Who is a consumer and who is not?

In a previous article we discussed the proposed changes to the Business to Business Unfair Contract Terms regime, aimed at giving greater protections to businesses.

Business customers (big and small) are set to gain further protections under forthcoming changes to clause 3(1)(a) of the definition of “consumer” under the Australian Consumer Law (ACL).1

Under the current definition in section 3 of the ACL, a person is a “consumer” if the person acquires:

• Category 1: goods or services that are priced at $40,000 or less2;
• Category 2: goods or services that are of a kind ordinarily acquired for personal, domestic or household use (regardless of the price of the goods or services);3 or
• Category 3: a vehicle or trailer acquired for use principally in the transport of goods on public roads.4

A person is not a “consumer” however if they acquire goods for the purpose of resupply or to use up or transform in the process of production or manufacture, or in the course of repairing or treating other goods or fixtures on land.5

We have previously discussed the different categories of consumers under section 3 of the ACL in this article.

What’s changing and why?

On 9 July 2020, the Treasury Laws Amendment (Acquisition as Consumer—Financial Thresholds) Regulations 2020 (Regulations) increased the monetary threshold for determining whether a person acquires goods or services as a “consumer” under section 3(1)(a) of the ACL from $40,000 to $100,000.6

The Regulations have also increased the threshold amount in section 12BC(3)(a) of the Australian Securities Investment Commission Act (Cth) 2001 (which contain similar consumer protection provisions for financial products and services) from $40,000 to $100,000.7

These changes take effect from 1 July 2021.

The changes have been anticipated since 2018 following recommendations by the Australian Consumer Law Review. The review found that “the extent of consumer and small business protection provided by the ACL had eroded over time, as the real value of the monetary threshold of $40,000 in the ACL’s definition of ‘consumer’ declined. As a result, the scope of purchases protected by the ACL had diminished, and it was decided that the definition was no longer fit for purpose. The Review proposed that the $40,000 threshold be increased to $100,000 to broadly account for inflation since the threshold was set in 1986.”8

Why is this important?

The ACL gives “consumers” certain statutory rights against suppliers of goods and services. These are commonly known as statutory consumer guarantees. There are 9 consumer guarantees that apply to goods and 3 consumer guarantees that apply to services. These are that goods will be of acceptable quality; fit for purpose; comply with their description; correspond with the sample or demonstration (if given); comply with any express warranties; have clear title; free from securities; and come with undisturbed possession.9 For services, these are that the services are provided with due care and skill; fit for purpose; and are delivered within the stated time or if no time stated, within a reasonable time.10

If a person acquires goods or services as a “consumer” and the supplier breaches a relevant consumer guarantee, the consumer has certain rights under the ACL which may, depending on the circumstances, include repair or replacement of the goods, obtaining a refund, cancelling a service and/or obtaining compensation for damage and loss (including in some circumstances consequential loss).11

Contracts that purport to exclude the operation of the consumer guarantees are void under section 64 of the ACL. However suppliers of goods and services to consumers in Category 1, (i.e. goods or services priced at $40,000 or less, soon to be $100,000 or less) may limit their liability for a breach of consumer guarantee to the repair or replacement of the goods, or supply of equivalent goods or the payment of the cost to repair or replace the goods;12 the re-supply of the services or the payment of the cost of having the services supplied again.13 This limitation is only possible however, where the goods or services are not of a kind ordinarily acquired for personal domestic or household use.

What does this mean for businesses?

It will be important for businesses to make sure that their supply contracts and sales terms and conditions include appropriate limitation of liability provisions under section 64A of the ACL particularly for businesses whose goods and services have traditionally fallen outside the scope of the ACL because of the current monetary threshold.

This article was written by Teresa Torcasio, Partner and Caitlyn White, Senior Associate.

