RJOAS September 2025
by Windu I Gede Adi, Rastini Ni Made (Faculty of Economics and Business, University of Udayana, Bali, Indonesia)
The growing popularity of Bali as a tourist destination has significantly encouraged the development of micro-enterprises, particularly in the woodcraft sector, which has become one of the creative economic icons in Gianyar Regency. Within an increasingly competitive environment, art shops in Gianyar must continuously innovate and enhance their marketing performance. This study explains the role of market orientation and product innovation on marketing performance in micro-enterprise art shops in Gianyar Regency. The research was conducted with 75 art shop owners who served as respondents, using an offline questionnaire. The sample was determined through purposive sampling techniques. Data analysis was carried out using path analysis with the assistance of the SPSS software. The findings reveal that market orientation positively and significantly affects marketing performance. Similarly, product innovation also shows a positive and significant influence on marketing performance. The implications of this study highlight the importance for micro-enterprise art shops to strengthen their market orientation and continuously develop product innovation to improve marketing performance and maintain competitiveness amidst dynamic market changes.
Micro, Small, and Medium Enterprises (MSMEs) are a crucial sector in a country's economy. In Indonesia, MSMEs are the backbone of the economy and play a significant role in improving public welfare. This is evidenced by the MSME sector's ability to remain resilient amidst the global economic crisis (William et al., 2023). MSMEs are a crucial sector in the Indonesian economy, contributing approximately 60 percent to GDP and employing more than 97 percent of the national workforce (BPS, 2024). Specifically, micro-enterprises dominate the MSME sector in Indonesia, with approximately 64.2 million units by the end of 2024. Despite their simple management and low capital, micro-enterprises are crucial in absorbing labor and driving the local economy.
The high number of tourists visiting Bali significantly impacts the local economy, particularly in supporting the development and growth of the Micro, Small, and Medium Enterprises (MSMEs) sector in Bali. These MSMEs contribute directly to the tourism sector, such as accommodation and transportation, and open up vast market opportunities for local products, including handicrafts, culinary specialties, and various other services. According to Balisatudata (2024, March 5), the export value of wood crafts reached 433,139,188,479.30 Rupiah in 2023. This data indicates that wood crafts are a major export commodity among Balinese crafts. Furthermore, Bali has significant woodcraft potential, and its long-standing dominance in the export sector makes it superior to other types of crafts. Such a high export value will attract new competitors. The number of MSMEs operating in the wood crafts sector in Bali in 2019 was recorded at 2,997 units (Balisatudata, May 24, 2021). This substantial number demonstrates that the Balinese wood crafts industry has a strong and diverse business base, contributing significantly to the local economy. The large number of MSMEs indicates that Bali is not only a center for wood crafts production but also creates significant employment opportunities for the local community. As Suarabali (2021, November 24) reported, Gianyar Regency is the origin of traditional Balinese wood carving, and its reputation extends internationally. Balinese wood carving has a recognizable characteristic, namely the wayang pattern. These include statues of Rama and Sita, Nakula Sadeva, and many more. Opening opportunities and market development can stimulate the growth of entrepreneurial interest. Bali, renowned for its crafts, can be a mainstay for establishing small and medium enterprises capable of competing in the global market. Data from the Bali Central Statistics Agency shows a decline in the market share of wood craft exports in 2024 compared to the previous year, as seen in Table 1.
This data aligns with the testimony of Mr. I Wayan Ardy, owner of Ardy Artshop, who stated that his shop's sales declined in 2024. Similarly, the owner of Grembeng Wood Carver expressed a similar sentiment, citing a decline in woodcraft sales. This problem stems from a lack of creativity and innovation in the carving process, resulting in a low likelihood of retaining customers and attracting new ones (Manalu, 2022).
A pre-survey of 15 MSME artshop owners in Gianyar Regency conducted from December 9–22, 2024, found that 60% of business owners monitored market trends and needs, reflecting a relatively good market orientation. Eighty-five percent of respondents also reported product innovation, demonstrating an awareness of the importance of innovation. However, only 25% reported increased sales due to these innovations, indicating that the impact of innovation on marketing performance is not yet optimal.
