Hey Paul,

Good questions.

1. I use capability in the general sense to represent things a business must do in order to produce and deliver its value proposition(s).

2. I find functionality is used in the small to describe aspects of how something works, whereas capability is used in the large with more of an outcome focus.

3. Maybe I didn't explain things clearly. The software to run the physical stores is an internal product. The value proposition is to enable employees to work more productively. The mobile app has a different value proposition, enabling people to shop online.

I like Roman Pichler's definition of digital products: https://www.romanpichler.com/blog/what-is-a-digital-product/

Cheers