53.0%
certain high-tech products such as dedicated semiconductor products, T (Time in transit) 1 187 36.6%
2 213 41.7%
large-size (N10”) TFT-LCD (thin film transistor-liquid crystal display)
3 111 21.7%
panels, and IC testing, Taiwan is the leading manufacturer worldwide P (Product status) 1 123 24.1%
(CFEPAD, Council for Economic Planning and Development, 2008). 2 388 75.9%
In the development of high-tech industry, related and supporting Dependent Forwarder 1 226 44.2%
industries are important elements in the organization of high-tech variables Express 2 285 55.8%
Total number of valid samples 511 100%
industrial clusters (Chen & Huang, 2004; Furman, Porter, & Stern,
442 T. Ming-Chih et al. / Industrial Marketing Management 40 (2011) 439–446

4. Result analysis Table 4

Values of parameters and effect of levels for express market.

4.1. Model fitting Parameter symbol Level Parameter estimate Effects of variable

Mean −1.2083 –
The 511 samples are analyzed for model testing and parameter D 1 0.3969 1.487
calibration using the SAS 9.1 statistical software package. The measure 2 0.3349 1.398
of goodness of fit for stepwise model testing is scaled deviance, and 3 0.0417 1.043
4 0 1.000
measure of improvement in fit from one model to another is the
S 1 0.8018 2.230
reduction in the scaled deviance. Changes in the scaled deviances 2 0.3372 1.401
should have an approximately χ2 distribution with the given degrees 3 0 1.000
of freedom if the relevant factors introduced in moving from one
model to the next do affect share rates (Tsai & Su, 2004). Fitting and
testing of the stepwise models is illustrated in Table 3, which
The parameters of the best-fit model calibrated can be used to
summarizes the hierarchical steps used in fitting and testing a log-
estimate the share rates of the twelve (4 × 3) segments by shipment
linear expression to the contingency table of segmentation variables
size and destination. The share rates are plotted, as indicated in Fig. 1.
that affect usage rate. In the process, terms can be added in a stepwise
The figures shown at the bottom of Fig. 1 describe the significance
analysis of individual interactions. As indicated in Table 3, the best-fit
of competition between express and forwarder. By shipment size, the
expression is obtained from Model (7). The first order of two
odds of share rates of express to forwarder range from 2.0 to 99.0 for
individual variables includes shipment destination (D), and shipment
small shipments, irrespective of shipment destination, from 0.70 to
size (S). Frequency of shipment (F), time in transit (T), and product
1.60 for the medium segment, and from 0.40 to 0.80 for heavy
status (P) are ineffective in explaining share rates by segment.
shipments. On the other hand, by shipment destination, the odds
Further, interaction between these two effective variables is not
range from 0.70 to 99.00 for European and North American
significant.
destinations, irrespective of shipment size, and from 0.40 to 2.20 for
Chinese and Asian destinations.
4.2. Parameter calibration
The parameters calibrated can be also used to compare the effects
between the categorical levels of a segmentation variable when the
In GLIM form, the best-fit model can be written as Eq. (4).
other variable is held constant, as indicated in the last column of
Table 4. For example, the express share rate of shipments delivered to
logðr Þ = Mean + D + S ð4Þ
North America is approximately 1.5 times (measured as, e(0.3969 - 0) =
e(0.3969)) that of shipments delivered to China. Share rates between
The parameters of the best-fit model are calibrated and the values European and North American shipment destinations are quite
are displayed in Table 4. Based on the calculation approaches in the similar, as are share rates between China and other Asian countries.
SAS software, the values of the final categorical level associated with By shipment size, express share rates for small shipments are
the main and higher-order interaction effects in the model are approximately 1.6 times those of medium shipments, and almost
intrinsically set to zero. Thus, the estimates of all other levels for a double those of heavy shipments.
given level of interaction are relative to the levels that are set to zero.
