Expenditure-based segmentation of freight travel markets: Identifying the determinants of freight transport expenditure for developing marketing strategies

Abstract

There is a substantial body of literature relating to freight transport sector's economic impact at the macro-level, but less is known about how freight demand gets translated to an establishment's expenditures at the micro-level. This paper addresses this research gap by collecting data about expenditure patterns of establishments and applying market segmentation technique based on finite mixture models. Three latent segments - heavy spenders, medium spenders and light spenders – and their associated profiles are identified. The results indicate that significant differences exist between the three expenditure-based segments of establishments in terms of spending patterns, business size indicators, locational characteristics and freight travel patterns. The heavy spenders tend to be strongly influenced by employment, gross-floor area, business age and fleet ownership levels. The length of haul and truck type choice have a strong incremental effect on the volume of expenditures and larger shipment sizes are associated with expenditure reduction due to economies of scale. The diverging characteristics of expenditure segments emphasizes the need of the logistics providers to “identify their markets” and planners to “identify how demand translates to transport expenditures”. The overall conclusion is that segmenting establishments based on unobservable heterogeneity with respect to their freight transport expenditure is preferable and more informative than treating them as one homogeneous group. The study findings provide important information that planners and logistics providers can utilize in developing effective logistics plans and marketing strategies.