1 Schedule 2 to the Competition and Consumer Act 2010 (Cth)
2 Section 3(1)(a), ACL.
3 Section 3(1)(b), ACL.
4 Section 3(1)(c), ACL.
5 Section 3(2)(a) and (b), ACL
6 Schedule 1, Section 1, Treasury Laws Amendment (Acquisition as Consumer—Financial Thresholds) Regulations 2020 
7 Ibid, Schedule 1, Section 2.
8 https://consult.treasury.gov.au/market-and-competition-policy-division/c2018-t271629/supporting_documents/20180322Chapter_1_increasing_monetary_thres.pdf
9 Chapter 3, Pt 3-2, ACL.
10 Ibid.
11 Chapter 5, Pt 5-4, ACL.
12 Section 64A(1), ACL.
13 Section 64A(2), ACL.

A 'consumer' might be generally understood as a purchaser of goods and services for the personal satisfaction of themselves or other members of their households, as distinct from use to generate further income.

It follows that the main characteristics of consumer protection statutes are that the supplier acts in the course of a trade or business, the recipient is a private individual or entity that acts in a private or not-for-profit capacity. However, it is important not to limit the term 'consumer' to only contracting parties, as that might exclude the end user of goods and services.

It is important to note that there is no universally agreed definition of the term 'consumer'. Different laws of different countries might define the term differently depending on their varying purposes, contexts and needs.

Often the two terms, consumer vs customer are interchangeably used in the common context. In simple vocabulary, a consumer is someone who consumes a product. Similarly, a customer is the one who buys or purchases a product. Despite the exact definitions, both the terms are deemed essential in the economic ideology of consumerism.

So, what is the difference between a consumer and a customer? Nevertheless, it is true that a customer is a prime target in the world of business. But, it is finally a consumer who consumes or uses the product. He is the one who has the power to unearth the verdict. A consumer decides whether the quality of the product or service has passed the test or not. Here is a glimpse of some of the topics we shall be highlighting on:

• Who is a Consumer?
• Types of Consumers
• Who is a Customer?
• Types of Customers
• Relationship between consumers and customers
• Key Differences: Consumer vs Customer
• Why is it so important?
• Why types of customers are important in marketing?
• SaaS product examples for consumer targeting and customer targeting
• Frequently Asked Questions (FAQs)

Before proceeding, know that the consumer and the customer may or may not be the same person. Also, the consumer has the leverage to influence the buying decisions of the customer. So, what are the exact difference and why is it so important? Let’s dig in to explore.

Who is a Consumer?

The definition of a consumer could get subjective as well as tricky sometimes. In any given business, the one who consumes the service or uses the goods is said to be a consumer. Note that a customer could be a consumer at certain times, but not always.

Simply put, any entity who does not have the choice to resell the product or service and use that for its purpose is a consumer. Or in even simpler terms, every end-user in the chain of buying or using services of products is a consumer.

Let’s take an example here. Say, you are the head of the family and you purchase some milk packets from the retailer. Till the time you buy those packets, you are a customer. But when that is consumed by you and your family that is where they are the consumers.

This is when you are entitled to discern the genuine nature and quality of the product. Hence, surveys and consumer reports have a huge demand for businesses. To truly sustain in the business world, the quality of your services and the impact it leaves on the consumers makes or breaks the deal.

Types of Consumers

• The Extrovert Type: The kind of consumers who fall in this category are the ones who have a thing for branded items. They will most likely stick around to them and will strive to become a loyal ones. If met with high-quality products and services, they have a good chance to convert into brand advocates.

• The Inferior Goods Type: They are the ones who face a considerable dearth of money and are a part of the low-income status. Hence, they are bound to purchase only those products that are needed for mere survival.

• The Commercial Type: No matter their actual requirement of purchasing items, this category of consumers will buy goods and products in a bulk. This may or may not be used for commercial purposes.

• The Discrete Type: As the name suggests, these kinds of consumers will opt for a discrete mode of buying habits. Simply put, they will consider spending a handsome amount on some of the specific items only, say, cosmetics, jewelry, or apparel. And will mostly steer away from thrifting on the other categories.

Again, the definition of a customer is similar to that of a consumer, but not in its entirety. He is the one who purchases a product or service followed by a monetary transaction. Note that a customer is not exactly a consumer at all times.