Share rates for various combinations of segmentation variables may
be measured by directly using these calibrated parameters in the log- 5. Conclusions and managerial implications
linear expression that includes these segmenting variables. For
example, the express share rate of the small shipment (S = 2) 5.1. Conclusions
segment delivered to North America (D = 1), (labeled (12), signifying
(DS)), is measured as: Segmentation of industrial markets has received much less
attention in the literature than the segmentation of consumer markets
log r ð12Þ = −1:2083 + 0:3969 + 0:3372 = −0:47 (Goller, Hogg, & Kalafatis, 2002). While the academic literatures offer
wide-ranging advice on segmentation analysis, actual practice has
r ð12Þ = exp ð−0:47Þ = 0:62
been comparatively neglected. This case study uses a large sample to
support a call for conducting empirical segmentation practices (Dibb
Thus, the share rate of the alternating forwarder in this segment & Simkin, 1996; Hooley & Saunders, 1993, and provide generalizabil-
will be: ity that is lacking due to the use of small convenience samples in
previous studies (Dibb & Wensley, 2002). Besides, macro variables are
1−0:62 = 0:38 often used in segmentation as being clearly identified and easily
accessible for profiling purposes. This case study uses GLIM to
incorporate the effects of user consumption and competitors and
thus improve the effectiveness of macro approach. It fills the gap
Table 3 between segmentation theory and practice in industrial markets by
Stepwise model fitting.
moving toward a managerial approach that effectively identifies and
Model Model Model Scale Difference DOF Difference Conclusion profiles segments (Dibb & Wensley, 2002; Verhallen, Frambach, &
number fitting testing deviance in S.D. in DOF (χ2 5%) Prabhu, 1998).
(1) Mean 127.0033 109 From the case study, we outline several key advantages of using
(2) D 1–2 118.7667 8.2366 106 3 S GLIM as a general segmentation tool for practitioners: First, GLIM is
(3) S 1–3 84.1584 42.8449 107 2 S
able to express segmenting variables categorically to fit current
(4) F 1–4 124.284 2.7193 108 1 N
(5) T 1–5 125.0874 1.9159 107 2 N segmentation practice. As the macro variables are generally expressed
(6) P 1–6 126.5905 0.4128 108 1 N in a categorical form, they suit GLIM operation. Second, GLIM provides
(7) D + S* 2–7 73.0481 45.7186 104 2 S a simple alternative that links macro variables with actual customer
(8) D + S + DS 7–8 65.9007 7.1474 98 6 N consumption behavior. Although macro segmentation approaches are
Note: DOF = degrees of freedom. *Model 7 is the ‘best-fit’ model. easy to implement, they perform poorly when attempting to link
 T. Ming-Chih et al. / Industrial Marketing Management 40 (2011) 439–446 443

Fig. 1. Share rates by segment.

them to customer responses (Blocker & Flint, 2007; Steenkamp &
Hofstede, 2002). GLIM is able to express the customer usage with non-
negative characteristics. It supports the concept that a more effective
segmentation strategy is to classify customers via usage analysis
(Weinstein, 2002). Third, GLIM is able to take competition into
account. Market segmentation should not be solely confined to the
perspective of a single service provider. In using GLIM, the share rates
of two major competitors can be statistically compared. Segments of
users/non-users can be implied using macro indicators. The calibra-
tion information may equip practitioners to target customers, allocate
resources, and position services against its main competitor. Fourth,
GLIM may carefully examine the heterogeneity of segments. One
principle that defines a market segment is whether the identified
segment is sufficient in size (Schiffman & Kanuk, 1994). GLIM may
444 T. Ming-Chih et al. / Industrial Marketing Management 40 (2011) 439–446
generate a large number of segments through interaction of the
segmenting variables (e.g. 144 segments from 5 categorical variables
in our study case) for examinations. Parameters calibrated by GLIM
are shown to be the best linear unbiased estimators.
The empirical study examines the segmentation base of the air
freight market in a changing business environment. Shipment
destination and size may still serve as effective market classifications
although their interaction effect in further characterizing the
segments is negligible. These two effective variables may divide the
air freight market into twelve segments. Conversely, the remaining
three variables, including time in transit, shipment frequency, and
product status, have lost their validation. Thus, the number of
segments identified as serving competitive users is increasing. The
empirical evidence developed herein may help air carrier industry
understand customer defection and attrition and provide valuable
strategic insights for targeting segments and positioning service
strategies.
