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Customer-focused strategies for motor carriers.

Most shippers rely on multiple carriers to meet their transportation needs, but often one carrier is the primary supplier while others are secondary suppliers. This approach is referred to as the "core carrier" concept and is seen by many transportation executives as a crucial factor in improving transportation service quality.(1) In a recent article about transportation quality, Bradley suggested that "virtually all observers agree that the way to future improvement lies in cooperative efforts between carriers and buyers."(2) The complexities of these partnership relationships tend to foster reliance on the core carrier concept. However, when a shipper utilizes fewer carriers, it becomes more important that the right carriers are selected. Reliance on a small number of core carriers can increase the level of risk to shippers if the carriers fail to provide adequate service levels.

One study conducted after the deregulation of motor carriers in 1980 reported empirical evidence of several important changes in the buying process. The study focused on the transportation buying process in general and found that shippers were using fewer carriers for relatively longer periods of time. In addition, shippers were twice as likely to conduct routine evaluations of carriers, less concerned with rates, and most concerned with the quality of service provided by carriers. The study implied that quality of service and share of business were related but it did not explicitly evaluate that relationship.(3)

A macro study of the economic structure of the national LTL motor carrier industry investigated the determinants of market share and found increased concentration and significant competitive advantages related to carrier size.(4) These advantages appeared to enable larger carriers to charge lower rates. Thus, in direct contrast to the previous research study cited, the authors concluded that low rates could be the primary determinant of market share. The analysis, however, did not investigate the buying process directly, nor did it include any measures of service quality.

The decision criteria shippers use to select and evaluate motor carriers have been the subject of much research. Most studies of the carrier selection process were conducted prior to deregulation,(5) although a number of studies have been conducted since the Motor Carrier Act of 1980.(6) In 1984, Baker conducted a study of the carrier elimination decision and, based on her findings, recommended that carriers devise marketing strategies that stress service differentiation, not price.(7) Also in 1984, Chow and Poist examined whether shippers actually measured and recorded the quality of service received from carriers, but the study was not mode-specific.(8) In 1991, Abshire and Premeaux investigated the relative importance of carrier selection criteria from the perspectives of shippers and carriers to see if their perceptions were similar. Their study was motor-carrier-specific but used only carrier selection criteria from studies conducted prior to deregulation.(9) This may have contributed to the significant differences between shippers' and carriers' perceptions of the relative importance of the criteria these authors reported. Nevertheless, none of these studies examined shipper perceptions of "core" carriers' performance.

The purpose of the research reported in this article was to examine the attributes shippers used to select and evaluate LTL motor carriers. In addition, performance differences between primary and secondary carriers (as perceived by shippers) were identified and evaluated. The quality of service provided and the importance of lowest rates were examined as potential determinants of carrier selection.

RESEARCH METHODOLOGY

A total of 166 attributes were included as 99 questions in an eight-page questionnaire directed to shippers utilizing general commodities LTL motor carriers. Attributes were selected from: (1) the logistics and transportation literature on mode/carrier selection; (2) personal interviews with LTL motor carrier executives; and (3) personal interviews with 30 shippers that utilized LTL motor carriers.

Persons interviewed were asked to provide suggestions on items included on the questionnaire and input on question wording. They also commented on any items that should have been included in the survey but were not. A final typeset version of the questionnaire was pretested in the last group of in-depth interviews. The 99 questions containing the attributes used to select and evaluate LTL motor carriers were randomized on the final questionnaire. Respondents were asked to complete two tasks. The first task involved an evaluation of the various criteria used to select and evaluate LTL carriers. Using a scale of I (not important) to 7 (very important), participants rated the importance of each attribute. The second task required that respondents evaluate the performance of the three LTL carriers used most frequently by their firms:

Carrier A (the largest amount of your freight is handled by this carrier).

Carrier B (the second largest amount of your freight is handled by this carrier).

Carrier C (the third largest amount of your freight is handled by this carrier).

