Prior research has laid the foundation for the study of the relationship between differentiated services and differential margins. This work specifies the need for firms to offer services that target customer wants, expectations, and values (Berry, 1995), which requires these companies to quantify the value of services in the eyes of customers (Ford et al., 2001) by narrowing services down to the results conveyed to customers (Roth et al., 1997). Recently, scholars have applied some of these principles in their research on Internet-retail services offered to consumers. Some of this work has studied linkages between service quality and perceptions of performance, satisfaction, and loyalty among consumers (Heim and Sinha, 2001, Boyer et al., 2002, Thirumalai and Sinha, 2005, Boyer and Hult, 2005a and Boyer and Hult, 2005b). Other research has articulated a number of service quality roles that are conducive to the generation of competitive advantage for retailers (Hallowell, 2001, Starr, 2003 and Piccoli et al., 2004). Few studies, however, have empirically linked retail pricing policies to services in the supply chain (Rabinovich and Bailey, 2004). And among these studies, none has offered insights regarding either the relationship between differential PDS and differentiated margins or the way this relationship would operate in a drop-shipping context.