5.2. Managerial implications
Customers' changing needs and competitors' growing services are
concluded to account for the market changes. Needs of high-tech
firms have evolved rapidly, in response to emerging markets such as
China, the changing associations between upstream and downstream
partners, and the rapid developments of political and physical
environments worldwide. The freight services provided by classified
carriers are actively enlarged to safeguard their existing segments and
to attract new customers. Traditionally, forwarders provide a more
integrated and heavier shipment capability aimed at international
trade, whereas express services focus on high-end traffic and small
shipments. However, as with forwarders, express services provide
vertical integration services (Forster & Regan, 2001) and have begun
to encroach on the heavier cargo segment (Bowen & Leinbach, 2004).
On the other hand, forwarders have altered their structure using IT,
along with mergers and acquisitions, to enhance service speed and
responsiveness. Some forwarders are largely internationalized,
becoming integrated logistics service providers.
By shipment destination, express services dominate the North
American and European segments with 40% more shipments than
forwarders, whereas forwarders have a similar position in the Asian
and Chinese markets. The segments of North America and Europe
comprise the home base of express services, where they are well
established and operate air hub, road, and fleet networks. On the other
hand, in Asian markets, forwarders benefit from the predominance of
familiarity with the local environment. Local forwarders use service
alliances and customer relationship management to better overcome
the weakness of late infrastructure development and political
instability in the region. Some service strategies have become broadly
recognized by customers, such as arrangement and selection of
charter flights, bonded car and landing airports, efficient and rapid
cargo consolidation, and close relationships with customs authorities
for favorable clearance processes. Further, most Asian governments
do not fully open their doors to foreigners, enabling local forwarders
to take advantage of political barriers. The political and social
networking and cultural recognition of forwarders are less easily
imitated by express service firms.
Shipment size is a traditional market classification and remains
unchanged (Murphy & Daley, 1994; Tsai, Wen, & Chen, 2007). Most
express businesses begin with small parcel services (Park, Choi, &
Zhang, 2009). Service equipment and operations are well defined for
small shipments. In service quality, express offers small shipments
that are cheaper, faster (using their own air fleets and exclusive rapid
customs clearance), and more convenient (providing rapid price
quotation and simplifying shipment documentation) than their
forwarder counterparts. Conversely, large shipments are defined
quite early by forwarders as their target market. The equipment and
operations required, such as air cargo space, tractor trailers, and
warehousing, are thoroughly familiar to forwarders. Further, price
incentives are offered to safeguard the segment.
As for the three ineffective variables, time in transit has long been
used to identify customers (Murphy & Daley, 1994). However, it may
not be used to clearly define market territory because both express
services and forwarders have broadened their service range in this
dimension. For example, express firms that previously focused on
rapid delivery now also offer flexible services such as a longer time in
transit at a lower rate, to compete with forwarders. By the same token,
forwarders have enhanced strategic alliances with airlines to provide
the fast delivery that has traditionally been identified as the express
segment.
Shipment frequency and product status have also become
ineffective as segmentation variables as a result of similar service
expansions that have effectively attracted new customers or led to
customer defections across traditional segments. Shipment frequency
challenges the responsiveness of a service provider. Conventionally,
express can better respond to customer needs (in information
processing and demand fluctuations) using their exclusive assets.
However, to enter the massive high-tech market, forwarders have
made large investments in IT, warehousing, and transportation
equipment to increase their capability to quickly respond to
customers' changing conditions, and offer services such as cargo
tracking/tracing, business information processes, value evaluation,
and on-site services (Lu & Shang, 2007). Furthermore, both express
services and forwarders use very similar price strategies to reduce the
effects of competitors. For heavy users of frequent shipments, carriers
invest in customer relationships by offering price incentives and
payment negotiations, whereas for infrequent and light users that
place a greater emphasis on the quality of the transaction than of the
relationship, they often enter into price bidding despite the possibility
of sparking a price war.
The variable of product status examines the service quality of
product packaging and protection of a service provider. Forwarders
are known for handling of special cargoes with unusual sizes, shapes,
and temperatures. Today, express service firms are actively improving
their service quality in this area. Further, the growing prevalence of
FOB (free on board) contracts required by customers has also helped
express services rapidly enter the WIP market. WIP shipments require
direct deliveries to downstream manufacturers within a very small
timeframe. In the massive Asian market where a great number of
manufacturers are clustered, WIP segments have been dominated by
forwarders because express services have not been able to overcome
the entry barrier of operating their own road fleets in foreign
territories, meaning that most of their delivery services can only
reach air hubs or distribution centers. Recently, high-tech shippers
and consignees have been primarily using FOB for WIP shipments to
save time and cost, and to consolidate and deliver their WIP after hub
or DC in their own manner, as with the operations of final product
shipments. This has created market opportunities for express services,
thus muddying the possibility of segment definition by product status.
