Global market segmentation for logistics services

Transcription

1 Industrial Marketing Management 33 (2004) Global market segmentation for logistics services John T. Mentzer*, Matthew B. Myers, Mee-Shew Cheung Department of Marketing, Logistics, and Transportation, University of Tennessee, Knoxville, TN , USA Abstract While logistics services have become a significant source of competitive differentiation between firms, significant challenges exist relative to developing logistics service offerings for global business customers. Diverse regulations across borders, longer lead times, and increased transportation costs all add to the difficulty of managing logistics services internationally. As a service offering, logistics is often characterized by intensive customer contact, extensive customization requirements, and a reliance on extrinsic cues for service performance. Because of these qualities, logistics services are also subject to cultural influences that exist in cross-border trade. In this article, we argue that logistics service quality (LSQ) components can be used to identify global, horizontal, and vertical segments of logistics services customers, and that cultural and organizational characteristics may modify the LSQ customer satisfaction relationship. By identifying specific customer segments, some which may transcend national borders, logistics managers can benefit from reduced costs, enhanced revenue, and the ability to differentiate their offering from the highly competitive marketplace. D 2003 Elsevier Inc. All rights reserved. Keywords: Global market segmentation; Logistics services; LSQ 1. Introduction Given the recent explosion in business-to-business marketing worldwide, an increased number of multinational firms have placed an emphasis on global logistics performance. Both managers and academics have become increasingly aware of the strategic importance of logistics services to an organization s overall success (Bienstock, Mentzer, & Bird, 1997; Brensinger & Lambert, 1990; Mentzer & Williams, 2001), yet logistics in global business is particularly complex due to disparate trade regulations, shipping distances, and cross-currency issues (Nix, 2001). The development of a global marketplace, propelled by regional unification, standardization of investment and production strategies, and increasing flow of labor, technologies, and information across borders, is especially conducive to the emergence of customer groups with common preferences that transcend national borders (Day & Montgomery, 1999). For logistics managers, differences in customer requirements in different countries may require dealing with different product designs, brands, and packaging (Carpano, Chrisman, & Roth, 1994). * Corresponding author. Tel.: ; fax: address: jmentzer@utk.edu (J.T. Mentzer). This article investigates two research questions that are important to the development of global logistics for the multinational firm: 1. What logistics service factors account for differences in business customer satisfaction across national borders? In other words, what value differences exist for specific logistics functions across customers? 2. How do these differences reflect distinct segments in the global logistics services market? Specifically, are cross-border differences in demand for specific logistics services due to differences in customer or market segment characteristics, differences in competitive environments, differences in companies logistics service offerings, or differences in national culture and/or preferences? The answers to these questions should help supply chain managers understand the degree to which logistics services can be, or need to be, customized within and across national boundaries. To accomplish this, we first review the literature regarding the logistics efforts of multinational companies, along with the logistics service quality (LSQ) elements that influence customer satisfaction (see Table 1). Next, we discuss the implications of cross-cultural influences on the relationship between LSQ and customer satisfaction, and /$ see front matter D 2003 Elsevier Inc. All rights reserved. doi: /j.indmarman

2 16 J.T. Mentzer et al. / Industrial Marketing Management 33 (2004) Table 1 Comparison of this study with previous related research Problem studied Exemplar studies Service domain? Segmentation based on multinational diffusion patterns Segmentation based on customer service elements Logistical segmentation based on nested approach from industrial marketing Segmentation based on consumer product relations LSQ as a segmentcustomized process Identifying spatial segments in international markets Determinants of business customers price sensitivity for services LSQ as a segmentcustomized process Logistics domain? Comparative/ international? Consumers/ business customers Study type or segmentation measure Helsen et al. (1993) no no yes consumers response-based, product-class diffusion patterns segmentation Gilmour, Borg, Duffy, and Johnston (1994) Murphy and Daley (1994) Hofstede et al. (1999) Mentzer et al. (2001) Hofstede, Wedel, and Steenkamp (2002) Bolton and Myers (2003) yes no no customer services for businesses yes yes no logistics services for business ranking of nine customer service elements ranking of eight selection factors in terms of modal choice for international sourcing decisions no no yes consumers means end chain data on yogurt yes yes no logistics services for businesses customer-perceived LSQ no no yes consumers importance of image attributes for outlets selling meat within each region yes no yes support services price elasticity across for businesses service contracts for international business customers present study yes yes yes logistics services for businesses in international markets customer-perceived LSQ offer specific research propositions that address these influences. We conclude with the implications of a model of the factors influencing customers preferences for global logistics services. 