Abstract
This study examines the role of product innovation capability in mediating the effect of market sensing capability on marketing performance. The sample data consist of 338 SMEs in the food product industry in Central Java, Indonesia. A model consisting of five hypotheses was proposed and tested. The statistical tests cover the following variables: market sensing capability, product innovation capability, competitive advantage and marketing performance. Structural Equation Modeling was used in the model and hypotheses testing. The results show that the five hypotheses have a positive and significant effect. Product innovation capability has the greatest influence on marketing performance, suggesting its important role in improving marketing performance. The results suggest that in increasing product innovation capability, SMEs must perpetually create and offer new ideas by considering market trends. Second, SMEs must be innovative in creating new food products in terms of both taste and packaging. Third, SMEs need to be the first to offer new products. Finally, SMEs must utilize the advancement of technology to develop food products and their variations.
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