6. Limitations and future research
As markets are becoming increasingly dynamic, segmentation
approaches will continuously evolve. GLIM is used herein not only as a
new operational technique for assessing market segments, but also as
an approach that has strategic implications in creating competitive
advantage. Still, this application encounters several limitations. First,
the results of this study reflect only the experience of Taiwanese high-
tech firms and the services they use. Different industry with different
environmental settings may have generated different results. How-
ever, the GLIM approach may be applicable to other industries, and
deserves further investigation. Furthermore, surveys targeting orga-
nizational representatives tend to have a lower response rate
 T. Ming-Chih et al. / Industrial Marketing Management 40 (2011) 439–446
compared to those targeting individuals (Baruch, 1999). Our study
merely targets the high-tech industry. It has largely limited the
sample size for statistical analysis. Future study may consider
expanding to different industry sectors to obtain a bigger sample
size. Customers by industry sector, another important macro
classification, can also be included in the variables of GLIM, and thus
results by industry sector can be compared. This may enable
examination of the generalization by industrial customer and increase
recognition of segment heterogeneity.
In addition, recent research stresses both the importance of, and
the process of, conducting needs-based industrial segmentation
(Albert, 2003). But this category is seldom used in industrial
marketing because of the difficulty of obtaining information about
micro-level variables (Wilson, 1986). In logistics practices, metrics
evaluating customer service choice are often investigated (Tsai, Wen,
& Chen, 2007). But little research has statistically examined the
market segments. When the logistics service quality (Mentzer, Myers,
& Cheung, 2004) can be categorically expressed, the GLIM developed
is applicable to examine the segments by quality.
Further, research indicates that segmentation study is asymmetric
between customers and competitors (SoÈllner & Rese, 2001). The
strategic group concept deserves more investigations as it supports
effective market segmentation. We use GLIM to emphasize the
competition effect on segmentation. However, GLIM is limited to a
binary service alternative in its comparison. To overcome this
weakness, clustering of serving firms is necessary prior to GLIM.
Finally, theoretical exploration of segment instability must move
forward quickly (Blocker & Flint, 2007). The GLIM design is based on
cross-sectional data. But segmentation should be longitudinally
investigated to ensure stability. A time variable may be included in
GLIM for predicting the change rates by segment. Such a variable can
better recognize segment membership and the movement of
membership across segments.
Acknowledgements
The authors express their sincere gratitude to those professionals
from academic institutions, high-tech corporations and government
agencies in Taiwan for their valuable contribution of time, resources
and specialized knowledge to this study. Special thanks to the
National Science Council of Taiwan (Case No. 98-2410-H-005-009-
MY3, An approach to global LSP's market segmentation, targeting and
positioning: an example of high-tech industry) and anonymous
reviewers for their valuable insights, advices and supports for the
completion of our paper.
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Wilson, D. R. (1986). Segmentation and communication in the industrial marketplace. Tsai, Yi-Ting is a senior industrial analyst at United Ship Design and Development
Journal of Business Research, 14(6), 487−500. Center, Ministry of Economics Affairs, Taipei, Taiwan. He has worked closely with
Wind, Y., & Cardozo, R. (1974). Industrial market segmentation. Industrial Marketing high-tech industry for product designs and supply chain operations. He holds a
Management, 3, 153−166. master's degree from Department of Marketing, National Chung-Hsing University,
Taiwan.
Dr. Tsai, Ming-Chih is a Professor and Chairman of the Department of Marketing at
National Chung-Hsing University of Taiwan. He earned his doctorate degree from Lien, Ching-Wei is a research assistant to this study. He has worked closely with the
University of London, UK, in 1998. Dr. Tsai's current research and teaching focus are in manufacturing industry with a focus on market analysis and forecast.
industrial marketing, innovation, logistics and supply chain management, and has
worked closely with local industries, particularly IT, high-tech and retailing sectors. He
has published a number of papers in refereed journals, including Industrial Marketing
Management, Journal of Supply Chain Management-An International Journal, and
Transportation Research.