2. Logistics service in the global domain Logistics excellence has clearly been recognized as an area in which firms can create competitive advantage (Bowersox, Mentzer, & Speh, 1995; Kyj & Kyj, 1994; Mentzer & Williams, 2001; Morash, Droge, & Vickery, 1996), in part because of its visible service impact on customers (Bienstock et al., 1997; Mentzer, Flint, & Hult, 2001; Pisharodi & Langley, 1990; Sharma, Grewal, & Levy, 1995). To successfully use logistics as a competitive advantage, logisticians must coordinate with marketing (Kahn & Mentzer, 1996; Mentzer & Williams, 2001; Murphy & Poist, 1996; Williams, Nibbs, Irby, & Finely, 1997). The quality of logistics service performance is a key marketing component that helps create customer satisfaction (Bienstock et al., 1997; Mentzer, Gomes, & Krapfel, 1989), develop market segmentation strategies (Mentzer et al., 2001), and has been recognized as such for some time (Perrault & Russ, 1974). The use of customer-based definitions of LSQ (Bienstock et al., 1997; Mentzer, Flint, & Kent, 1999; Mentzer et al., 1989, 2001; Perrault & Russ, 1974; Rinehart, Cooper, & Wagenheim, 1989) has brought logistics research, which traditionally focused on more physically observable operational attributes, more in line with marketing, which has devoted more attention to understanding such unobservables as customers perceived value. By recognizing, tapping into, and measuring customer perceptions of LSQ, logistics practitioners and researchers have added to the traditionally measured set of operational service attributes. Building upon this literature, Mentzer et al. (1999) conceptualized and tested LSQ as a second-order construct, with two categories of nine dimensions: Order placement personnel contact quality (PQ), order release quantities (OR), information quality (IQ), ordering procedures (OP), and Order receipt order accuracy (OA), order condition (OC), order quality (OQ), order discrepancy handling (OD), timeliness (TI). Mentzer et al. (2001) built upon this research to propose and test a process of LSQ and found that all nine components were important for at least one of the customer segments tested. This research revealed that LSQ is a complex concept demanding a great deal of attention from supplying firms. They also found that LSQ is a process, rather than merely as a single concept or second-order construct. When viewed as a process, suppliers can identify the drivers of various LSQ perceptions. Mentzer et al. s study suggests that customers perceptions of suppliers LSQ begin to form as soon as they try to place orders and

3 J.T. Mentzer et al. / Industrial Marketing Management 33 (2004) develop until they receive complete and accurate orders, in good condition, with all discrepancies addressed. The process view enables marketers to see the interrelationships among LSQ components, and acknowledges that these interrelationships may differ by customer segment. International services are defined as deeds, performances, and efforts conducted across national boundaries in critical contact with foreign cultures (Clark, Rajaratnam, & Smith, 1996). As services, logistics offerings are subject to culturally influenced preferences prevalent in cross-border exchange, as well as more traditional influences such as timeliness and responsiveness. This increases the difficulty of identifying actionable market segments. The majority of research has focused on the identification of customer characteristics relevant to the segmentation of markets for tangible goods, rather than services. However, services including post purchase services such as logistics are more likely candidates for customization for market segments since service expectations differ across national and cultural boundaries, enhanced personal interaction frequently occurs in service settings, and service use patterns frequently differ across countries (Bolton & Myers, 2003; Stauss & Mang, 1999). In the absence of customization, LSQ gaps may develop due to differences between the performance of logistics service providers from one country and the expectations of logistics service recipients in another. 