Universities are composed of two broad groups of individuals. The managers and the academics. The managers govern and lead; the academics do the teaching and research. Managers tend to view the University as a business, and academics tend to view the University as, well, not a business. (Some of the managers were academics, few of the academics were managers.)
When a viewing a University as a Business, the question “who are our customers” quickly arises. It is tempting to view the students as the customer. Though one might consider this accurate from a transactional perspective, it is a deeply disfunctional perspective. A customer-provider relationship is not easily compatible with a good teach/mentor–student relationship. In particular, students-as-customers is not conducive to students taking responsibility for their learning. Perhap this is why it is quite unpalatable to many teachers.
So don´t view the student as the customer. Don’t even think of a University as a Business. But if you really really want to apply a business perspective to a University (and I believe there are important reasons for doing so), view the student as the product, and their future employer as the customer.
The University takes in relatively raw materials (new students) and transforms them into valuable products (graduates) by adding value (knowledge, skills, attitudes, relationships). These graduates have attributes (the product specification), and these are advertised to potential employers by their degree name, courses taken, and grade achieved. The attractiveness of the product (graduate) to the customer (the potential employer) is determined by match of desired and advertised skills (a match between employer desires and the employers perception of the product) , match between advertised and actual skills (underselling or overselling represent lack of match), and of brand perception (not all University degrees are regarded equally).