Research in Transportation Business & Management 28 (2018) 45–53

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Research in Transportation Business & Management

journal homepage: www.elsevier.com/locate/rtbm

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.

1. Introduction 2007). Thus, unleashing competition by opening the market requires

radical changes in the way incumbents operate if they are to avoid
The European transport policy focuses on opening rail freight dramatic and rapid losses of market share (Ghijsen et al. 2007; World
transport markets to competition for revitalizing rail transport by Bank, 2011). These are evidences from new EU-member countries
creating more competitive rail freight services (European Commission, where liberalisation has taken place that such a change to customer
2011). Rail freight transport market has been opened to competition in orientation can be a major benefit of market liberalisation, and that it is
most EU Member States since the beginning of 2007 (Mäkitalo, 2011). the incumbents that tend to struggle to make this change, rather than
Since that time, the market share of newcomers has increased from 9% any new entrants.
to 26% (Eurostat, 2016). As a result, the incumbent operators have lost Within this competitive environment, it is of key importance for rail
market shares in their domestic markets, in some cases compensated by service providers to identify which factors are important to the cus-
developing services and gaining market share in foreign markets (IRG- tomer, to know their preferences and thus better target their marketing
Rail, 2018). However, the effect of liberalisation varies among countries strategies (Flodén et al. 2017). The best way in doing this is segmenting
especially in developing economies. Today, most incumbents in the the customers according to perceptions and expectations (Haustein and
South-Eastern European (SEE) countries are facing bankruptcy Hunecke, 2013).
(Boškovićn and Bugarinović, 2015). This is largely because in these After losing its monolithic position in the market, the state rail in-
countries, the governments do not approach this problem in a suffi- cumbent, TCDD, will have to operate in a highly competitive market
ciently comprehensive manner and the incumbents delayed im- with the entrance of new private operators targeting the most profitable
plementing the market-oriented business strategies. As a consequence, market segments and thus will face a strong pressure more than ever to
they are struggling to compete in the freight market with the new en- improve its competitiveness and cut costs. In order to tackle with this
trants (World Bank, 2011). It is interesting to notice that in deregulated situation, TCDD should look towards implementing strategies focused
rail markets, the majority of the new rail freight service providing on a selection of customers and markets in which TCDD has a compe-
companies have drawn customers from incumbents and very few titive advantage. Based on these considerations, this paper aims to
companies has been successful in attracting new ones (Slack and Vogt, segment the rail freight customers by clustering them along their

E-mail address: hulyazeybek@anadolu.edu.tr.

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

satisfaction (perceptions) and attitudes towards rail freight services. Table 1

Key measures of rail freight activity in Turkey.
2. Rail freight market in Turkey Railway network Freight volume (in Train-kilometer Ton-kilometer
tons)
2.1. Current status of Turkish Railways
Year (km) (thousand) (thousand) (million)

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.

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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

rigorous orientation towards rail freight customer segmentation ana-

lysis. To the author's knowledge, no article has yet simultaneously
analysed market segmentation for rail freight operators. This study aims
to fill the existing empirical gap and contribute to the existing knowl-
edge by proposing a customer segmentation approach to rail freight
transport according to perceptions and expectations of the rail freight
customers.