This can be better elaborated on with this example. Say, a mother bought some candies for her kids. In this case, the mother is the customer, while her kids are the consumers. 

The common thread that unites every business is wooing the customer.

Once a customer is enticed enough and lured to buy a product, then only it can move next to the consumer in the chain. Over and above, a good marketer always tries to influence the customers first. This induces them to purchase and revert for some more. As they know that once they motivate the customers to frequent and purchase, thereby triggering sales and revenue.

Types of Customers

• Resell Customers: They are the ones who initially buy a product with a motive of reselling it to draw a profit. Wholesalers, manufacturers, trade customers, and retailers fall in this category. Here, they are not the end-user of the purchased goods.
• Final Customers: These types of customers are the end-users of the product that they buy. They purchase an item for their personal ingestion and do not resell it for generating profit.

A customer is one who pays for the product or service. They may not be the end consumer. So, a consumer is one who consumes the service or product. A customer has a direct relationship with the vendor. Though both terms may be used interchangeably, they are very different. A customer might also be a consumer. For example- If one buys groceries, they are both the consumer and customer. A customer may be buying something for his friend or family. They may not be the end-user of the product.

For example- If a user is buying software, it may or may not be for personal or professional use.  The Chief customer officer may purchase customer success software. The use of the product is by the consumers who are customer success managers.

Key Differences: Consumer vs Customer

• Meaning: While a consumer is the one who consumes goods or services and is the end-user, a customer is the one who actually buys it. A consumer can be a customer but the reverse is not true.
• Target Audience: A consumer could be anybody. Be it an individual, or a company, maybe a family or a mass. But a customer is more like a single entity or a company as a whole.
• Selling Purposes: While a consumer does not hold the right to sell the product, he got to someone else. However, a customer is eligible to do so.
• Reason: While the reason behind a consumer purchase is consumption, exclusively, on the other hand, the reason behind a customer purchasing it could either be consumption or sell it again to someone else.
• Transaction: A consumer might or might not have to hold a monetary transaction for the purpose of getting the goods. Nonetheless, a consumer must undergo a transaction if he wishes to take the product or service.

In various walks of life, there is umpteen importance of both these terms. The absence of consumers or customers in the economy chain or the country can get very difficult to monitor. Here are a few points that get us to thinking:

1. Develops service divergence: Consumerism is a vast concept in itself. It just does not restrain itself to the food and beverage industry. Most of the tertiary services we use, be it the grooming industry, pharmacy, transport, communication, and/or educational systems are deeply wired to the development of the economy. Somewhere or the other, all of these are linked in a vicious circle.
2. Balances the Demand-Supply graph: Economics states that the supply is directly proportional to the demand. It is essential to maintain a balance between both. Else, a dearth in any of the above will lead to enormous unemployment, recession and many such inadvertent issues can pile up.
3. Augments Demands: All of the goods, services, or products around us are the final result of demand. Demand is the main root behind the emergence of any service or product. Different consumers have different interests in various segments of products. It is the demand that encourages the manufacturers to bring it to the market.

Creating the right content to approach the right target audience

The key to creating good content is understanding the audience and vice versa. Having a clear idea of the product will help you create messaging, content, and ads that work for your audience. With the right content focused on every segment, you can improve conversions and increase ROI. The target audience is the group of people who are likely to use or get connected to your product. They have some common features like buying personas, behaviors, and demographics. You can use social listening tools to know your audience’s opportunities, insights, keywords, and ideas.

Why types of customers are important in marketing?

No customer is just like another. Every customer has a different persona and vital role in a business.

Need-based customers

Need-based customers are those who will buy something when they need it. They will not be tempted by peers or colleagues. They will choose only when they are habituated with something. For example- Choosing the same shampoo because you feel it works well for you.

Discount Customers

These customers will buy only when they get great discounted rates or are added to loyalty value programs and so on.

Loyal Customer

These customers are limited. They will stick with your brand since they are completely satisfied with the service or product. These types of customers are rare and loyal to the brand.

