Professional Documents
Culture Documents
Customer segmentation strategy for rail freight market: The case of Turkish T
State Railways
Hulya Zeybek
Eskisehir Technical University, Vocational School of Transportation, Eskisehir, Turkey
A R T I C LE I N FO A B S T R A C T
Keywords: Deregulation in rail transport sector is creating new challenges for rail freight operators due to the new com-
Deregulation petitive environment, which is characterized by strong cost pressures and high expectations of customers. The
Rail freight transport level of cost pressure and expectations of customers might vary from segment to segment of the customers. Thus,
Customer segmentation in the light of different customer needs, differentiated segment strategies should be designed to compete with the
Turkey
new comers. Deregulation process has just started in the Turkish rail market with the new law recently entered
into force in order to comply with the EU Directives. In the process of deregulation, the rail transport service
providers can use customer segmentation in order to effectively apply differentiated marketing to certain target
groups. This paper examines how the incumbent rail service provider (Turkish State Railways) could segment
rail freight traffic customers (shippers and forwarders) based on their perceptions and expectations to cope with
intra-modal competition to be faced in the future liberalized market. Six behaviourally distinct customer seg-
ments were identified. A multi-method approach consisting of desktop research, in-depth interviews, focus group
meeting and cluster analysis was applied in this study.
https://doi.org/10.1016/j.rtbm.2018.10.003
Received 27 November 2016; Received in revised form 4 June 2018; Accepted 8 October 2018
Available online 26 October 2018
2210-5395/ © 2018 Elsevier Ltd. All rights reserved.
H. Zeybek Research in Transportation Business & Management 28 (2018) 45–53
Rail's modal share of Turkish freight transport has been in steep 2012 12,008 25,666 35,332 11,670
decline since 1950's despite significant growth of the transport sector as 2013 12,097 26,597 28,945 11,177
a whole. However, in recent years, like many EU countries, in Turkey 2014 12,485 28,747 43,006 11,992
2015 12,532 25,878 41,873 10,474
too, a policy shift has taken place in favour of rail transport as a con- 2016 12,532 25,886 42,233 11,661
sequence of both environmental concerns and the will to integrate into
the international transport networks (Babalik-Sutcliffe, 2007). Al- Source: TCDD, 2017.
though it has been desired at the transport policy level and is increas-
ingly moving into the focus of logistics operators, rail has not yet rail network and train operation with a competitive and transparent
managed to gain increased market share. Freight transport over land in market environment has entered into force as of 1 May 20132 (http://
Turkey is dominated by road with a share of 90.2% in the country's www.udhb.gov.tr). Under the provisions of this Law, Turkish State
modal split in 2016, whereas the share of railways is 4.2% (TUIK, Railways (TCDD) becomes the infrastructure manager, continuing to
2017). However, foreign trade is dominated by maritime, which ac- operate as a public enterprise. A new joint stock company—TCDD
counts for 86% of freight by volume, followed by road transport with Transport A.Ş., 100% owned by the state, was established to provide
11% and rail %1 according to 2013 figures. Comparatively, the market passenger and freight rail services as an affiliate of TCDD.
composition changes in foreign trade in terms of value. Sea freight still The Network Statement is the “key to market access” (Boškovićn
accounts 50% of the market, closely followed by road with 36%, air and Bugarinović, 2015). After becoming an infrastructure manager,
with 10% and railway with 1% (OECD/ITF, 2015). Railway's con- TCDD published first “network statement” which covers pricing, terms,
tribution is relatively too small. conditions, procedures and criteria for access to rail network on Jan-
The state rail incumbent, Turkish State Railways (TCDD) operates uary 1, 2017. Along with the Network Statement, deregulation period
12,532 km of railway network, of which 4350 km is electrified, of the railway sector began officially and competition has started for
5462 km is signalled and 1213 km are high-speed lines (TCDD, 2017). allocation of train paths for TCDD Transport A.Ş and other private train
As presented in Table 1, since 2012 there has been 524 km network operators. Second network statement also published for 2018 mostly
extension and traffic figures have not significantly changed. According compliant with RNE template (SEETO, 2017). Accordingly, the first
to the 2016 figures, about 26 million tons of freight was carried by rail. open access licence was issued to an incumbent railway undertaking,
Freight transport generates 66% of TCDD's total rail operational rev- integrated to the infrastructure manager, TCDD Transport A.Ş. which
enues, while total passenger revenues including suburban do not exceed was registered to Turkish Trade Registry Gazette No. 9099 on
34% (TCDD, 2017). The main freight transport market segments of 17.06.2016 and as of 01.01.2017, has actually launched its operations.