4. Research methodology and data collection

The research process began with the identification of the research

sample and the review of applicable literature to assist in forming
background knowledge and design of the questionnaire for the inter-
viewing process. Nine rail freight service attributes were identified after
literature review and adapted from the work of previous researchers
(Beuthe and Bouffioux, 2008, Meixell and Norbis, 2008, Brons and
Rietveld, 2009, Danielis et al. 2005, Samimi et al. 2011, Lammgård and
Andersson, 2014, Islam et al. 2013). These attributes were transit time
Fig. 1. TCDD Freight Survey by Region.
(transport time from origin to destination), reliability (guaranteeing the
programmed service without cancellation), availability of wagons(on
customers' demand), loss and damage(safety, security (from theft), ac- assessment of their current level of satisfaction with current perfor-
cessibility, flexibility (ability to face sudden/unexpected requests), mance in respect to the assessed parameter on a 10-point scale, where 1
distance (between client's location and freight handling centres), tech- implied the lowest satisfaction and 10 implied the highest satisfaction.
nical equipment. We treated “price-quality ratio” as an individual di- Additionally, the interviewees have been asked for their direct eva-
mension of the rail freight services and assessed the importance and luations of parameters in terms of their importance. Respondents
satisfaction levels regarding this dimension because in most transport ranked the level of importance of each parameter in the list compared
demand models, this variable was seen as an important determinant to others, i.e. first, second, third, etc. in order to distinguish the most
variable on its own (Brons and Rietveld, 2009). According to Flodén important from least important which gave a more varied scale values.
et al.(2017), the transport choice is made in two steps: first, the Regarding “price-quality ratio”, the customers have been asked to give
transport quality is evaluated, and if the quality is satisfactory then an overall satisfaction score for the price-quality ratio and value this
transport choice is made based on cost. parameter on a scale from 1 to 10.

4.1. Population and sampling

4.3. Data collection and analysis
The research sample includes 258 freight customers of TCDD, which
had valid records of 2010. Among the valid records, 32% of the com- In the first phase, in-depth face-to-face interviews performed with
panies refused the interview, 11% of the companies received the 96 customers (47 shippers and 49 forwarders) of TCDD. As a second
questionnaire by mail and/or fax but did not answer, 7% impossible to phase, based on data collected, expectations and satisfactions of cus-
reach due to wrong address, wrong number, unavailable contacts, etc. tomers regarding rail service quality attributes in operational aspects
From the remaining 50% (approximately 129 companies), 96 compa- were identified. Then, K-means cluster analysis was performed to
nies were selected for interview based on geographical distribution identify different types of customers. This method of segmentation is
(covering the 7 regions of TCDD); company size and type of goods common in previous literature (Krizek and El-Geneidy, 2007). Using the
transported. K-means cluster analysis in the Statistical Package for the Social Sci-
An experienced survey company conducted in-depth interviews ences (SPSS), the scores on the level of customer satisfaction and sen-
among regions between May and June 2010. All persons selected for sitivity to quality/price ratio were used to generate a preliminary
the interviews were directors, marketing or logistics managers ensuring quantitative segmentation of the customers interviewed. This clustering
that all respondents were working in a position that qualified them to yielded distinct groups of customers.
provide robust/well informed answers. %57 of the interviews were
carried out in the Istanbul region since the majority of the companies
have their headquarters in this region. Other interviews carried out in 4.4. Focus group meeting
the regions representing the current distribution of companies in each
region of the Turkish territory (Fig. 1). In order to test the validity of the initial customer clusters and
confirm its accuracy with the participation of representatives of the
4.2. Questionnaire design and content emerging segments, a focus group session was conducted with a psy-
chologist on 20 July 2010. General managers and transport managers of
A semi-structured questionnaire with two parts was designed and 4 forwarding companies and a manufacturing company who were
pre-tested. Due to word length limitations, we are unable to include the among the most representative for the initial clusters participated in the
complete survey form. However, a part of the questionnaire is pre- session. During the session, participants were asked to describe their
sented in the Appendix. The first part of the questionnaire was related activity and gave a spontaneous view on how they would segment main
with background information i.e. total transport market, modes used, TCDD customers. Afterwards, specified customer clusters as a pre-
types of goods handled, period of transport programme, domestic and/ liminary quantitative segmentation of the customers based on the level
or international transport, factors in mode choice decision, rail usage, of customer satisfaction and sensitivity to quality/price ratio were
forecasts etc. of the sample. The second part includes questions to presented. In general, the presented segmentation was recognized and
identify the perceptions (satisfaction) and expectations (importance) of found viable though the customer segmentation based on customer
customers regarding rail service quality attributes identified in litera- satisfaction and sensitivity to price/quality ratio was a new approach
ture review. In this part, the interviewees have been asked to provide an for them.