Insistent Customers

These customers are highly informed. They do a lot of research and try a number of solutions before purchasing something. Content or a knowledge base will be helpful in forming an opinion for them. To get their support is tough, but they usually are long-term customers since they trust their opinions.

Impulsive Customers

Impulsive customers choose something because they like it at a certain point. They have no other motivation to choose a specific product or service.

Wandering Customers

These customers are randomly looking for ideas. They are not serious buyers. They are window-shopping as they have no clue on what to buy.

New customer

New customers are those who are newly inducted into the system. They do not have an idea about the product and need to learn the system.

Potential customer

A potential customer is one who has all the characteristics required to become a customer. They need product information, service details, and usage information to help make a decision.

SaaS product examples for consumer targeting and customer targeting

The consumer is an end-user who can use the platform but cannot resell the platform to others. The customer is one who buys the product and has a relationship with the vendor or seller.

Consumer targeting products

SaaS products are now integral in every business. Some of the top SaaS products include

Google

Google has a variety of products like maps, docs, calendars, drives, sheets, and more. These can be used by the consumer who chooses to sign up. This makes it a product that the end-user uses. They can encourage anyone else to sign up or choose the platform.

Facebook

This software product is also consumer-focused. The consumer or customer is one who uses the product. They need to sign up with their credentials.

Evernote

Another product that can be used and purchased by the same person is Evernote. The popular note-making app lets users join for free and slowly converts them.

Customer-facing B2B SaaS products

Amazon Web Services

AWS or Amazon Web Services offers users a platform to build their own SaaS products. They can even connect with third-party vendors to sell existing products.

SmartKarrot

SmartKarrot is a customer success platform that is purchased by a company for use by the customer success managers and teams. The purchasing decision is made by the customer success officer or a C-suite executive appointed for the purpose.

Microsoft

Microsoft is a popular product, and the new office 365 offers a suite of features that will be helpful in office spaces. Sharepoint, CRM, Word, Excel are all tools used by employees. The customer, however, is the company. The consumers are the employees or users who are used to the brand.

Dual-use products

These products are where the customer and consumer are the same.

Zoom

 Zoom is a popular, reliable video platform that customers and consumers can use. The platform can handle webinars, chat, phone, business meetings, and online events. The one who signs up with the platform is the one who uses it. They can also allow someone else to use their meeting rooms and vice versa.

WordPress

WordPress allows users or companies to create websites or blogs in a simple manner. A company can use it for its product or service needs. Consumers or users can choose it for their personal blogs and websites. Both sets of the audience can use it.39

Frequently Asked Questions (FAQs)

1. Is there any difference between a final customer and a final consumer? If so, what is it?Yes. The difference being on basis of price. A final customer will always pay up the price for an item. However, on the other hand, a final consumer may or may not pay up for the price. Say, User A gifts a clock to User B. In this case, the end-user is User B, even if he or she did not pay for it.
2. Are all Consumers Customers, but not the vice-versa?Not necessarily. In order to be qualified as a customer, you must purchase a product or service. Nonetheless, a consumer might not really be the buyer of the product. Like mentioned earlier, if an item has been gifted to someone else, in that case, the consumer is still not the buyer. On similar tracks, a customer who buys a product with an intention of reselling for future benefits, is not called as the end-user or consumer of the given item. Hence, all customers are not necessarily consumers.
3. If User X purchases milk with a purpose to resell and User Z purchases milk for his kids, who of the following is a customer or a consumer?

   As stated earlier, User X purchased the milk with an intention of reselling it to other people, thereby making him a customer. And on the other hand, User Z has the purpose of using this milk by making a purchase, thereby making him a consumer.

It’s a given that any business XYZ runs on the demands of a user. The stiff selection between a consumer vs customer is finally led to the type of service or product to choose upon. They are the real drivers behind the system. Or in even simple words, they are the real CEO of your company and decide what kind of profit or loss you make.

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Anshi has over 12 years of experience in demand generation, digital marketing, and managing global teams. In her prior role as head of marketing operations for a high growth US healthcare tech organization she transformed marketing from cost to revenue center.