TCDD are block train and intermodal transport business. The main Moreover, the first ‘real’ new entrant, i.e. not related to the incumbent,
types of commodities are machines and vehicles, followed by ores and OMSAN Logistics, one of the large freight forwarding and logistics
metal scraps, solid mineral fuels, construction materials, chemicals and company of Turkey and current customer of TCDD, was licensed on
metallurgical products which are ‘traditional’ rail freight markets. June 2017. All the necessary regulations such as rolling stock, safety,
In parallel with the EU strategy, Turkey, as a EU candidate country, level crossing, PSO and infrastructure access and capacity allocation
has set ambitious goals for rail sector to be reached by 2023, aiming to have been issued except interoperability that is under preparation
increase rail market share in freight traffic from 4.5% to 15%. (http://www.udhb.gov.tr).
Significant investment has been continuing in Turkey's rail network, New railway liberalisation law (Law No. 6461) allows public and
with the 2023 development plan including an additional 15,000 km of private companies to build and operate railways, to carry freight and
railway track, 10,000 km of which will be for high-speed rail (UDH, passengers, though the restructured TCDD will remain the owner of the
2011). existing lines. The Government will continue to allocate payments for
infrastructure investments such as building railways for high-speed
2.2. Rail liberalisation in Turkey trains and rehabilitating the infrastructure within a 5-year transition
period, following this period TCDD Transport A.Ş.'s freight operations is
In order to improve TCDD's performance and to promote the growth expected to become profitable.
of rail market, the Turkish Government decided to liberalise the railway
market according to the EU Directives that requires the establishment 3. Literature review
of specific institutions to deal with the various issues of the railway
market regulation. These are: regulatory body(RB), safety authority To place the study in context, this section reviews the key literature
(SA), investigation body(IB), licensing body(LB), notifying body(NB) relating to rail freight liberalisation and customer segmentation.
and designated body(DB) (Boškovićn and Bugarinović, 2015). There-
fore, the first step taken in the process of rail liberalisation in Turkey 3.1. Rail freight liberalisation
was the adoption of the Governmental Decree concerning the Organi-
zation and Duties of the Ministry of Transport, Maritime Affairs and Over the last decade a vast amount of literature is devoted to the
Communication No. 6551 in 2011. The Decree No. 655 established assessment of the impacts of the deregulation on the efficiency, com-
special service departments acting as regulatory body, safety authority, petition and restructuring measures on railway performance in the
investigation body and licensing body within the Ministry. European countries and in the world. Some studies looked at compe-
As a second step, the Law regarding the Liberalisation of Railway tition in the rail market from the normative and regulatory viewpoint,
Transportation in Turkey No. 6461 replacing the state monopoly in the usually in a comparative approach (Nash et al., 2013; Beria et al., 2012,
Finger, 2014, Ozkan et al., 2016), some studies looked at European-
1
Published in the Official Gazette No. 28102 (Repeated) dated 1 November
2
2011. Published in the Official Gazette No. 28634 dated 1 May 2013.
46
H. Zeybek Research in Transportation Business & Management 28 (2018) 45–53
wide railways (Cantos et al. 2012, Crozet, 2016; IRG-Rail, 2018), while demanded by the group of customers and market segments is required
others selected specific case studies (Jensen 1998, Boškovićn and to develop effective strategies for quality enhancement (Ludvigsen,
Bugarinović, 2015, Islam and Eidhammer, 2016). Cantos et al. (2012) 1999; McGinnis, 1990). Serving wrong customers may be very costly,
studied the effects of the railway reforms on inefficiency levels and they especially in the long run if they do not bring any profit to the company
concluded that the best way to foster an increase in efficiency is always (Jones and Sasser, 1995). In this regard, with competition coming from
by combining vertical and horizontal reforms in the rail industry. new comers, it is vitally important for rail freight incumbents to know
Finger (2014) discussed the liberalisation of the railway industry in and consider their customers' preferences and thus better target their
Europe, particularly its institutional dimensions. Jensen (1998) found marketing campaigns.
