In the eyes of the customer, you’re being rude by not saying no.
People like honesty from the people and companies they interact with. And they like closure. Saying “no” isn’t mean – it’s actually a service to them. They don’t have to wonder if and when you’ll build a specific feature. They won’t complain about how you’re not really paying attention to their feedback. Instead, they’ll appreciate that they got an answer.
A thousand times yes. If you’re not going to build out that tool, go after that market, etc., tell the customer so. They’re going to appreciate your honesty and how it allows them to find the best tool for what they need. So if the answer’s a “no”, tell them.