Sustainable Tourism Strategies: Examining Green Service Innovation as a Mediator Between the Marketing Mix and Business Performance in Bali’s Tour and Travel SMEs

Abstract

Sustainable tourism has become a strategic imperative, particularly in Bali Island, where tourism drives regional economic growth. In this study, we investigate the mediating role of green service innovation in the relationship between the marketing mix and business performance among small and medium-sized enterprises (SMEs) in Bali Island’s tour and travel sector. We seek to understand how sustainability-oriented innovation contributes to enhancing SME competitiveness and long-term performance. A quantitative approach was adopted, using structured survey data from 387 tour and travel business owners registered with the Bali Provincial Tourism Office. Structural Equation Modeling (SEM) was employed to assess both the direct effects of the marketing mix on business performance and the indirect effects mediated by green service innovation. The findings indicate that the marketing mix does not directly influence green service innovation or business performance. However, green service innovation significantly enhances business performance, confirming its mediating role. This suggests that traditional marketing strategies are insufficient unless aligned with sustainability-driven innovation. Green service innovation acts as a strategic resource that strengthens business performance in tourism SMEs. We provide theoretical and practical insights into how integrating sustainability into marketing and operational strategies can enhance SMEs’ competitiveness and support sustainable tourism development.

1. Introduction

Sustainable tourism has emerged as a critical area of focus within the broader framework of the United Nations Sustainable Development Goals (SDGs). The intersection of tourism and sustainability is particularly relevant to several SDGs, including Goal 12 (Responsible Consumption and Production) and Goal 8 (Decent Work and Economic Growth). The tourism sector could significantly contribute to achieving these goals by promoting sustainable practices that enhance local economies while minimizing environmental impacts. Bali Island’s tourism industry has increasingly recognized the importance of sustainability, particularly in light of the environmental degradation and cultural dilution that can accompany mass tourism. The island’s local communities have begun to embrace grassroots organizations aimed at promoting sustainable tourism practices, which enhance public awareness and ownership of tourism-related environmental concerns (Walker et al., 2021). This community-driven approach aligns with SDG 11 (Sustainable Cities and Communities) and SDG 12 (Responsible Consumption and Production), as it emphasizes the need for the sustainable management of tourism resources and the protection of cultural heritage.

Sustainable tourism and green service innovation are increasingly recognized as vital components for enhancing the overall performance of travel businesses. Green service innovation refers to the development and implementation of new environmentally friendly and socially responsible services. This innovation is crucial for tourism businesses aiming to stand out in a competitive market. Studies indicate that businesses that adopt green service innovations—such as eco-friendly accommodation, sustainable transportation options, and waste reduction initiatives—can enhance customer satisfaction and loyalty (Bhutto et al., 2021). Moreover, the incorporation of technology in service delivery, such as using digital platforms for promoting sustainable practices, can further improve operational efficiency and customer engagement (Coghlan, 2020). By developing innovative services that align with sustainability goals, businesses can not only meet consumer demand but also contribute to broader environmental objectives. This is particularly relevant in the context of the COVID-19 pandemic, when consumers increasingly sought out businesses demonstrating a commitment to sustainability (Domecq et al., 2020).

The marketing mix has been extensively researched in the last few decades due to its critical role in shaping customer experiences and influencing business performance across various sectors. The integration of these elements into marketing strategies is essential for enhancing service quality and customer satisfaction, which in turn drive customer loyalty and business success. However, a key unresolved issue over the past decade is the inconsistent findings regarding the extent to which the marketing mix significantly influences business performance. While some researchers have identified the marketing mix’s significant direct effect on business performance, others have reported differing results, highlighting the need for further investigation. Research has demonstrated that competitive environments moderate the relationship between the marketing mix and organizational performance, particularly in Kenya’s tourism sector. Their findings suggest that a robust marketing mix can enhance the business performance by adapting to competitive pressures, thereby affirming the importance of strategic marketing in achieving business success (Ndegwa et al., 2020). This supports the view that traditional marketing mix strategies, particularly the 4Ps—product, price, place, and promotion—need to be strategically adapted and integrated with sustainability values in order to remain effective in dynamic service environments such as tourism (Potjanajaruwit, 2023).

On the other hand, some studies have reported no significant effect of the marketing mix on business performance, further contributing to the ongoing debate and highlighting the need for additional research to clarify these inconsistencies. A lack of a significant effect arises from the overemphasis on certain elements of the marketing mix at the expense of others. For instance, in family-owned businesses, the use of market information does not significantly enhance their overall performance. This suggests that, despite employing marketing strategies, the impact may be diluted by other overriding factors, leading to a negligible effect on business performance (Didonet & Fearne, 2022). Similarly, while entrepreneurial marketing can improve business performance, the effectiveness of such strategies may vary significantly based on the execution and the specific market context, implying that not all marketing mix strategies yield positive results (Shiratina et al., 2023). Moreover, the findings of this study reveal that, while promotional strategies can attract and retain customers, their effectiveness is contingent upon the market environment and consumer behavior, which can lead to situations where marketing efforts do not translate into improved business performance (Limna, 2023).

