Customers

What are customers?

The chief current sense of the word customer (according to the OED) is a person who purchases goods or services from a supplier. Turning this around, one might say that a customer is someone who receives goods or services from a supplier and therefore may not be the person who made the purchase. There has to be intent on the part of the supplier to sell the goods and services and intent on the part of the receiver to buy the goods and services (a thief would not be classed as a customer). This customer-supplier relationship is still valid even if the goods or services are offered free of charge but in general the receiver is either charged or offers something in return for the goods or services rendered. There is a transaction between the customer and supplier that has validity in law. Once the sale has been made there is a contract between the supplier and the customer that confers certain rights and obligations on both parties.

Customers are one of an organisations stakeholders. Customers provide revenue in return for the benefits that ownership of the product or service brings but may demand refunds if the product does not satisfy the need and are free to withdraw their patronage permanently if they are dissatisfied with the service.

Who are customers?

The word “customer” can be considered a generic term for the person who buys goods or services from a supplier as other terms are used to convey similar meaning such as:

• Client - The customer of a professional service provider such as a law firm, accountant, consultancy practice or architect. 
• Purchaser - The customer of a supplier that places the order and authorises payment of the invoice. The purchaser may not be the end-user and so acts on his/her behalf.
• Beneficiary - The customer of a charity.
• Consumer - The customer of a retailer.
• End-user - The person using the goods or services that have been purchased perhaps by someone else. This maybe the person for whom the goods and services were intended but may not be known at the time of purchase.

It is relatively easy to distinguish customers and suppliers in normal trading situations but there are other situations where the transaction is less distinct. In a hospital the patients are customers but so too are the relatives and friends of the patient who might seek information or visit the patient in hospital. In a school the parent is the customer but so too is the pupil unless one considers that the pupil is customer supplied property!

Within any organisation it is important that everyone knows who the customers are so that they can act accordingly. Where individuals come face to face with customers a lack of awareness, attention or respect may lead to such customer taking their business elsewhere.  Where individuals are more remote from customers, knowledge of customers in the supply chain will heighten an awareness of the impact they have on customers by what they do.

No organisation can survive without customers. Customers are one of the stakeholders but unlike other stakeholders they bring in revenue which is the life blood of every business. Consequently the needs and expectations of customers provide the basis for an organisation’s objectives, whereas the needs and expectations of the other stakeholders constrain the manner in which these objectives are to be achieved. It follows therefore that the other stakeholders (shareholders, employees, suppliers and society) should not be regarded as customers as it would introduce conflict by doing so. 

Can there be internal customers or should we simply call them co-workers?

Rosenberger defined an internal customer as “anyone you count on or rely upon to complete a task or a function or to provide you with information so that you can get your job done…and anyone who counts on you to complete a task or function or to provide them with information so that they can get their job done.” Donna Earl (article about what is internal customer service?) defines an internal customer or internal service provider as anyone in the organisation. An internal customer can be a co-worker, another department, or a distributor who depends upon us to provide products or services which in turn are utilized to create a deliverable for the external customer. The term “internal service provider” is more appropriate but using the word “customer” in this context is flawed. (see also the discussion on the ISO 9000 definition of ‘customer’ below)

As internal receivers of product, employees are not stakeholders (they are part of the process) therefore they are not strictly customers but partners or co-workers. Normally the customer is external to the organisation supplying the product because to interpret the term customer as either internal or external implies that the internal customer has the same characteristics as an external customer and this is simply not the case as is indicated in the table below:

In the table above, there is only a 30% match between the characteristics of internal and external customers and therefore it would be unwise to use the same term for both parties as misunderstanding could ensue.

However, if we consider for a moment the notion of an internal customer, the operator who receives a drawing from the designer would be regarded as a customer in an internal supply chain. But the operator doesn’t pay the designer for the drawing, has no contract with the designer, does not pass the output of his work to the designer, does not define the requirements for the drawing and cannot choose to ignore the drawing so is not a customer in the excepted sense but a user of the drawing. The operator may pass his output to another operator in the internal supply chain but this second operator is not a customer of the former, he/she is merely a co-worker in a process. If we consider this second operator as a customer, he has no choice but to take the output as he can’t go elsewhere. The only thing he can do is to return the output if it does not meet the input requirements for that stage in the process but that does not make him a customer.