Marketing performance is the achievement of a company when it achieves sales targets in the market through specific strategies. The concept of marketing performance is supported by several factors, including market orientation, product creativity, and product innovation (Harini et al., 2022). Marketing performance measures a company's achievements or accomplishments derived from marketing activities. Better marketing performance indicates success in facing competition (Pattipeilohy, 2018). The success of marketing performance is determined by the extent to which a company implements market orientation (Puspaningrum, 2020). Several variables, such as entrepreneurial orientation, competitive advantage, product innovation, and market orientation, can influence marketing performance.
Market orientation is crucial for companies, as global competition increases and changes in customer needs force companies to remain close to their markets (Ina, 2020). Implementing market orientation can begin by focusing on customer needs or interests at a specific time. Suppose there is customer demand or interest in a new type of product. In that case, the company must produce goods that meet these standards as quickly as possible and minimize production of products that are no longer in demand or marketed. Research conducted by Arimbawa and Jatra (2024) found that market orientation positively and significantly affects marketing performance. The same results were also found in the research of Purba and Warganegara (2023), which stated that market orientation has a positive and significant effect on marketing performance. This means that the better the market orientation, the more the company's marketing performance will increase.
Research conducted by Rompis et al. (2020) suggests that market orientation positively and significantly influences marketing performance in woodcraft businesses in Tagulandang District, Sitaro Regency. A company's better market orientation will improve its marketing performance. Research conducted by Elwisam and Lestari (2019) found that market orientation has a positive but insignificant effect on marketing performance. Similar results were also found by Fauziah (2020), who examined the influence of market orientation on marketing performance in Surabaya batik SMEs. The findings, which indicate that market orientation has an insignificant effect on marketing performance, indicate the need for a mediating variable that can strengthen the influence of market orientation on marketing performance. Based on the existing research gap, a variable capable of mediating the influence of endogenous variables on exogenous variables is needed in this study. The selected mediating variable is product innovation.
Product innovation is creating or developing new, differentiated goods or services to increase customer value and contribute to company performance or effectiveness. Innovation is one of the keys to a company's success in winning the competition, while market orientation is a crucial source of information for product innovation (Aydin, 2020). MSMEs must improve their marketing strategies and focus on product innovation that aligns with market demand to achieve a competitive advantage. Companies that achieve competitive advantage successfully develop innovation and creativity through a planned and efficient innovation process (Rukaiyah et al., 2024). Research conducted by Wiryawan and Seminari (2022) found that market orientation has a significant positive effect on product innovation. Antari and Widagda (2022) also found that market orientation positively and significantly affects product innovation, indicating that a market-oriented business will lead to product innovation.
One new strategy that can be generated by market orientation is developing product innovation within each business. According to Istifa (2024), product innovation is crucial in increasing a company's competitiveness by creating added value and meeting evolving consumer needs. Research conducted by Asahi and Sukaatmadja (2017) found that product innovation positively and significantly impacts marketing performance. The more frequently a business innovates, the better its marketing performance. Similar research findings were also found by Mahardika and Isa (2023) and Harini et al. (2022), where product innovation positively impacts marketing performance.
Several studies have shown that market orientation positively and significantly affects marketing performance. These findings are derived from studies by Rachma et al. (2021), Rahadhini and Lamidi (2020), Purba and Warganegara (2023), and Harjadi et al. (2020), which examined various sectors such as culinary, fashion, and craft MSMEs. A similar finding was also conveyed by Andrian et al. (2023), who studied batik artisans in Pilang Village. Consistently, market orientation is considered capable of improving MSME marketing performance. Based on the results of the previous research described, the following hypothesis can be formulated.
H1: Market orientation has a positive and significant effect on marketing performance.
Research by Alhakimi and Mahmoud (2020), Sultan et al. (2020), Mahardika and Isa (2023), Yaskun and Sudarmiatin (2021), and Ananda and Nurhayati (2025) indicates that market orientation has a positive and significant effect on product innovation. These findings indicate that entrepreneurs who understand market needs can better create relevant product innovations, increasing business competitiveness. Based on the results of the previous research described, the following hypothesis can be formulated.
H2: Market orientation has a positive and significant effect on product innovation.
Product innovation has been shown to have a positive and significant effect on marketing performance, as evidenced by Sari and Farida (2020), Vasconcelos and Oliveria (2018), and Tirtayasa and Rahmadana (2023). Similar findings were also found by Soekotjo et al. (2021) and Falakhussyaifusoni et al. (2022), who highlighted the impact of innovation on the food and beverage industry. Innovation enables MSMEs to meet customer needs better, ultimately improving marketing performance. Based on the results of the previous research described, the following hypothesis can be formulated.