Furthermore, even though studies linking the marketing mix and business performance have been conducted in various settings, such as the fast-food industry (Dilip et al., 2021), the coffee shop sector (Limna, 2023), customer relationship management (Kerdpitak, 2021), the travel industry (Ndegwa et al., 2020; Othman et al., 2019), the culinary sector (Hasan et al., 2020), the garment industry (Muhardi et al., 2023; Wulianadi, 2023), the hotel industry (Rainanto et al., 2022), family-owned businesses (Didonet & Fearne, 2022), SMEs (Mahohoma & Agbenyegah, 2024; Oktora et al., 2022; Shiratina et al., 2023), venture capital-financed startups (Woehler & Ernst, 2022), etc., a review of the Scopus database revealed no studies examining the mediating role of green service innovation in the relationship between the marketing mix and business performance across any industry.

In this study, we investigate the mediating role of green service innovation in the relationship between the marketing mix and business performance among small and medium-sized tour and travel enterprises (SMEs) in Bali Island, addressing the global imperative for sustainability in tourism. By exploring how environmentally responsible innovations integrated into marketing strategies can enhance business outcomes, this research fills a critical gap in the sustainable tourism literature, particularly within emerging economies, where SMEs are central to the tourism value chain. Theoretically, this study contributes to the resource-based view (RBV) and dynamic capabilities theory by conceptualizing green service innovation as a strategic intangible asset that bolsters businesses’ competitiveness. It expands upon the sustainability and eco-innovation literature by demonstrating how green innovation serves as an essential conduit linking marketing practices to improved performance. Practically, the findings provide actionable insights for tourism practitioners, policymakers, and development agencies by emphasizing the adoption of green innovation not only as an ethical imperative but as a viable marketing strategy. This study advocates for capacity-building initiatives enabling SMEs to create eco-friendly offerings, adopt sustainable pricing models, engage local distribution networks, and craft marketing campaigns that resonate with environmentally conscious tourists—thus supporting business resilience and the long-term sustainability of the tourism sector.

2. Literature Review

2.1. Marketing Mix

The marketing mix, particularly the 4Ps framework—product, price, place, and promotion—serves as a foundational model in marketing theory and practice. Introduced by McCarthy in 1964, this model has been instrumental in guiding marketers in the strategic planning and execution of marketing activities (Chen, 2023). The 4Ps provide a structured approach for businesses to analyze their products and market strategies, ensuring that all critical aspects of marketing are considered in order to meet consumer needs effectively (Chen, 2023; Karim et al., 2021).

In sustainable tourism, the product must encompass not only the tangible offerings, such as eco-friendly accommodation and sustainable tours but also the intangible benefits associated with sustainability. Research indicates that small-scale tourism firms often engage in “bricolage,” utilizing available resources creatively to enhance their offerings while promoting sustainable development (Yachin & İoannides, 2020). This approach allows businesses to develop unique, locally inspired experiences that resonate with eco-conscious tourists. Furthermore, integrating green service innovations—such as renewable energy use and waste reduction practices—can enhance the perceived value of tourism products, thereby attracting a growing population of environmentally conscious consumers.

Pricing strategies in sustainable tourism must reflect the true costs of sustainable practices while remaining competitive. Studies have shown that consumers are often willing to pay a premium for sustainable products, particularly when the benefits are clearly communicated (Vu et al., 2020). However, it is essential to balance pricing with accessibility to ensure that sustainable tourism remains inclusive. Implementing tiered pricing models can cater to different market segments, allowing budget-conscious travelers to participate in sustainable tourism while also offering premium experiences for those willing to invest more (Cozzio et al., 2021). This approach not only enhances business performance but also fosters the broader adoption of sustainable practices within the industry.

The distribution channels for sustainable tourism products should prioritize partnerships with local businesses and communities. This not only supports local economies but also enhances the authenticity of the tourism experience. Research has emphasized the importance of localizing the Sustainable Development Goals (SDGs) through collaborative efforts among stakeholders, which can be facilitated by effective distribution strategies. Additionally, leveraging digital platforms for distribution can enhance businesses’ visibility and accessibility, allowing tourists to discover sustainable options more easily (Erwin & Sturm, 2021). This approach aligns with the growing trend of using technology to improve service delivery and customer engagement in the tourism sector.

