Market orientation and firm performance in star-rated hotels: the mediating role of service innovation

Service innovation is increasingly recognised as a strategic response to mounting competition, digital disruption, and evolving guest expectations in the global hotel industry. Although market orientation (MO) is widely acknowledged as a core marketing capability, empirical evidence on its direct impact on performance in service contexts remains inconsistent, suggesting that value may be realised through intermediate capability development rather than solely through MO routines. Drawing on the resource-based view (RBV) and the dynamic capabilities perspective, this study examines whether service innovation mediates the relationship between MO and firm performance in star-rated hotels. Data were collected from hotel managers in Sarawak, Malaysia (n = 73 valid responses) and analysed using partial least squares structural equation modelling (PLS-SEM). Findings indicate that MO positively influences service innovation (β = 0.203, p < 0.05), which in turn positively affects firm performance (β = 0.440, p < 0.01). The indirect effect of MO on performance through service innovation is statistically significant (β = 0.090; 95% CI [0.029, 0.199]). The direct pathway from MO to performance is minimal, suggesting that service innovation is a crucial mechanism for translating market intelligence and responsiveness into performance outcomes. This study contributes to hospitality marketing research by clarifying a capability pathway through which market-oriented routines become performance-relevant, and it offers practical guidance for hotel managers and tourism policymakers seeking to strengthen service innovation as a lever for competitiveness