Another flaw in the argument is the notion that there are internal supply chains. In some cases there are chains where A passes output to B and B passes output to C etc but there are also loops where A passes output to B and B passes output back to A. For example if an operator provides a test piece to a laboratory and receives the test results, one might regard the operator as the laboratory’s customer but once again, there is no contract and no money passing between the two parties. The operator, the designer and laboratory all have the same customer – the person or organisation that is paying for the organisation’s output and specifying the requirements the organisation must satisfy.

The notion of internal customers and suppliers is illustrated in the diagram. In the upper diagram requirements are passed along the supply chain and if at each stage there is some embellishment or interpretation by the time the last person in the chain receives the instructions they may well be very much different than what the customer originally required. In reality each stage has to meet the external customer requirement as it applies to the work performed at that stage not as the person performing the previous or subsequent stage wants. This is shown in the lower diagram where at each stage there is an opportunity to verify that the stage output is consistent with the external customer requirement. In a well-designed process, individuals do not impose their own requirements on others. The requirements are either all derived from the customer requirements or from the constraints imposed by the other stakeholders.

If organisations want to encourage their employees to behave AS IF they were both customers and suppliers in an internal supply chain then there might be some benefit as it might engender:

• Pride in ones work
• Greater vigilance
• Greater accountability
• Better control
• Greater cooperation

But it might also lead to some problems:

• Workers start imposing requirements on their co-workers  that are more stringent that the external customer requirements
• Workers start rejecting input from co-workers for trivial reasons
• Workers become adversarial in their relationships with co-workers
• Workers refuse to release resources to co-workers thus causing bottlenecks in the process
• Departments set up service level agreements that create artificial internal trading conditions
• Departments begin to compete for resources, bid for the same external contacts and generally waste valuable resources

If instead of the label internal customers and suppliers, individuals were to regard themselves as co-workers in a team that has a common goal, the team would achieve the same intent. In a team, every co-worker is just as important as every other and with each co-worker providing outputs and behaving in a manner that enable the other workers to do their job right first time, the team goal would be achieved. The observation by Phil Crosby that quality is ballet not hockey is very apt. In hockey, the participants do not treat each other as customers and suppliers but as team members each doing their best but the result on most occasions is unpredictable. In ballet, the participants also do not treat each other as customers and suppliers but as artists playing predetermined roles that are intended to achieve predictable results. Organisational processes are designed to deliver certain outputs and in order to do so individuals need to perform specific roles just like ballet.

ISO 9000 contains the definitions of terms used in the ISO 9000 family and it defines a customer as an organisation or person that receives a product. There is also a note in which is stated that “A customer can be internal or external to the organisation”. However, in all cases the term customer is used without qualification. The term internal customer cannot be found in either ISO 9001 or 9004 and therefore one might conclude that wherever the term customer is used either external or internal customer is implied but this would make nonsense of many of the requirements. For example if every person in the organisation was a customer every error would have to be treated as a nonconformity and the outputs subject to the nonconformity controls of clause 8.3. Top management would have to ensure that the requirements of internal customers were determined and met with the aim of enhancing internal customer satisfaction – clearly not the intent of ISO 9000 at all.

A much better way than adopting the concept of internal customers is for managers to manage the organisation’s processes effectively and create conditions in which all employees can be fully involved in achieving the organisation’s objectives.

See diagram of internal customer-supplier chain

Where are customers?

Customers can be buyers in the local community or as far away as the other side of the world. It all depends on the effectiveness of an organisation’s marketing efforts and the scope of appeal for its products and services.

It also depends on transport technology. Who would have thought 20 years ago that we would find flowers, fruit and vegetables from the far east on western supermarket shelves. The containerisation of goods has made it possible to ship almost any product to anywhere in the world within a few hours. On-line electronic trading has also broadened the field and enabled suppliers to find customers for specialised items in almost every country in the world.

The net result is an increasing demand for transport by land, sea and air with consequences for the environment. For organisations that are environmentally conscious, this means taking a hard look at their customer base and lower their carbon footprint.