H3: Product innovation has a positive and significant effect on marketing performance.
Several studies, such as those conducted by Duwalang and Santika (2020), Nuryakin (2018), Tirtayasa and Rahmadana (2023), Simarmata and Sefnedi (2023), and Resyananda and Mandala (2022), show that product innovation significantly mediates the relationship between market orientation and marketing performance. This confirms that market orientation needs to be guided through product innovation to achieve optimal marketing performance. Based on the results of the previous research described, the following hypothesis can be formulated:
H4: Product innovation significantly mediates the effect of market orientation on marketing performance.
This study employed an associative research method. According to Sugiyono (2022:29), associative research aims to determine the relationship between one or more variables. This study used a questionnaire as a data collection technique. This study aimed to determine the effect of market orientation on marketing performance, the effect of market orientation on product innovation, and the effect of market orientation on marketing performance mediated by product innovation.
This study was conducted by distributing questionnaires offline to owners or managers of micro-artshop businesses in Gianyar Regency. The research was conducted in Gianyar Regency because it is an ideal location and the center of Balinese arts and culture. It is home to several art markets, such as Ubud Art Market, Sukawati Art Market, and Guwang Art Market, as well as various art shops scattered along Gianyar's roads.
This study's subjects were owners or managers of micro-artshop businesses in Gianyar Regency. Its objects were market orientation (X), marketing performance (Y), and product innovation (M) of MSME artshops in Gianyar Regency.
Exogenous variables are variables that influence, cause, or trigger endogenous variables. The variable that acts as an exogenous variable in this study is market orientation (X). The market orientation indicators used in this study adapt indicators from Yang et al. (2020), Aydin (2020), and Wiryawan and Seminari (2022). These indicators are: (1) customer orientation, (2) competitor orientation, and (3) inter-functional performance. Endogenous variables are also called output variables, criteria, and consequences. Endogenous variables can also be referred to as dependent variables. The variable that acts as an endogenous variable in this study is marketing performance (Y). This study's marketing performance indicators are adapted from Wiryawan and Seminari (2022) and Kotler and Keller (2021:453). These indicators are: (1) customer growth, (2) sales growth, and (3) return on business capital. A mediating or intervening variable is a variable that influences the relationship between the independent and dependent variables, but cannot be measured. It is located between the independent and dependent variables, indirectly influencing changes in the dependent variable. The variable that acts as a mediating variable in this study is product innovation (M). The product innovation indicators used in this study adapt indicators from Wiryawan and Seminari (2022). The indicators are: (1) Adding new product variants, (2) Quality control, (3) Adding product variant features.
According to Sugiyono (2022:91), a population is a generalized area consisting of objects or subjects with specific quantities and characteristics determined by the researcher to be studied and then conclusions drawn. This study's population consists of the owners or managers of micro-artshop businesses in Gianyar Regency, with an unknown population size.
A sample is a subset of the population's size and characteristics. A suitable sample size for research is between 30 and 500 (Sugiyono, 2022, p. 98). In this study, 75 respondents were used to demonstrate the research results.
This study used a non-probability sampling technique, which does not provide equal opportunity for all elements of the population to be selected. The non-probability sampling technique used here was purposive sampling. The criteria considered in this study were as follows: (1) the artshop had been established for at least 4 years and was still operating at the time of the study, (2) the artshop owner or manager had been working for at least 1 year. This consideration was used because the manager must have comprehensive knowledge of the art shop they manage, assuming they can understand the contents of the questionnaire. (3) The artshop produces its products independently, and (4) the artshop has at least five employees.
Based on its nature, this study's data types are quantitative and qualitative. The qualitative data used in this study provide a general overview of market orientation, product innovation, and marketing performance. The quantitative data used in this study relate to the problems of micro-artshop businesses in Gianyar Regency.
The data sources used in this study can be divided into primary and secondary data sources. Primary sources are data obtained directly from the source (object) and recorded for the first time, such as consumer responses to market orientation, product innovation, and marketing performance obtained from questionnaires. Secondary sources are data sources that the researcher attempts to collect independently. Secondary data in this study can be obtained from literature, previous research journals, or other parties that publish data cited related to the research topic.