Using a scale from 1 (poor) to 7 (excellent), respondents rated each carrier's performance on the 166 attributes.

Questionnaires were mailed to 1,111 firms, prequalified by telephone as users of LTL motor carriers. Individual company names were obtained from motor carrier customer and industry association listings of firms in the southeast region of the United States. The individuals who were responsible for selecting and evaluating LTL motor carriers were identified during the telephone contacts and names and addresses were verified. During the telephone contacts, the goals and objectives of the research were explained and individuals were encouraged to participate. Following the telephone contact, questionnaires were mailed, including a cover letter and postage-paid (stamped) return envelope. Respondents were promised a summary report of the findings of the research study. Three mailings (an original and two follow-ups) were sent. Of the 1,111 firms surveyed, responses were obtained from 316 (response rate = 28 percent) before the final date for receiving questionnaires.

RESEARCH FINDINGS

The 316 respondents represented all major categories of manufacturers as well as retailers and firms in the construction industry that purchased transportation services from LTL motor carriers. Their sales volumes averages $105 million and approximate annual freight bills averaged $3.8 million. When responses were analyzed by job title, company type, and geographical location, there were no statistically significant differences (p |is less than or equal to~ .05). Thus, responses for the entire sample were analyzed as a group due to this apparent homogeneity in response patterns.

Because non-response bias can be a problem in mail survey research, respondents were divided into three groups: early (those who returned the survey as a result of the first mailing); middle (respondents to the second mailing); and late (respondents to the third mailing).(10) Analysis of differences between early, middle, and late respondent groups revealed no nonresponse bias. In addition, a two-page survey which included randomly selected attributes from the eight-page questionnaire was sent to a sample of nonrespondents. Comparison of the responses from the two-page questionnaire with the eight-page questionnaire supported the conclusion that nonresponse bias was not present.(11)

Identification of the Most Important and Least Important Attributes

The attributes rated most important by shippers when selecting and evaluating LTL motor carriers, rank ordered by mean importance, are shown in Table 1. Sixteen of the eighteen most important attributes were service-related. The remaining two attributes were related to rates but there was not a significant concern with whether a carrier had the lowest rates. For example, competitive rates refers to the combination of service quality at reasonable prices. Low rates, not shown on Table 1 or 2, was rated 40th in importance. Shippers generally do not view cost to be as important as service, although they will not pay any price for LTL motor carrier services. Rather, shippers will pay reasonable rates that are within an acceptable range relative to other competitors.

A review of Table 1 reveals that there was high consistency in shippers' perceptions of the most important attributes. The standard deviations were relatively low, indicating that all shippers, or almost all shippers, viewed service attributes as being of significant importance in the selection and evaluation of LTL motor carriers.

Most of the least important attributes were related to promotional practices and included carrier-sponsored entertainment, promotional gifts, direct mail, advertising in trade journals, logistics and inventory management training, and sales reps with car phones. In sum, it appears that some traditional carrier marketing practices may be less important than commonly thought. These practices are relatively unimportant in the LTL motor carrier evaluation process.

An analysis of carriers' performance revealed that all three carrier groups underperformed on the majority of attributes rated most important by shippers and overperformed on those rated least important. However, this does not mean that all three carrier groups performed similarly. TABULAR DATA OMITTED TABULAR DATA OMITTED Performance was differentiated among the three groups.

A three-way analysis of variance showed statistically significant differences in the mean performance scores of the three carrier groups on 108 of the 166 variables. The mean performance scores for the three carrier groups on these 108 attributes were subjected to a posterior contrast using Duncan's multiple range test (p |is less than or equal to~ .05). This analysis revealed that A carriers were perceived to perform at a higher level than those in the B and C groups. A statistically significant difference in mean performance was found between the A and C carriers on all 108 attributes; 69 statistically significant differences in mean performance were found between the A and B carriers. However, only twelve statistically significant differences in mean performance scores were identified between the B and C carrier groups. The findings from these analyses are shown in Table 1 for the eighteen attributes rated most important and in Table 2 for the sixteen rated least important by shippers.

