Which refers to customers or clients who are already using a particular product or service?

What Is a Customer?

A customer is an individual or business that purchases another company's goods or services. Customers are important because they drive revenues; without them, businesses cannot continue to exist. All businesses compete with other companies to attract customers, either by aggressively advertising their products, by lowering prices to expand their customer bases, or by developing unique products and experiences that customers love. Think Apple, Tesla, Google, or TikTok.

Key Takeaways

• Customers are the individuals and businesses that purchase goods and services from another business.
• To understand how to better meet the needs of its customers, some businesses closely monitor their customer relationships to identify ways to improve service and products.
• The way businesses treat their customers can give them a competitive edge.
• Although consumers can be customers, consumers are defined as those who consume or use market goods and services.

Understanding Customers

Businesses often honor the adage "the customer is always right" because happy customers are more likely to award repeat business to companies who meet or exceed their needs. As a result, many companies closely monitor their customer relationships to solicit feedback on methods to improve product lines. Customers are categorized in many ways. Most commonly, customers are classified as external or internal.

External customers are dissociated from business operations and are often the parties interested in purchasing the final goods and services produced by a company. Internal customers are individuals or businesses integrated into business operations, often existing as employees or other functional groups within the company.

Studying Customers

Businesses frequently study their customers' profiles to fine-tune their marketing approaches and tailor their inventory to attract the most customers. Customers are often grouped according to their demographics, such as age, race, gender, ethnicity, income level, and geographic location, which all may help businesses cultivate a snapshot of the "ideal customer" or "customer persona." This information helps companies deepen existing customer relationships and reach untapped consumer populations to increase traffic.

Customers are so important that colleges and universities offer consumer behavior courses dedicated to studying their behavioral patterns, choices, and idiosyncrasies. They focus on why people buy and use goods and services and how it impacts companies and economies. Understanding customers enables businesses to create effective marketing and advertising campaigns, deliver products and services that address needs and wants, and retain customers for repeat business.

Customer Service

Customer service, which strives to ensure positive experiences, is key to a successful seller/customer dynamic. Loyalty in the form of favorable online reviews, referrals, and future business can be lost or won based on a good or bad customer service experience. In recent years, customer service has evolved to include real-time interactions via instant message chats, texting, and other means of communication. The market is saturated with businesses offering the same or similar products and services. What distinguishes one from another is customer service, which has become the basis of competition for most businesses. This is a key element of Sigma Six.

Customers vs. Consumers

The terms customer and consumer are nearly synonymous and are often used interchangeably. However, there exists a slight difference. Consumers are defined as individuals or businesses that consume or use goods and services. Customers are the purchasers within the economy that buy goods and services, and they can exist as consumers or alone as customers.

Customers differ from purchasing agents, who use corporate capital to buy goods at wholesale for commercial or industrial use.

What is Penetrated Market?

Penetrated market refers to the set of customers who is already using a particular product or service. In a penetrated market, users are aware of the product already and most of them are active users. Markets that are not penetrated are called target markets, potential markets or available markets.

A penetrated market with respect to the total population is depicted as shown in the following figure:

If the penetrated market for a particular product is high, it means that the brand or the category is popular in that market. The size of penetrated market for a product gives an estimate of the amount of scope of increasing sales in the un-penetrated market and the size of the target market. If the size of your penetrated market is small, it means that more investment should go into the strategy of marketing that particular product. High market penetration indicates that the product is an established product now and that the brand or the company is a market leader in that particular category. Trying to capture un-penetrated markets is important to increase sales and market share, but at the same time maintaining the customers in the penetrated market is also important. Careful attention should be paid to these customers so that they do not switch to competitors’ products.

Market penetration is calculated as the percentage of the company’s sales over the total sales of the product or in a category. For example, there are 400 million mobile phone users in India and company A’s mobile phones are used by 80 million people. Then the market penetration is (80 million/400 million)*100 i.e. 20%. This means there are still 320 million mobile phone users in India who can be targeted by the company.

Hence, this concludes the definition of Penetrated Market along with its overview.

This article has been researched & authored by the Business Concepts Team. It has been reviewed & published by the MBA Skool Team. The content on MBA Skool has been created for educational & academic purpose only.

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