As a general rule, most rules for business aren't particularly useful. There are usually so many ifs, buts and maybes attached that their application in any given situation is limited.
This one started life as a mantra for big department stores. It started with Marshall and Fields in Chicago and was imported from there to Selfridges (Selfridge worked for Marshall and Field before he started Selfridges, so he may have coined the phrase himself). It was used in advertising; and, like most advertising, it shouldn't be taken too literally. It was meant to mean that the stores would be customer oriented and for the staff to treat the customers as important.
Since then, it got popular and, unfortunately, got picked up by marketers who have a tendency to believe their own advertising. So it moved from being a mantra that reinforced a customer-centric culture to being a more literally idea. Sam Walton, for example, famously used it to guide Wal-Mart's no fault returns policy (which, it seems, never really worked the way it was described - more marketing, I think).
Then, to make matters worse, the customers started believing it, and thought they were literally always right too. Unfortunately, every customer who believes this is wrong - a subtle irony probably lost on many customers. This produces a dangerous cycle of bizarre demands from customers, which the provider cannot fulfil, resulting in the provider being blamed for the customer's bizarreness.
The original intention - that services and organisations should focus on looking after their customers - is a good one. That's one that I do think the UK is well behind many of the other countries I've lived in. However, taking, "the customer is always right" too literally is mostly a recipe for disaster.
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