The other side of students being customers is that they will see a passing grade as something they have paid for and should receive, not something based on merit. If you paid a lot of money for a course but didn't get a good grade are you more likely to blame yourself or blame the teacher? More likely to give good feedback to a lecturer that gave an A because the course was easy or to a lecturer that gave a C for a very challenging course? Are people more likely to pick courses that have a reputation for low marks, or pick one where they will get better 'value for money'?

The result is grade inflation and it has been well documented:

http://economix.blogs.nytimes.com/2011/07/14/the-history-of-...

They then attribute the rapid rise in grade inflation in the last couple of decades to a more “consumer-based approach” to education, which they say “has created both external and internal incentives for the faculty to grade more generously.” More generous grading can produce better instructor reviews, for example, and can help students be more competitive candidates for graduate schools and the job market.