3. Understanding global logistics customers: LSQ segmentation Successful development and implementation for any global marketing strategy depends on the organizations ability to segment its markets so that uniform sets of marketing decisions can be applied to specific customers that exist horizontally, i.e., across nations or cultures (Sethi, 1971). Within the literature, global markets have generally been segmented utilizing numerical taxonomy methods to classify segments within countries (vertically). However, several exceptions exist. Helsen, Jedidi, and DeSarbo (1993) showed in a study of new product diffusion how segments exist across borders. Hofstede, Steenkamp, and Wedel (1999) also identified these macrosegments in a study of consumer product relationships. Similar to these efforts, we believe business customers in international markets can be segmented, both vertically (within specific national markets) and horizontally (across national markets), based on their preferences for logistics services. Specifically, customer preferences for LSQ functions enable firms to provide customized logistics efforts for cross-border buyer segments. Research within the consumer psychology and behavioral decision theory literature argues that different customers place disparate values on the same offering. As a result, managers seek to identify global market segments and target those segments with goods and services that meet the needs of those buyers (Hassan & Katsanis, 1994). Products, services, and strategies should be developed with specific preferences of the target segment in mind (Hofstede et al., 1999). For multinational organizations, proper identification of segments is especially important since they face diverse customer segments where standardization of marketing decision variables is often impossible (e.g., Syzmanski, Bharadwaj, & Varadarajan, 1993), and market segmentation can reduce operational costs via elimination of redundant efforts, as well as effectively allocate the firm s resources to target markets (Berrigan & Finkbeiner, 1992). The majority of market segmentation research has focused on customer preferences relevant to tangible goods, as opposed to services. Some argue that specific products (e.g., industrial and high technology goods) are more likely candidates for standardization across multiple segments (Jain, 1989). We argue that satisfaction levels differ across customer segments due to the customization of LSQ dimensions, as well as the organizational characteristics of the customer. Our emphasis on LSQ dimensions results from the contention that variations in the intrinsic attributes of logistics services affect the overall satisfaction of business customers. We distinguish among three types of market segments: horizontal segments that apply to all customers worldwide, horizontal segments that exist across national borders (for example, within a specific region), and vertical segments that exist within a specific national market. We contend that needs-based, horizontal market segments exist for logistics services, where the segmentation variables are customers responses to the LSQ dimensions and organizational characteristics. Furthermore, we posit that certain vertical market segments exist based on the moderating effects of national or regional influences. 4. Research propositions Due to different needs in LSQ dimensions by different customers in different segments, satisfaction level responses are driven by different constructs in LSQ. For example, Mentzer et al. s (2001) study found that certain customers care most about the ease and effectiveness of the ordering process itself and not necessarily about timeliness. In contrast, both ordering procedures and order discrepancy handling seem to drive satisfaction for a particular segment. As such, we believe the homogenization of customer needs yields horizontal segments that cut across country, sometimes regional, boundaries. P1: Horizontal market segments exist such that different customer groups satisfaction level responses are driven by the same sets of LSQ dimensions of perception of order placement activities and perception of order receipt and in the same process manner. Organizational characteristics of customer firms also matter in LSQ satisfaction response level. Customers serv-

4 18 J.T. Mentzer et al. / Industrial Marketing Management 33 (2004) Fig. 1. Factors influencing customers preferences for global logistics services. ing consumer versus business markets emphasize different LSQ dimensions of perception of order placement activities and perception of order receipt. Satisfaction response level of customers in retail markets and customers in wholesale markets are driven by different LSQ dimensions. Furthermore, customers internal operating systems, such as the execution of the purchasing and warehousing functions, cause differences in their preference and emphasis on certain dimensions in LSQ. For example, timing issues such as 24/7 response centers may be more important to some customers. In other cases, given a low capital base, smaller retail outlets might require frequent product deliveries, making timeliness extremely critical in their evaluation of suppliers LSQ. Thus, we propose: P2a: Horizontal market segments exist such that customers with similar organizational characteristics place similar emphasis on the LSQ dimensions of perception of order placement activities. P2b: Horizontal market segments exist such that customers with similar organizational