Customers are not always the most obvious ones. Products designed for one purpose may well find customers using them for an entirely different purpose and so it pays to continually analyse who is buying what as it may reveal new undiscovered markets and potentially even greater sales.

What do customers want from the organisation

Organisations are created to achieve a goal, mission or objective but they will only do so if they satisfy their stakeholders. Their customers, as one of the stakeholders, will be satisfied only if they provide products and services that meet their needs, requirements and expectations. They will only retain their customers if they continue to delight them with superior service and convert wants into needs.

Needs

Needs are essential for life, to maintain certain standards, or essential for products and services, to fulfil the purpose for which they have been acquired. For example a car needs a steering wheel and the wheel needs to withstand the loads put upon it but it does not need to be clad in leather and hand stitched for it to fulfil its purpose.

Everyone’s needs will be different and therefore instead of every product and service being different and being prohibitively expensive, we have to accept compromises and live with products and services that in some ways will exceed what we need and in other ways will not quite match our needs. To overcome the diversity of needs customers define requirements, often selecting existing products because they appear to satisfy the need but might not have been specifically designed to do so.

Wants

By focusing on benefits resulting from products and services, needs can be converted into wants such that a need for food may be converted into a want for a particular brand of chocolate. Sometimes the want is not essential but the higher up the hierarchy of needs we go; the more a want becomes essential to maintain our social standing, esteem or to realise our personal goals.

In growing their business organisations create a demand for their products and services but far from the demand arising from a want that is essential to maintain our social standing, it is based on an image created for us by media advertising. We don’t need spring vegetables in the winter but because industry has created the organisation to supply them, a demand is created that becomes an expectation. Spring vegetables have been available in the winter now for so long that we expect them to be available in the shops and will go elsewhere if they are not. But they are not essential to survival, to safety, to esteem or to realise our potential and their consumption may in fact harm our health because we are no longer absorbing the right chemicals to help us survive the cold winters. We might want it, even need it but it does us harm and regrettably, there are plenty of organisations ready to supply us products that will harm us.

Requirements

Requirements are what we request of others and may encompass our needs and wants but often we don’t fully realise what we need until after we have made our request. For example, now that we own a mobile telephone we discover we really need hands-free operation when using the phone while driving a vehicle. Another more costly example is with software projects where customers keep on changing the requirements after the architecture has been established. Our requirements at the moment of sale may or may not therefore express all our needs. Requirements may also go beyond needs and include characteristics that are nice to have but not essential. They may encompass rules and regulations that exist to protect society, prevent harm, fraud and other undesirable situations.

Anything can be expressed as a requirement whether or not it is essential or whether the circumstances it aims to prevent might ever occur or the standards invoked might apply.

Requirements are often an imprecise expression of needs, wants and expectations. Some customers believe they have to define every characteristic otherwise there is a chance that the product or service will be unsatisfactory. For this reason parameters may be assigned tolerances that are arbitrary simply to provide a basis for acceptance/rejection. It does not follow that a product that fails to meet the requirement will not be fit for use. It simply provides a basis for the customer to use judgement on the failures. The difficulty arises when the producer has no idea of the conditions under which the product will be used. For example a producer of a power supply may have no knowledge of all the situations in which it might be used. It may be used in domestic, commercial, military or even in equipping a spacecraft. Variations acceptable in domestic equipment might not be acceptable in military equipment but the economics favour selection for use rather than a custom design which would be far more costly.

Expectations

Expectations are implied needs or requirements. They have not been requested because we take them for granted – we regard them to be understood within our particular society as the accepted norm. They may be things to which we are accustomed, based on fashion, style, trends or previous experience. One therefore expects sales staff to be polite and courteous, electronic products to be safe and reliable, policemen to be honest, coffee and soup to be hot, etc. One would like businessmen to be honest but in some markets we have come to expect them to be unethical, corruptible and dishonest. As expectations are also born out of experience, after frequent poor service from a train operator, our expectations are that the next time we use that train operator; we will once again be disappointed. We would therefore be delighted if, through some well focused quality initiative, the train operator exceeded our expectations on our next journey.