The p values in the tables denote the significant level for the ANOVA and the superscripts associated with the mean performance scores denote statistically significant differences between carrier groups' performance and shippers' evaluations of importance. Two mean scores with the same superscript are not different. For example, if two carrier groups have mean performance scores on a particular item with an "a" superscript, they are not different.

Note that the A carriers outperformed the B carriers on twelve of the eighteen most important attributes and they outperformed the C carriers on all of them. Only three significant differences between the B and C carrier groups were related to performance on the eighteen attributes rated most important by shippers. In contrast, few performance differences related to the least important attributes were identified between the three carrier groups. Statistically significant differences were found on just three of the sixteen least important items. Given that so few performance differences were found for carriers classified as either B or C carriers, these two groups were combined for purposes of conducting multivariate analyses.

TABULAR DATA OMITTED

Identifying the Underlying Constructs

Principal Components Analysis. A principal components analysis was conducted to reduce the 166 observed attributes to a smaller number of orthogonal linear combinations. This analysis yielded seven principal components, the loadings of which were then subjected to varimax rotation. Overall, the rotated matrix achieved simple structure. Using .40 as the lower bound cut-off, 84 of the attributes loaded on only one of the seven principal components and thus were retained for further analysis. The resulting rotated factor loading was highly interpretable. Table 3 provides a listing of the five attributes that loaded most highly on each principal component. The rotated factor solution was used to generate standardized principal component scores, which were then used in the discriminant function analysis. Mean standardized scores on the seven components are presented for the two classification groups in Table 3.

Together, the findings from the univariate and multivariate analyses of the attributes shippers used to select and evaluate LTL carriers provide compelling evidence that shippers give strong emphasis to the quality of service delivered. The single most important factor in vendor selection was "transit reliability and complaint management." The accuracy of information provided by the dispatcher, on-time pickups, and on-time deliveries were the three most important service-related attributes and all three variables loaded on this factor. These findings did not reveal a high level of concern with low prices. "Billing procedures" was the only rate-related factor identified and it included attributes that related to the timeliness and accuracy of the carrier's billing procedures and not low rates.

However, when asked about the rates charged by the carriers their firm used, 67 percent of the respondents answered that the A carrier was the lowest priced, 42 percent said that the B carrier was the lowest priced, while 40 percent identified the C carrier as the lowest priced carrier they used. Thus, the A carrier provided the highest level of service, but on average charged the lowest rates.

Discriminant Function Analysis. Principal components scores were created to enhance the discriminant analysis by reducing the adverse effects of multicollinearity and to increase the ratio of number of subjects to discriminating attributes. Table 4 presents the results of the direct discriminant function analysis. As this table shows, the derived functions were statistically significant, Wilks' Lambda = 0.903, F(7) = 8.184, p |is less than~ .0001. These findings indicate that, with the exception of Factor 4, "A Carriers" tended to have higher scores on the discriminating variables. The magnitude of the structural loadings clearly suggested that Factor 1 (transit reliability and complaint management) was the primary contributor to the separation of the two groups.
Table 4. Discriminant Function Analysis Results

Component Structural Loading

Transit reliability & complaint .870
management
Sales support .167
Customized services .047
Billing procedures -.022
Sales support .347
Drivers .173
Location of terminals .246
Squared canonical correlation .096(*)

 Group Centroids

A Carriers .403
B/C Carriers -.263

* Wilks' Lambda = 904,F(7) = 8.184, p |is less than~ .0001.