that external competitive pressure is strong in most supply segments The basic problem in segmentation is to select one or more seg-
and concluded that increased efficiency by competition seems possible mentation variables that will be appropriate to use in a specific context
for only domestic combined transport and dedicated trains in his early (Lovelock and Weinberg, 1984). In marketing research, there are two
study on the opening of Swedish railways to competition. Stehmann segmentation approaches: a priori and post hoc segmentation. A priori
and Zenger (2011) emphasized that restructuring railway models can segmentation is applied when the variable used as a criterion is known
lead to controversial impacts depending on particular countries, while in advance i.e. age, gender and so on. In post hoc segmentation, seg-
supporting policies are important to enhance railway performance in ments are specified based on empirical results. Mostly, customers are
parallel with rail liberalisation. Ghijsen et al. (2007) studied the per- grouped according to their similarity in a set of variables i.e. benefit,
ceptions of different stakeholders on European rail freight transport preferences and motivations and in most cases as a result of cluster
services and also the challenges faced by new operators. analysis (Haustein and Hunecke, 2013). In other words, a post hoc
Most of the papers revealed that the introduction of competition segmentation is based on a set of variables. This study adopts the post
within the sector has had a positive impact in terms of efficiency and hoc approach in classifying the freight customers taking their pre-
productivity. However, some authors questioned the true impact of ferences and expectations for selected attributes into consideration.
liberalisation and competition on market efficiency of the rail freight Marketing researchers agreed that market segmentation has a multi-
despite the newcomers' success (Friebel et al., 2010, Crozet, 2016, criteria nature because customers in a segment should not only have
Laroche et al., 2017). Laroche et al. (2017) supported their argument by similar profiles (identifiability) but also respond similarly to a mar-
the results of the biggest rail freight operators in Europe that show no keting mix (responsiveness) that are considered as fundamental criteria
significant changes since 2007 in terms of productivity, volume, rev- of segmentation (Smith, 1956). Over time more criteria have been
enue or rates. Moreover, Wyman (2016) pointed out that none of the added such as profitability, substantiality, stability etc. (Wedel and
European freight rail operators as yet have achieved an “attractive” Kamakura, 2000) and marketing scholars highlight the need to consider
profitability level and overall, the average margin of the rail freight the heterogeneous customer perceptions and expectations in order to
sector remains close to zero which is an unsustainable level to cover develop better business strategies (DeSarbo et al., 2001; Slater and
needed investments. In contrary to Europe, railways in the United Narver, 1998).
States increased their investment levels following deregulation, en- Recent EU project SEGMENT (2013) used market segmentation
abling a virtuous cycle of productivity improvements, improved freight techniques to adopt more energy efficient forms of passenger transport
density, and higher profitability, which led to further investments in seven European cities. Chao et al. (2013) evaluated the market
(Havenga and Simpson, 2018). segmentation of airline cargo transport according to the service re-
Despite the focus on competition, efficiency and performance of rail quirements of air freight forwarders and they classified the air cargo
reforms and market liberalisation, it should be noted that, in the lit- transport users into three market segments as professional service-or-
erature ex-ante and ex-post analysis of the operational impacts of lib- iented, empathy-oriented and express service-oriented. Dibb and
eralisation on incumbent or non-incumbent rail freight operators is Simkin (2010) examined the quality of customer segments using long-
lacking, particularly with regard to business designs and pursue turn- itudinal case study from the Eastern European mobile phone market.
around strategies that could ensure meaningful profitability and a Their findings revealed that the value of combining ‘hard’ statistical and
sustainable future in Europe's rail freight market. ‘soft’ segment quality criteria to test the validity and robustness of
segmentation outputs before implementing the segmentation. Garver
3.2. Customer segmentation (2009) proposed maximum difference scale as a valid research method
to determine attribute importance for customer satisfaction research
To improve its position in the market, a rail freight service provider and demonstrated the value of bringing need-based segmentation into
should redesign its services focusing on customer requirements and the centre of customer satisfaction analysis. Budd et al. (2014) analysed
attitudes and change its marketing strategies accordingly. The mar- airport ground access and private car use by a segmentation analysis
keting literature has emphasized the importance of segmenting markets and identified eight behaviourally distinct groups of passengers with
by customer needs to develop effective strategies (Kotler and varying potential to reduce their private car use. Haustein and Hunecke
Armstrong, 2006). Customer segmentation is referred to as a process of (2013) reviewed the advances in the understanding of mode choice
dividing the freight transport market into different homogenous groups from a psychological perspective, taking into account behavioural
of customers based on a number of potential variables (Lammgard, theories of car use and car use reduction and concluded that attitudinal
2007). Linking services to customer and market segments allows car- segmentations showed advantages. Tsai et al. (2011) applied a dis-
riers to differentiate themselves from other transport providers and aggregated approach to segment industrial markets under competitive
enables them to position the company in the market with respect to structure taking the airfreight market as a case study. Wen and Lin
competition, covering costs, and maximizing net revenue for each in- (2016) studied the customer segmentation of freight forwarders and
dividual activity (McGinnis, 1990). Segmentation also assists in keeping impacts on the competitive positioning of ocean carriers in the Tai-
the customers and capture new markets, because without a specific wan–southern China trade lane.
