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Product-service systems (PSS) composed of physical products and digital services are emerging as an important new product category. In this paper we suggest that the established metaphor of layering is insufficient to capture the diverse ways in which PSS can be differentiated for, and by, consumers. Responding to this issue, we develop a new framework that centres on the distinction between different modes of horizontal product differentiation, including static, dynamic, compository and user-journey differentiation. Using a design science research (DSR) approach, the framework is applied to two case studies of prototype PSS that use augmented reality to connect physical goods to digital services. Building on this analysis, we argue that the uncovered aspects of differentiation should be further investigated in the management literature and that the existing metaphor of layers should be superseded by a more …