This study's data collection method is a questionnaire survey method. A questionnaire is a data collection method using a list of questions distributed to respondents about the issues discussed in this research. Questionnaires can be distributed offline. A Likert scale measures an individual or group's attitudes, opinions, and perceptions regarding social phenomena. The questionnaire in this study used a Likert scale ranging from 1 to 5 (Sugiyono, 2022, p. 93). The Likert scale consists of five alternative answers with a score range of 1-5: strongly agree = 5, agree = 4, somewhat agree = 3, disagree = 2, strongly disagree = 1.
Before being used in the main research, the questionnaire was pre-tested on 30 respondents to ensure the validity and reliability of the research instrument. An instrument is considered valid when the measuring tool used to obtain data is valid or can be used to measure what it is intended to measure. The statements in the questionnaire are valid if the value of the product-moment correlation r-count is greater than r-table, or can be seen from the correlation coefficient. The minimum requirement to meet the valid requirements is r-count greater than or equal to 0.3. The instrument reliability test aims to determine the consistency of the measuring instrument used, thus the interpretation of the respondents in the questions in the research instrument, and this is shown in the consistency of the answers from the respondents themselves, so that if the measuring instrument is used again, it will obtain the same results. The reliability test is carried out by Cronbach's Alpha statistical testing, which provides that the variable is said to be reliable if the Cronbach's Alpha value is above 0.6.
Table 2 shows that all indicators in this study have a Pearson correlation value of ≥ 0.03, making them suitable research instruments.
Table 4 shows that all variables in this study had a Cronbach's Alpha value exceeding 0.6, thus meeting the reliability requirements.
The data analysis techniques in this study consisted of descriptive statistical analysis, which was used to analyze the collected data as it was, without the intention of drawing general conclusions or generalizations. Inferential statistical analysis was used, whose results apply to the population, and were used to analyze sample power. Path analysis was used to test the hypothesis and determine the direct effect. The Sobel test determines whether the relationship through the mediating variable can significantly mediate the relationship. The VAF test determines the extent of the mediator's influence in a regression model.
Bali's growing popularity makes tourists a potential market for MSMEs, which is vital in boosting the local economy. MSMEs in Bali, particularly Gianyar's unique wood crafts, such as statues and wall hangings, have gained recognition globally. Mas and Tegallalang villages are key centers for artisans with long traditions and high creativity. However, post-pandemic, some art shops have faced challenges such as high operational costs and a declining customer base. Therefore, product innovation and increased market orientation are crucial strategies for maintaining the competitiveness and sustainability of micro-artshops in Gianyar.
Based on Table 4, most respondents in this study were female (51%), and all were over 42 years old. Regarding their educational attainment, most respondents were high school/vocational high school/equivalent graduates (89%). In terms of length of service, respondents with more than 7 years of experience dominated (41%), followed by those with 3–4 years of service (36%). This indicates that respondents generally have sufficient experience and understanding in managing MSME art shops in Gianyar Regency.
Based on Table 5, the market orientation variable has an average score of 4.13, which is included in the good category, indicating that most MSME artshop owners or managers in Gianyar Regency have a good market orientation. The statement with the highest score is "We are committed to maintaining good relationships by building trust with customers," with a score of 4.26 (very good), reflecting respondents' focus on long-term relationships with customers. Meanwhile, the lowest score is found in the statement "We are active in discussing competitors' strategies," although still in the good category, indicating that respondents are less active in evaluating competitors' strategies.
Based on Table 6, the product innovation variable has an average score of 4.06, which is included in the good category, indicating that most MSME artshop owners or managers in Gianyar Regency have implemented product innovation consistently. The highest score is found in the statement "We can provide more value for customers in our products" (4.09), reflecting efforts to create value-added products. Meanwhile, the lowest score is found in the statement about developing new product variants, indicating that innovation in new product development has not been a primary focus for some respondents.
Based on Table 7, the marketing performance variable has an average score of 4.05, which is considered high. This indicates that most MSME artshop owners or managers in Gianyar Regency assess their business's marketing performance over the past three years as good. All three indicators—customer growth, sales, and accelerated return on investment—have similar average scores. This indicates that, despite minor challenges, marketing performance is generally considered effective in attracting and retaining customers.
Table 8 shows that the equation model in this study has met the normality assumption, with an Asymp. Sig. (2-tailed) exceeding 0.05.
