Customers vs consumers - do you make a distinction in your analysis?

Image: Wellington Market, New Zealand, 13 Dec. 2009 by Phillip Capper, used under Creative Commons CC BY 2.0.

A couple of weeks ago I wrote the blog post The future of IT business analysis – moving from ‘what the business needs’ to ‘what the customer needs’ in which I suggested that it is becoming increasingly important for us Business Analysts to look after the needs of our organisation's customers.

That blog post prompted some interesting conversations around what a customer is. So I have written this post to provide more clarity on what I mean by ‘customer’ and the distinction between 'customer' and 'consumer'.

What is a customer and a consumer?

Most of the people I have spoken to have either a very narrow or a very broad view of a customer, usually incorporating some good descriptors like ‘relationship’, ‘contract’, ‘human’, ‘work’, and ‘payment’.

A good and simple definition of a 'customer' seems to be:

‘An entity (or entities) you serve for remuneration.’

Let’s explore some of the key words in this definition a little further:

• Entity: This can be a person, group or organisation.
• Serve: These can be goods or services.
• Remuneration: This can take many forms including money or payment-in-kind.

While the ‘customer’ is normally the one paying, they may not always be the one consuming or benefiting from a particular product or service. For this we need to introduce the concept of a ‘consumer’.

The ‘customer’ (paying) and ‘consumer’ (consuming and receiving benefit) can be one in the same, but they can also be separate as you will see in the following examples.

Regardless of whether they are the same or different, the consumer is generally the ‘reason for being’ for an organisation, so it is important, where they are not the customer, to also understand their needs especially where these may conflict with those of the customer.

Goods-based businesses

Applying our definition of customer to your average goods-based business such as a retail store or the above picture of a fruit and vege market works well and is fairly easy to get your head around. Your customer and consumer is often one-in-the-same and normally the person with whom you are interacting. As always, there will be exceptions (e.g. a parent buying fruit for their child’s lunch or an administration person purchasing stationary for use within their wider organisation).

Charitable organisations

Charities have consumers as their focus, in that if there wasn’t a particular ‘consumer’ need, then the charity would be unlikely to exist. In this model, the person paying for (remunerating) the service, be it the general public through donations or a funding agency like a trust, must be satisfied that their money is being applied for the general purpose they gave it, otherwise they would cease their support. Whether or not the consumer in this case is ‘happy’ with the service is less of a concern, as long as the charity is achieving its stated goals (as generally set out in a legal document of some form).

Government agencies

In the New Zealand government context, the customer is almost exclusively the government and by extension the general public. Investment (remuneration) is made by the government to procure inputs (activities, processes, services) to create outputs that impact outcomes.

For example, the Department of Corrections in New Zealand has prisoners and parolees as the ‘consumers’ of its services, but the customer is the government. If there weren’t prisoners, we wouldn’t need a Department of Corrections. This type of business generally has legislation stating the intent and responsibilities of the organisation and, like charities, whether or not the consumer is ‘happy’ with the service is less of a concern.

Inland Revenue is another good example. As a business analyst you might contribute to a project to streamline a process where someone needs to submit information to the department. In this case the person submitting information is the consumer, and while the process will make it easier and more convenient for the consumer, the real driver for this would be to lower the costs to the customer (the government). This may include activities such as correct information capture, reducing costly manual cleansing, or streamlining processes to make auditing and intelligence gathering easier, reducing the cost of this work. So again, while the consumer may benefit from the improvements, this may in fact be less of a concern than the needs of the customer – the government.

Service-based businesses

Service-based businesses might include calling a plumber, visiting the dentist or engaging a specialist for advice. Sometimes these services, such as those offered by a consulting company, can involve helping the customer meet the needs of their customer (the customer's customer). In this case whether or not the consumer (the ‘customer’s customer’) is ‘happy’ is very important, but that doesn’t make the consumer the customer.

In consulting, the needs of both must be understood, and balanced based on the customer’s requirement to meet the consumer's need. As business analysts, we often help the people we work with to understand the needs of each of these parties, and as these needs can often be competing, the consequences of any choices require consideration. The more complex an organisation, the more the ripple-effect of these choices may be from even small changes.

Application in the real world

As a business analyst working in a rapidly changing landscape, you are likely going to spend more time thinking about customer needs rather than just those of the business. So, it will be important to get clarity on who your ‘customers’ and ‘consumers’ are, and whether they are the same or different people or entities. You may also need to help the decision-makers to understand the impact of their possible choices, particularly when those needs are competing. This clarity may be fundamental to delivering the right result for your project and organisation.

For me, as a consultant specialising in business analysis, depending on the needs of my customer, I am often responsible for bringing together in a workable way the needs of both these important stakeholders – both the customer and the consumer. But if I pay too much attention to MY customer’s needs, then I can risk putting in place a solution that won’t meet THEIR customer’s needs and vice versa. This responsibility is why it’s so important in all situations to understand BOTH your customer AND your consumer. Making this distinction explicit for your customer is essential when you are working on anything that may impact the consumer, however lightly, as they are often your customer’s reason for being.

You may also be interested in my blog post Business analyst techniques for uncovering customer needs.

Kirsten Eriksen is a Senior Consultant specialising in business analysis, based in Equinox IT’s Wellington, New Zealand office.