Desires

Customers express their requirements but as we have seen above these may go beyond what is essential and may include mandatory regulations as well as things that are nice to have – what we can refer to as desires. Sometimes a customer will distinguish between those characteristics that are essential and those that are desirable by using the word “should”.

Intent

Behind every want, need, requirement, expectation or desire will be an intent. What the customer is trying to accomplish as a result, the reason for the requirement. In many cases clarifying the intent is not necessary because the requirements express what amounts to common sense or industry practice and norms. But sometimes requirements are expressed in terms that clarify the intent. A good example can be taken from ISO 9001 where in clause 8.3 it states:

“The organisation shall ensure that product which does not conform to product requirements is identified and controlled to prevent its unintended use or delivery”

The phrase “to prevent its unintended use or delivery” signifies the intent of the requirement but not all requirements are as explicit as this. For example in clause 5.5.1 of ISO 9001 it states:

“Top management shall ensure that responsibilities and authority are defined and communicated within the organisation”

There is no expression of intent in this requirement i.e. it does not clarify why responsibilities and authority need to be defined and communicated. Although in this example it might appear obvious, in the 1994 version of the standard it also required responsibilities and authority to be documented without stating why.

What factors are critical in managing customer relationships?

It is desirable that suppliers sustain a good relationship with their customers, although in markets where a particular customer is unlikely to return suppliers are apt to be less accommodating. There can be a “take it or leave it” mentality.  Accepting the old adage that the “Customer is always right” whilst not always true is good for business. It is often better to accept mistakes whichever party actually made them than stand ones ground with the customer. Obviously if there is a lot at stake and the prospect of legal proceedings, admitting mistakes might be foolish but on trivial matters it is often the wiser thing to do.

Suppliers need to manage their customers. This might appear an odd thing to say, but if you let your customer run rings around you, you will be left the poorer party. Several factors are critical in managing customer relationships:

• Knowing who your customers are and where they are is perhaps the first thing you should do.
• Anticipating and understanding customer needs, expectations and requirements is very important. It is not enough simply to read the contract or order but to get beneath the words and clearly understand the intent behind these words. It is not the customers’ responsibility to tell you want he wants but your responsibility to find out what he needs and then satisfy those needs. If you comply with the written requirement but fail to satisfy the customer’s needs and expectations you might get paid but you might not get another job.
• Listening to the customer and not simply reading the words. This is not merely listening at meetings but reading the signals from the customers’ actions and decisions, the body language and silences. What was not said or done may be just as important to what was said and done. Your customer might not have responded to a communication not because he was too busy but because your message broke the protocol, was critical, was unrepentant or simply arrogant. As indicated previously, requirements can be rather imprecise means of conveying needs and so customers will use other ways to express what it is they really want from you so you have to listen.
• Co-operating with customer preferences. Some customers want you to use certain reporting procedures or conventions that might cause you extra effort. Find ways of accommodating their needs that cause least disruption to your systems. Customers may want you to hold shipment until they are ready. Ignoring such requests because there is no provision in the contract might be foolhardy but if it will reduce your effectiveness to comply, you need to begin a dialogue. Talk is cheap and an idle workforce is costly.
• Building confidence with your customer. Some customers recognise their suppliers as the experts, which is why they selected them in the first place but others impose their solutions and practices on their suppliers regardless. It pays to build confidence with your customers by going out your way to explain the way you do things, demonstrate the capability of your processes and explain those features, benefits and advantages of your products and services they may not be aware of. A customer who really appreciates what he is getting in return for payment is likely to return.

Related publications and websites

• Managing Customer Relationships: A Strategic Framework (Hardcover)
  Don Peppers Martha Rogers.
• Handbook of CRM: Achieving Excellence through Customer Management: Achieving Excellence Through Customer Management Adrian Payne.
• Delivering Customer Service: A Practical Guide to Managing Successful Customer Relationships (1999) Sheila Payne.
• Quality is Free (1979) Crosby Philip B. McGraw Hill.
• Customer relationship management  http://en.wikipedia.org/wiki/Customer_relationship_management.
• Customer relationship management  http://www.cimaglobal.com/cps/rde/xbcr/SID-0AAAC544-4E50D321/live/CRM_techrpt_0601.pdf 
• The Chartered Institute of Management (CIM) has a lot of good information on this topic.