Group values: CASE text, ELSE field value
How about ...

select distinct 
   (case
       when road_class in('ARTERIAL A','ARTERIAL B','ARTERIAL C') then n'ARTERIAL'
       else road_class
     end ) as ROAD_CLASS_GROUPED
from user.road;


Due to the fact that the datatype of the column road_class is NVARCHAR, we need to write a  N  or  n  in front of the string literal 'ARTERIAL' in order to prevent the error message. (see also: https://docs.oracle.com/database/121/SQLRF/sql_elements003.htm#SQLRF00218 )