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H. Zeybek Research in Transportation Business & Management 28 (2018) 45–53

Table 2 5.3. Identifying customer clusters

Characteristics of the business customers.
Forwarders Shippers The clustering procedure yielded six distinct clusters: extremely
loyals, loyals, better price and quality seekers, bounds, potential to lose and
Work Relation with TCDD (%) quitters. Detailed descriptions of the clusters are provided below.
Directly 78 45
Indirectly (through another forwarder) 15 33
Currently no rail usage 7 22
5.3.1. Cluster 1: ‘extremely loyals’
Type of freight transport (%) Extremely loyals (12% of the sample, 11% of the total annual
Domestic 75 70 transport volume declared by the interviewed customers (Fig. 3)) are
International 25 30 dominated by forwarders (55%). In comparison with all the other
Main type of goods handled (%)
clusters, they are characterized by their strong positive perception of
Construction materials 19 37
Metallurgical products 13 4 rail. With regards to service characteristics of freight trains, these users
Ores 11 6 are very satisfied (mean of 9.00 out of 10), with the quality of the rail
Agricultural products and livestock 2 14 freight services and pricing policy. Stated future usage among these
Machines, vehicles and automotive 11 4
users is very high (mean of 9.82 out of 10), and these respondents are
Chemical products 11 10
Volume of transport (% of interviewees)
very likely to recommend rail freight services to others (mean of 9.45
More than 500.000 tons/year 20 39 out of 10) (Fig. 4). Therefore, this cluster was labelled as ‘extremely
Between 50.000 and 500.000 tons/year 52 38 loyals’. This cluster contains 64% of respondents who regularly use both
Less than 50.000-tons/year 28 23 domestic and international transport and the main product transported
Modes used (%)
by the companies in this cluster is petroleum (27%).
International transport 25 30
Rail 24 8 In Fig. 5, it seems that these users are very satisfied with the all
Road 30 48 attributes of rail service quality, except technical equipment (6.20 out
Waterways 4 30 of 10) and distance between client's location and freight handling
Intermodal 42 14 centres (6.84 out of 10), still higher than their expectations. This group
Domestic transport 75 70
Rail 25 16
attributed the most importance to price-quality ratio (9.59 out of 10)
Road 54 76 however this attribute perceived low in satisfaction (8.04 out of 10).
Waterways 3 5 Transit time and availability of wagons are perceived important di-
Intermodal 18 3 mensions of the quality of the freight services. Moreover, this group
rated flexibility, reliability, loss and damage and secure transport low in
importance, but high in satisfaction.
5. Results
A major improvement to these customers' satisfaction levels, is to
alleviate dissatisfaction with technical equipment, distance between
5.1. Characteristics of the interviewed customers
client's location and freight handling centres, accessibility and supply of
suitable wagons (Table 2).
For freight transport by railways, shippers either used directly TCDD
or employed a forwarder as an agent depending on the charges the
5.3.2. Cluster 2: ‘loyals’
shipper had to pay and the service quality the shipper perceived.
This is the largest among six clusters, representing 25% of the
Majority (78%) of the forwarders worked directly, whereas 15%
sample and 32% of the total annual transport in tonnes declared by the
through another forwarder and the remaining (7%) had no transport
interviewed customers. Customers in this segment are satisfied with the
with TCDD. Freight traffic of both forwarders and shippers was domi-
quality and the price of the rail freight operations, though it is not as
nated by domestic transport, which accounted for 75% and 70% of their
much as Cluster 1 (mean of 8.09 out of 10). They also had strong in-
total traffic, respectively. International traffic was limited and ac-
tention to continue to use TCDD's rail services (mean of 9.71 out of 10)
counted for 25–30% of total traffic (Table 2). While road was the most
(Fig. 4). Therefore, we designated this cluster as ‘loyals’. Shippers re-
used mode by forwarders and shippers, intermodal transport was highly
presented 54% of this segment and the rest 46% was forwarders. 46% of
preferred only by forwarders. The share of rail within the total transport
this cluster use both domestic and international transport and the main
volume declared by forwarders was around 25% whereas the rail share
products transported by the companies in this cluster is construction
was much lower in the total transport volume of shippers.
materials (25%) and petroleum (13%). Their satisfaction levels are
more than they expected except price-quality ratio (Fig. 5).
5.2. Attribute importance and satisfaction levels of interviewed customers To increase satisfaction and loyalty among the customers, con-
siderable efforts are needed to improve pricing policy and investment
5.2.1. Price-quality ratio on technical equipment.
Data obtained from interviews revealed that the price-quality ratio
was perceived as the most important attribute of the rail freight service 5.3.3. Cluster 3: ‘better price & quality seekers’
quality by customers (Fig. 2). This segment represented 25% of the companies interviewed and
As argued by Fürst (2014), mode choice is strongly influenced by 19% of the annual transport volume declared. This segment was clearly
the price/quality ratio and the user's perception of the service. On the dominated by shippers (61%). Despite the low satisfaction levels ex-
other hand, Konings et al. (2008) indicated that for transport operator, pressed by this group (mean of 6.26 out of 10), they are still highly
it is more important to perform better in aspects that are more im- likely to continue to use the rail freight services in the future (mean of
portant to customers. One way to motivate existing users to remain 7.83 out of 10). These respondents are likely to recommend rail freight
loyal to the rail system is through increasing their satisfaction by taking services to others (mean of 6.17 out of 10) (Fig. 4). However, they asked
into account their needs, perceptions, and desires (Transportation for better price and quality performance from rail freight operator.
Research Board, 1999). However, before developing strategies that at- Therefore, we named this cluster as ‘better price & quality seekers’. Al-
tempt to increase satisfaction and loyalty among current users, it is most half (48%) of the group concentrated on the transport of con-
beneficial to segment the market (Van Lierop and M.El-Geneidy, 2017). struction materials and 26% on international transport.
Accordingly, price/quality ratio and the level of customer satisfac- To increase satisfaction levels among these users, strategies to reg-
tion were considered as major variables in defining customer clusters. ulating prices, improve accessibility and supply of technical equipment