focus, customers may turn to market niche players who operate for In order to shift customer behaviour towards the rail freight trans-
specific segments (Jenkins and McDonald, 1996). Thus, a key compo- port, it is important to focus on attitudes and not only on factual in-
nent in the marketing of transport services is customer segmentation as formation (Nilsson and Küller, 2000). However, the use of customer
an initial phase of developing marketing strategy. segmentation based on attitudes, perceptions and expectations is still
Customer segmentation has become particularly important after rare in the rail freight transport domain. Much of recent literature and
deregulation (Teichert et al., 2008). To position the company with re- research on market segmentation in transport market has been oriented
spect to competition, detailed understanding of quality structures to passenger transport or airfreight and maritime transport, lacking a
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H. Zeybek Research in Transportation Business & Management 28 (2018) 45–53
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H. Zeybek Research in Transportation Business & Management 28 (2018) 45–53
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H. Zeybek Research in Transportation Business & Management 28 (2018) 45–53
Fig. 2. Assessment of price-quality ratio of rail freight services (forwarders N: 43 shippers N: 40).
customers in this segment were all forwarders and 53% only do inter-
national transport, and 20% transport machines, vehicles and autos.
A major concern expressed by these customers is their level of sa-
tisfaction with technical equipment, with the lowest mean value of all
clusters (mean of 2.23 out of 10). Bounds claimed that rail freight in-
cumbent does not use technology effectively and demanded more in-
vestments in technical equipment. Most notably, very low satisfaction
on flexibility (mean of 2.95 out of 10), transit time (mean of 3.72 out of
10) and reliability (mean 3.85 out of 10) were reported by these users.
It means that there is a need to pay a special attention to satisfying
forwarders in ‘bounds’ cluster. This cluster attributed the highest im-
portance to price/quality ratio and loss and damage but they were
absolutely not satisfied with the performance (Fig. 5). Therefore, im-
proving the service quality compared to price and loss and damage of
the rail freight services could increase satisfaction of forwarders in this
group.
Considering the internationalization of rail freight traffic after rail
Fig. 3. Segment size (% of annual transport volume). reform by shifting from a national to a European business (Eisenkopf,
2006), this segment is important to be considered since the majority of
the forwarders in this cluster are doing international business.
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H. Zeybek Research in Transportation Business & Management 28 (2018) 45–53
Fig. 5. Attribute importance of customers and satisfaction levels for the quality of TCDD's freight services.
Notes: Satisfaction levels and price-quality ratio in mean scores out of 10. Importance in ranking from 1 to 9.
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H. Zeybek Research in Transportation Business & Management 28 (2018) 45–53
Table 3
Summary of the recommended priority policies on the quality improvements for each cluster based on dissatisfaction levels.
