Who is the Customer?

Is there a word or phrase that really bugs you? Something that whenever you hear it instantly makes your blood pressure go up? For me, it’s when I hear someone refer to their channel as their “customer.”

“Wrong,” I want to yell out . . . and sometimes do, depending on the setting. It is easy to understand why a manufacturer would call a channel a customer. After all, the channel buys the product from the manufacturer and then sends payment.

However, the thinking that underlies this phrasing creates many problems for manufacturers.

First, calling channels customers leads to a mindset established by Marshall Field, the famed 19th century department store magnate who once quipped that, “the customer is always right.”[1] Possibly so, however, we all know that the channel is not always right. Sometimes they have very valid input and complaints, but sometimes they demand irrational discounts, rebates, programs, support, etc. By thinking of the channel as the customer, the manufacturer puts itself at a negotiating disadvantage. This is why many channels insist upon being called “the customer!”

Second, thinking of channels as customers obscures the real customer – the end-user. Manufacturers need to be hyper-aware of end-users – segments, needs, trends, perceptions, etc. If a manufacturer considers the channel as the customer, it is a sign that the manufacturer has lost touch with the real decision-makers.

Third, manufacturers that call their channels “customers,” overlook the real role of the channel – as a partner. The channel may emphasize its “payment” to the manufacturer, but in actuality the manufacturer is paying the channel a discount and/or rebate (which leads to a gross margin) to perform specific activities. These activities include some mix of selling, marketing, inventory management, installation, integration, credit, collections, etc. Manufacturers and channel partners need to share a common understanding of each other’s role, and make joint plans based on this understanding. A manufacturer who considers their channel as a customer will lose sight of the channel’s role as a partner, with disastrous economic, market share or customer satisfaction consequences.

After taking such a hard line I will admit that in some cases, most notably when the end-user abdicates the brand decision to the channel, the “channel as customer” thinking has some, and I emphasize “some” validity. For example, when a homeowner buys a house they rarely, if ever, demand a specific brand of, say, insulation in the wall. The contractor, in this case, becomes a mix of channel and customer. However, even in these instances the manufacturer still needs to consider the contractor as a channel, lest they fall into the problems I noted in my second and third points above.

The two key points I’d like to stress are that manufacturers need to constantly be aware of their actual customers’ changing needs, and that manufacturers need to clearly define and insist on the activities performed by the channel.
[1] Although the phrase, “the customer is always right” is frequently credited to Field, it is also ascribed to Harry Gordon Selfridge the founder of London’s Selfridges store and César Ritz of the famed hotel chain.