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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.

5.3.5. Cluster 5: ‘potential to lose’

This cluster comprised 12% of the sample and 30% of the tonnes
transported and dominated by shippers (73%). The customers in this
cluster were highly dissatisfied with the quality of TCDD's freight ser-
vices (mean of 3.55 out of 10) and they hold negative attitude towards
rail. Accordingly, they are least likely to continue to use the rail freight
services in the future (mean of 4.91 out of 10) and recommend rail
freight services to others (mean of 2.73 out of 10) (Fig. 4). Thus, they
were potentially at risk of being lost by TCDD and we designated this
cluster as ‘potential to lose’.. The customers in this cluster were abso-
lutely not satisfied with price/quality ratio even though they attributed
much importance to this aspect. They seemed to be cost sensitive and
they had a strong disposition to switch to the other modes.
Fig. 4. Overall judgment of rail freight service quality per clusters (Mean score This segment was characterized by the highest transport volume and
out of 10). relatively low use of rail compared to other segments. Therefore, it is
necessary to focus on the particular needs of this cluster i.e. competitive
may lead to a higher perception of service quality (Fig. 5). pricing and high quality requirements of the shippers in this cluster to
convince them to continue to use rail freight services.
5.3.4. Cluster 4: ‘bounds’
This segment represented 16% of the interviewers and 6% of the 5.3.6. Cluster 6: ‘quitters’
annual transport volume declared. They were highly dissatisfied with This cluster was the smallest and made up only 10% of the re-
the rail freight operations and rail prices (mean of 5.43 out of 10), spondents and 2% of the tonnes transported. This segment also domi-
however they had no valid option other than using rail freight transport nated by shippers (67%). Relative to other users, ‘Quitters’ express low
services since they did large scale or oversized goods transport. Being levels of satisfaction with rail services. The customers in this cluster had
bound for no option, they declared a high propensity to repurchase rail used rail freight services in the past, but quitted a year before the in-
freight services (mean of 9.79 out of 10) though they lowly rated the terview since their requirements for quality/price ratio, transit times
overall quality of rail freight transport (Fig. 4). Interestingly, the and security have not been met by rail freight transport. In comparison

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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.

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