Clusters Priority 1 Priority 2 Priority 3 Priority 4 Priority 5
Extremely loyals Technical equipment Distance Accessibility Price-quality ratio Transit time
Loyals Flexibility Technical equipment Accessibility Price-quality ratio Availability of wagons
Better price and quality seekers Technical equipment Accessibility Flexibility /Price-quality ratio Reliability Transit time
Bounds Technical equipment Flexibility Transit time Reliability Availability of wagons
Potential to lose Distance Price-quality ratio Secure transport Flexibility Transit time/reliability
to other users, it seems hardly possible to persuade the “Quitters” and satisfaction among the segments is presented in Table 2. These service
they will hardly ever become enthusiastic about using rail. improvements would be on the supply of technical equipment, more
flexible services and distance between client's location and freight
5.4. Segmentation implications handling centres by creation of new industrial sidings or the reactiva-
tion/upgrade of existing ones; accessibility by increasing the capillarity
The first implication of a segmentation process is to reorganize the of stations and supply more suitable wagons, pricing policies, transit
rail freight marketing approach to obtain the best allocation of the time and reliability. While all clusters except Potential to lose would
operating resources. The findings revealed that the importance and benefit from improvements in technical equipment which is the top
satisfaction of the identified customer segments differed according to priority action area (Table 3), improvements on distance between cli-
the rail service quality attributes. The findings demonstrated to the ent's location and freight handling centres through new industrial sid-
incumbent rail freight operators, a new way of segmenting customers ings would likely have the largest impact on satisfaction levels of the
and support to design appropriate services for each segment in order to Potential to lose, to convince them to continue to use rail freight services
retain customers and increase revenues and to define a specific mar- as they are characterized by the highest transport volume and relatively
keting plan to manage the clusters by using all available marketing low use of rail compared to other segments. Additionally, policies
tools efficiently. Customer perceptions, whether or not realistic, may be aimed at improving accessibility to freight handling terminals and di-
influenced by past experiences, common knowledge, expectations, op- rect connection to the client's location are important strategies that will
erators' advertising, modal image, and misinformation, etc. Therefore, likely lead to a higher perceived service quality of all segments and
freight transport operators should strive to ensure that customer per- should not be over-looked by rail freight operators.
ceptions of their mode accurately reflect reality and show them that The results of the research give a clear direction to policy makers in
they are working to improve the problem areas (Evers et al., 1996). If implementing the policies and differentiated marketing strategies that
the rail incumbent operators do not make further investments in the will enable rail freight operators to position themselves in the market
construction and customization of services and capacities to keep a with respect to competition and maximizing net revenue for each
satisfactory level of customers' loyalty, then this will enable the further market segment. The results of this study can serve as useful reference
deterioration in market share. to railway freight service providers in market segmentation and mar-
keting strategy formulation for shippers and forwarders. More im-
6. Discussions and conclusion portantly, the results can serve as an ex-ante data or at least a baseline
position for the analysis of the impacts of the rail freight liberalisation
Considering the initiated deregulation within the railway market, by the scientific researchers. Crozet (2016) emphasized the importance
the industry must be prepared by offering higher quality service to of collecting market data both ex-ante and ex-post in order to assess the
customers to meet growing demands for better levels of service. The impacts of liberalisation.
purpose of this study was to segment the rail freight customers based on After the implementation of liberalisation, customers' priorities and
their expectations and satisfaction of service quality for selected attri- perceptions may change, so post-liberalisation studies on forwarders'
butes in order to identify differentiated segment strategies to compete and shippers' satisfaction and perceptions level regarding rail freight
with new comers in the liberalized market. The survey results revealed transport and segmentation would be valuable. Such comparisons could
six behaviourally distinct market segments: extremely loyals, loyals, provide insights on the relative importance of particular service quality
better price and quality seekers, bounds, potential to lose and quitters. We variables before and after liberalisation.
also suggested marketing strategies for each segment. The real value of
market segmentation for transport operators lies in its ability to be
translated into achievable strategies to increase satisfaction levels Acknowledgements
among different segments (Grisé and El-Geneidy, 2017). Our approach
will be helpful for rail freight operators to identify all their customers, The author would like to thank the consultants of the ITALFERR
in advance and to give differentiated marketing programs. S.P.A + TRENITALIA S.P.A Joint Venture who contributed their ex-
In general for rail transport operator, it is more important to per- pertise to the World Bank project (Loan no:4787 TU) for “TCDD Freight
form better in aspects that are more important to customers (Konings Market Research” in 2011.
et al., 2008). Lin and Liang (2011) argued that the priority has a direct
relationship with the importance degree and has an inverse relationship
with the satisfaction degree. Therefore, the overall satisfaction of the Funding
customers can be increased either by improving the quality of dimen-
sions of the rail freight service with high importance or by decreasing This research is carried out as part of the World Bank project
the importance of dimensions with a low satisfaction score or increasing “Consultancy Services for TCDD Freight Market Research”.
the importance of those with a high satisfaction score (Brons and
Rietveld, 2009). As rail operator will in general have less control over
the perceived importance of aspects of rail freight service than over Appendix A. Supplementary data
satisfaction, the focus should be on quality improvements. A con-
solidation of the recommended policies that arose from this analysis Supplementary data to this article can be found online at https://
and their priority ranking towards positive impact on customer doi.org/10.1016/j.rtbm.2018.10.003.
52
H. Zeybek Research in Transportation Business & Management 28 (2018) 45–53
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