What is Departmentalization by Customer? Definition, and Pros/Cons

What is Customer Departmentalization?

Customer departmentalization is a strategy to design an organizational structure in which departments are created on the basis of the nature of customers or the needs of customer groups. Here, for different customers ‘ needs, various departments are created.

The main objective of adopting customer departmentation lies in the concept that when a separate department is created to serve specific customer needs, it can be better served, leading to customer satisfaction and loyalty.

This customer departmentation method is suitable for organizations that serve differently to different customers. Here, the customer’s needs, wants, attitudes, preferences, etc. are the significant factors that determine how and what department should be established.

A common example of customer departmentation is seen in banks where different departments are created based on customers’ types/needs such as the deposit customer department, loan customer department, customer service department, remittance customer department, etc.

Under each such customer department, the functional units are created and an individual departmental manager is held liable for the performance of the concerned department. In addition, each customer department’s goal should be to better serve the needs of specific customer groups.

Advantages and Disadvantages of Departmentalization by Customer

Following are the notable pros and cons of customer departmentation.


  • It is desirable for organizations that have diverse customers and that deal differently with different customers.
  • Better customer satisfaction is achieved since specific customer groups’ needs are appropriately addressed and served by particular departments.
  • Relationships between customers and the organization become strong.
  • Customer departmentalization facilitates the benefits of specialization.
  • It is also responsive to environmental change.


  • The customer departmentalization method can be costly for small organizations since they have small capital and not such diverse customers. Hence, it is not suitable for small organizations.
  • Sometimes this method challenges organizations to satisfy the new needs and wants to be created due to the close relationship between the company and customers.
  • Customers can have needs that belong to two or more departments at that time productivity will be reduced.

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