characteristics place similar emphasis on the LSQ dimensions of perception of order receipt. There are several reasons to believe cultural differences cause managers from different countries or regions to emphasize different factors influencing their judgments and decisions about logistics services. First, cultural distance between the countries representing exchange partners influences managerial decision-making in a global business environment (Kogut & Singh, 1988). Second, behavioral norms and work-related values (e.g., Markoczy, 2000) that are influenced by cultural differences cause disparity in the levels of both commitment to exchange partners and perceived satisfaction with exchange relationships. Third, given that customers from different cultures have diverse behavioral norms, they evaluate services differently, with differing expectations regarding optimal and adequate encounters. For example, how order accuracy and order discrepancy handling affect overall satisfaction may differ by country or by region, due to different levels of tolerance toward errors. Firms in transitional economies have different concerns in logistics services (Batra, 1999; Byrne & Jozefowski, 1994; Reinganum & Helsell, 1994) due to the characteristics of the market structure (e.g., system inefficiency, longer and more fragmented distribution channels, inadequate physical distribution, and logistics infrastructures). Furthermore, organization s perceptions of the business environment such as the criticality of the service to successful business performance may be more important in some geographic areas (countries or regions) than in others. As such, we propose: P3: Vertical market segments exist such that the effects of dimensions of LSQ on customers satisfaction level response are moderated by national and regional variables. These proposed relationships are illustrated in Fig Conclusions While the fundamentals of logistics service are frequently addressed, understanding the application of logistics service strategies in a global context is still in the early stages of development. It is the role of future research to continue to investigate the influence of LSQ in a global context, particularly addressing the research propositions presented in this article and in Fig. 1. Logistics services across national boundaries are particularly complex not only due to enhanced distance and costs

5 J.T. Mentzer et al. / Industrial Marketing Management 33 (2004) constraints, but also due to cultural and organizational conditions that influence the utility of specific service offerings among customers. For these reasons, managers attempting to develop profitable global logistics strategies should accurately identify segments based on the business customers revealed preferences for different logistics service configurations. This approach to market segmentation assists in the identification of market segments across nations and regions, whereby logistics service offerings may be customized to customer preferences for specific service attributes. Global market segmentation strategies founded on customers preferences for logistics services provide several benefits of the organization. First, costs can be reduced by avoiding redundant or superfluous logistics service offerings through the customization of logistics offerings for specific segments. Second, this same customization of logistics models enhances firm revenue through increased customer satisfaction levels, which in turn increase lifetime customer value to the firm. Third, firms can benchmark externally (relative performance compared to industry averages) and internally (performance increases or decreases within the firm over time) on specific components of logistics services. To benefit from these outcomes, however, global logistics providers must understand how customer preferences differ across LSQ elements, how these elements influence satisfaction levels, and how these relationships are moderated by cultural and organizational differences. As competition in the multinational environment continues to rise, emphasis on competitive service offerings as a differentiator between products will also increase. This is a critical point for companies that market manufactured goods with ancillary pre- and postpurchase services (Hensler & Brunell, 1993; Bolton & Myers, 2003). Proper configuration of these service offerings demands the identification of distinct market segments. From the logistics perspective, a world once characterized by distinct boundaries is transitioning to a series of linked global markets as a result of homogenized customer needs and the recognition by firms of the advantage of a global presence (Day & Montgomery, 1999). Competitive organizations will develop logistics service strategies to address an evolving global marketplace and customize logistics offerings to reach customer segments vertical, horizontal, and global. References Batra, R. (1999). Marketing issues and challenges in transitional economies. In R. Batra (Ed.), Marketing issues in transitional economies ( pp. 3 37). Norwell, MA: Kluwer Academic Publishers. Berrigan, J., & Finkbeiner, C. (1992). 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