First time user of CRM needs help with Customers and Prospects

We are trying to use the features of CRM and are stuggling to set up a Marketing Campaign. We are attempting to use CRM to market to existing customers and to prospects.  We have taken on a new product line and will sell the new product line to both existing customers and to prospects that we have not sold to.  

1. We think we should treat both customers and propsects as “Leads” for this new product line. Is that correct?
2. When we add customers and prospects to the Members of the Marketing Campaign, do we add them as a “Lead” or as a “Contact”? 

Any guidance is greatly appreciated.