Channel Choice in the 21st Century: The Hidden Role of Distribution Services

A fundamental distinction between goods and services is that in the retailing of goods and some services the costs of production and distribution are clearly separable in a non-arbitrary fashion, usually identified as costs of goods sold. They have type I separability. Distribution services, which are also known as attributes, marketing mix or output variables, are produced, distributed and consumed just as goods or physical products or core services sold directly to consumers at an explicit price. When online settings generate separability of production distribution and consumption of all these distribution services in space and time we have strong type II separability, which has not been identified in the literature. The latter plays an essential role in the emergence, sustainability and sometimes dominance of online channels. It has profound implications for both the demand side and the supply side of firms in online channels.