Students are not our customers, they are our products
Universities are made up of various groups of people, including managers and academics. Managers govern and lead; academics teach and do research. Managers tend to view the university as a business (the extent of this differs across nations and institutions), while academics tend to view it as, well, not a business. (Some managers were once academics; few academics are managers.)
When a university is viewed as a business, the question “who are our customers?” arises. It’s tempting to see students as the customer. That might be accurate from a purely transactional perspective, but it’s a dysfunctional one.
A customer-provider relationship doesn’t sit well alongside a teacher/mentor–student relationship. In particular, treating students as customers doesn’t encourage them to take responsibility for their own learning — which may be why the framing is unpalatable to many teachers.
So let’s avoid viewing the student as the customer, and avoid thinking of a university as a business. But if you really do want to apply a business perspective to a university (and there may be good reasons to), then 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. Graduates have attributes (the product specification), advertised to potential employers via their degree name, courses taken, and grades achieved. How attractive a graduate is to an employer (or to society more broadly) depends on the match between desired and advertised skills, the match between advertised and actual skills (under- or overselling both represent a mismatch), and brand perception — not all degrees are regarded equally.
Perhaps this perspective would be more palatable to everyone involved.