Table 9 shows that the equation model in this study is free from multicollinearity symptoms because there are no exogenous variables whose tolerance value does not exceed 0.10 or where the VIF value exceeds 10.
Table 10 shows that the equation model in this study is free from heteroscedasticity because its significance is greater than 0.05.
The calculation of the total determination coefficient value obtained was 0.518, so the conclusion is that 52 percent of the marketing performance variables of MSME art shops in Gianyar Regency are influenced by market orientation and product innovation. In comparison, other factors influence the remaining 48 percent.
The analysis results indicate that market orientation positively and significantly influences marketing performance, thus supporting the first hypothesis (H1). Better market orientation will significantly impact the marketing performance of micro-artshop businesses in Gianyar Regency and vice versa. These results align with previous research conducted by Rompis et al. (2020), Andrian et al. (2023), and Harjadi et al. (2020), which found that market orientation has a positive and significant influence on marketing performance.
The analysis results indicate that market orientation positively and significantly influences product innovation, thus supporting the second hypothesis (H2). These results indicate that better market orientation will significantly impact product innovation among micro-artshop businesses in Gianyar Regency, and vice versa. These results align with research by Sultan et al. (2020), Mahardika and Isa (2023), and Yaskun and Sudarmiatin (2021), which found that market orientation has a positive and significant influence on product innovation.
The analysis results indicate that product innovation positively and significantly impacts marketing performance, thus accepting the third hypothesis (H3). This result implies that better product innovation will significantly impact the marketing performance of micro-artshop businesses in Gianyar Regency, and vice versa. These results align with previous research conducted by Sari and Farida (2020), Tirtayasa and Rahmadana (2023), and Soekotjo et al. (2021), which found that product innovation has a positive and significant impact on marketing performance.
The Sobel test results show a Z value of 4.11 > 1.96, indicating that market orientation influences marketing performance, mediated by product innovation. Therefore, product innovation is a mediating variable with a significant positive effect on the marketing performance of micro-artshop businesses in Gianyar Regency. Therefore, the fourth hypothesis is accepted. The results of this study are in line with the results of previous studies conducted by Duwalang and Santika (2020), Tirtayasa and Rahmadana (2023), and Wiryawan and Seminari (2022) which stated that market orientation has a positive and significant influence on marketing performance if mediated by product innovation, which means that marketing performance is highly dependent on the good or bad market orientation of the company.
The theoretical implications of this study contribute to strengthening the Resource-Based View (RBV) theory, which emphasizes the importance of market orientation as a strategic resource in driving product innovation and improving marketing performance. Customer orientation drives companies to create relevant innovations, while competitor orientation helps companies understand and respond effectively to competitors' strategies. Synergy between company functions also supports the successful implementation of innovation. High levels of product innovation enable companies to offer superior products that meet market needs, positively impacting marketing performance.
These findings can serve as a reference for owners or managers of micro-art shops in Gianyar to improve marketing performance by strengthening market orientation and product innovation. Commitment to building trusting relationships with customers and providing added product value is an important strategy that has proven effective. By improving these two aspects, artshops can become more competitive and adapt to market dynamics, strengthening their business position sustainably.
This study has several limitations, including the limited number of independent variables used, which allows for other variables such as location, promotion, and price to have a greater influence on marketing performance. Furthermore, the research was conducted only on micro-artshop businesses in Gianyar Regency, so the results cannot necessarily be generalized to other regions or settings. The research was also conducted over a specific period, so future research must be conducted to adapt to the ever-changing environment.
Based on the research results, market orientation positively and significantly influences product innovation and marketing performance in micro-artshop businesses in Gianyar Regency. Product innovation was also shown to have a positive and significant effect on marketing performance and acted as a partial mediating variable in the relationship between market orientation and marketing performance. Increasing market orientation directly improves marketing performance and indirectly through increased product innovation.
Owners or managers of micro-artshop businesses in Gianyar Regency are advised to further strengthen their market orientation by understanding customer needs, monitoring competitor strategies, and continuously developing product innovations to improve competitiveness and marketing performance. Developing new product variants that align with trends is also important to accelerate the return on investment. Furthermore, future researchers are advised to expand the research scope to other regions or industrial sectors and add other variables to understand better the factors influencing marketing performance.
Original paper, i.e. Figures, Tables, References, and Authors' Contacts available at https://rjoas.com/issue-2025-09/article_01.pdf