However, the classification results provided less support for the effectiveness of the derived discriminant function. Using prior probabilities based on the proportion of cases in each group, the total number of cases expected to be correctly classified by chance alone was approximately 285.6 (52.2 percent). The obtained discriminant function, however, correctly classified 345 (63.1 percent) of the cases, overall. Thus, the classification based on these discriminating variables made approximately 22.7 percent fewer errors than would be expected by random assignment. The function was more accurate in classifying the B/C carriers |258 (78 percent) correct classifications versus the 200.3 (60.5 percent) correct classifications expected by chance alone~ than the A carriers TABULAR DATA OMITTED |87 (40.3 percent) correct classifications versus 85.3 (39.5 percent) correct classifications by chance alone~.

DISCUSSION AND CONCLUSIONS

The purpose of this study was to guide LTL carriers in devising effective marketing strategies by identifying the criteria shippers used to select and evaluate carriers. In addition, the study was designed to determine if shippers perceived differences in LTL carriers' performance and if "core" carriers had successfully differentiated themselves from secondary carriers, and on what basis, better service or lower rates.

The findings from this study revealed that shippers placed far greater emphasis on the quality of service delivered by carriers than low rates. This implies that shippers may be willing to pay more for better service. Thus, the A carries should be in a position to charge a premium because they deliver superior service. Frequently, however, shippers reported that their A carrier was the lowest priced carrier they used. While discounting for volume may explain why the A carrier is often the lowest priced carrier, caution must be exercised so that the discounts offered do not exceed the savings associated with larger volume.

In addition to the pricing advantage, some of the A carriers enjoyed a performance advantage that enabled them to charge relatively higher rates. It is not known if the A carriers were simply exploiting economies of shipment size when they charged the lowest rate or if they were buying market share. LTL motor carriers may have been buying volume from shippers by discounting price. Unfortunately, the findings from this study do not make it possible to draw a firm conclusion as to why many A carriers are the lowest priced. Future research should investigate the relationships among carrier pricing strategies, perceived service quality, and profitability.

An alternative explanation is that carriers did not know how to sell value added. Baker found that most carrier representatives did little more than ask shippers for additional freight--they were order-takers, not order-getters.(12) In the research reported here, during the thirty in-depth interviews it was found that carrier salespeople frequently discussed rates in their contacts with shippers rather than stressing how high carrier service levels enable shippers to achieve higher levels of service for their customers.

Even though the A carrier group outperformed the B and C carrier groups, the A carriers were not fully satisfying shippers' performance expectations. Like the B and C carriers, the A carriers underperformed on the attributes rated most important by shippers. Thus, one could conclude that the secondary carriers would have many potential opportunities to improve and possibly become the "core" carrier. The key to this strategy would be higher service quality.

Also, the fact that the majority of LTL motor carriers do not perform at levels required by customers highlights the need for firms to benchmark against customer requirements of performance and not just competitors. A firm could match, or exceed, the performance of its competitors, and still be performing at a level below that required by customers. Therefore, it behooves LTL motor carriers to benchmark against both customers and competitors. In summary, there appear to be many opportunities for LTL motor carriers to improve their competitive position and enhance their performance to better match customer requirements. By doing so, a carrier can potentially create a sustainable competitive advantage.

ENDNOTES

1 Peter Bradley, "The Drive for Transportation Quality," Purchasing, (January 16, 1992), pp. 106-113.

2 Same reference as Endnote 1.

3 E. J. Bardi, P. K. Bagchi, and T. S. Raghunathan, "Motor Carrier Selection in a Deregulated Environment," Transportation Journal, Vol. 29 (Fall 1989), pp. 4-11.

4 Robert W. Kling, "Deregulation and Structural Change in the LTL Motor Carrier Freight Industry," Transportation Journal, Vol. 29 (Spring 1990), pp. 47-53.

5 Relevant studies that were conducted prior to deregulation include: R. D. Anderson, R. E. Jerman, and J. A. Constantin, "Buyer and Seller Perceptions of Transportation Purchasing Variables," Industrial Marketing Management, Vol. 7 (1978) pp. 60-64; E. J. Bardi, "Carrier Selection From One Mode," Transportation Journal, Vol. 13 (Fall, 1973) pp. 23-29; R. E. Evans and W. R. Southard, "Motor Carriers' and Shippers' Perceptions of the Carrier Choice Decisions," The Logistics and Transportation Review, Vol. 10, No. 4, (1974) pp. 145-147; R. E. Jerman, R. D. Anderson, and J. A. Constantin, "Shipper Versus Carrier Perceptions of Carrier Selection Variables, International Journal of Physical Distribution and Materials Management, Vol. 9, No. 1, (1978) pp. 29-38; M. A. McGinnis, "Shipper Attitudes Toward Freight Transportation Choice: A Factor Analytic Study," International Journal of Physical Distribution and Materials Management, Vol. 10, No. 1, (1979) pp. 25-34; and J. R. Stock, "How Shippers Judge Carriers," Distribution Worldwide, Vol. 75, No. 8, (August 1976), p. 32-35.

6 Relevant studies conducted after deregulation include: R. D. Abshire and S. R. Premeaux (1991), "Motor Carrier Selection Criteria: Perceptual Differences Between Shippers and Carriers," Transportation Journal, (Fall 1991) pp. 31-35; G. H. Baker, "The Carrier Elimination Decision: Implications for Motor Carrier Marketing," Transportation Journal, Vol. 24, (Fall 1984), pp. 20-29; G. Chow and R. Poist, "The Measurement of Quality of Service and the Transportation Purchase Decision," The Logistics and Transportation Review, Vol. 20, No. 1, (1984), pp. 25-43; K. L. Granzin, G. C. Jackson and C. E. Young, "The Influence of Organizational and Personal Factors on the Transportation Purchasing Decision Process," Journal of Business Logistics, Vol. 7, No. 1, (1986), pp. 50-67; R. Krapfel and J. T. Mentzer, "Shippers Transportation Choice Processes Under Deregulation," Industrial Marketing Management, Vol. 11, (1982), pp. 117-124; and P. R. Murphy, J. M. Daley and D. R. Dalenberg, "Port Selection Criteria: An Application of a Transportation Research Framework," Logistics and Transportation Review, Vol. 28, No. 3 (1992) pp. 237-255.

7 G. H. Baker, "The Carrier Elimination Decision: Implications for Motor Carrier Marketing," Transportation Journal Vol. 24, (Fall 1984), pp. 20-29.

8 G. Chow and R. Poist, "The Measurement of Quality of Service and the Transportation Purchase Decision," The Logistics and Transportation Review, Vol. 20, No. 1, (1984), pp. 25-43.

9 R. D. Abshire and S. R. Premeaux, "Motor Carrier Selection Criteria: Perceptual Differences Between Shippers and Carriers," Transportation Journal, Vol. 31 (Fall 1991), pp. 31-35.

10 If non-response is a major problem, early respondents should be different than late respondents with respect to their answers to questions. The assumption of this time trend extrapolation test is that non-respondents are more like late respondents than early respondents. See J. Scott Armstrong and Terry S. Overton, "Estimating Nonresponse Bias in Mail Surveys," Journal of Marketing Research, Vol. XIV, No. 3 (August 1977), pp. 396-402.

11 For explanation of a similar methodology used, see Douglas M. Lambert and Thomas C. Harrington, "Measuring Nonresponse Bias in Customer Service Mail Surveys" Journal of Business Logistics, Vol. 11, No. 2, 1990, pp. 5-25.

12 Same as Endnote 7.

Mr. Lambert is Prime F. Osborn III Eminent Scholar Chair in Transportation and professor of marketing and logistics, University of North Florida, Jacksonville, Florida 32216-6699; Ms. Lewis is assistant professor of marketing, Wayne State University, Detroit, Michigan 48202; and Mr. Stock is professor of marketing and logistics, University of South Florida, Tampa, Florida 33620-5500.
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Author:Lambert, Douglas M.; Lewis, M. Christine; Stock, James R.
Publication:Transportation Journal
Date:Jun 22, 1993
Words:3582
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