Promotional strategies in sustainable tourism must effectively communicate the environmental and social benefits of sustainable practices. Marketing campaigns that combine ecological advantages with personal gains have been shown to resonate well with consumers (Cozzio et al., 2021). Utilizing storytelling and highlighting real-life examples of sustainable tourism initiatives can create emotional connections with potential customers. Moreover, digital marketing, particularly through social media, plays a crucial role in shaping consumer perceptions and behaviors. Engaging content that showcases sustainable practices can foster a sense of community and encourage responsible travel behaviors (James et al., 2020).

We argue that this study adopts the 4P marketing mix model—product, price, place, and promotion—as it more accurately reflects the strategic marketing practices commonly applied by SMEs in Bali’s tour and travel sector. While the 7P framework is often used in service industries, the additional elements (people, process, and physical evidence) are less operationally relevant to the research focus on external marketing strategies and sustainability-driven innovation. Given the resource constraints and practical limitations faced by many SMEs, marketing efforts tend to concentrate on the core four elements. Moreover, the 4P model is widely recognized and empirically validated in prior studies examining the relationship between marketing strategy, innovation, and business performance in tourism SMEs. Therefore, the use of the 4P framework ensures both conceptual clarity and methodological consistency with the existing literature while remaining appropriately aligned with the contextual realities of the respondents.

2.2. Green Service Innovation

The theory of green service innovation is rooted in the broader context of green innovation, which encompasses various strategies and practices aimed at enhancing environmental sustainability within service-oriented sectors. Green service innovation specifically focuses on the development and implementation of services that minimize environmental impact while meeting consumer demands for sustainability. This theory is increasingly relevant as businesses recognize the necessity of integrating eco-friendly practices into their service offerings to remain competitive in a rapidly evolving market (Chen & Hou, 2023; Maskudi, 2024). One of the primary drivers of green service innovation is the growing consumer awareness and demand for sustainable practices. Research indicates that consumers are increasingly inclined to support businesses that demonstrate a commitment to environmental responsibility. This shift in consumer behavior compels organizations to innovate their service offerings to align with these expectations (Riva et al., 2022). For example, in the hospitality industry, hotels are adopting green practices such as energy-efficient systems and sustainable sourcing to attract environmentally conscious guests (Luu, 2022).

Employee involvement plays a crucial role in fostering green service innovation. Studies have shown that organizations that promote a culture of green creativity among their employees are more likely to develop innovative green services. This is particularly evident in sectors like hospitality and tourism, where employee engagement in sustainability initiatives can lead to significant improvements in service delivery and customer satisfaction (Luu, 2022; Shah et al., 2021). Furthermore, the psychological contracts between employees and organizations can influence the extent to which employees contribute to green service innovation, highlighting the importance of fostering a supportive work environment (Maskudi, 2024).

Moreover, the interplay between green service innovation and organizational performance is significant. Research suggests that firms that adopt green service innovations can experience improved operational efficiency, reduced costs, and enhanced brand loyalty among their consumers (Shah et al., 2021; M. Wang & Liu, 2022). This relationship underscores the importance of viewing green service innovation not merely as a compliance measure but as a strategic initiative that can drive overall business success (Luu, 2022; Shah et al., 2021).

We argue that the theory of green service innovation is a vital aspect of the broader green innovation framework, emphasizing the need for service-oriented businesses to adopt sustainable practices. By fostering employee creativity and responding to consumer demands for sustainability, organizations can develop innovative services that contribute to environmental goals while enhancing their competitive positioning.

2.3. Business Performance

The theory of business performance can be analyzed from multiple perspectives, notably the financial and market perspectives (Singh et al., 2022). From the financial perspective, business performance is primarily assessed through quantitative metrics such as profitability, the return on investment (ROI), and revenue growth (Singh et al., 2022). This perspective emphasizes the importance of financial management practices and the effective allocation of resources to enhance financial outcomes. Research indicates that firms that adopt strategic financial practices, such as rigorous budgeting and financial forecasting, tend to achieve better performance metrics (Makgopa, 2023). For instance, a study on road transport enterprises highlighted that effective information sharing within logistics networks significantly influences financial performance, underscoring the importance of operational efficiencies in driving profitability (Thitart & Hotrawaisaya, 2023). Moreover, the integration of green innovation into business practices has been shown to positively impact financial performance. Companies that implement environmentally sustainable practices often experience enhanced financial outcomes due to cost savings from efficiency improvements and waste reduction (Ramadhan & Widiastuty, 2023). For example, firms that adopt green product innovation can not only meet regulatory requirements but also attract environmentally conscious consumers, leading to increased sales and market share. This relationship between green innovation and financial performance is particularly relevant in today’s market, where consumers increasingly favor sustainable products and services (Almeida & Wasim, 2022).

In contrast, the market perspective focuses on the external environment and the competitive landscape in which a firm operates. This perspective emphasizes the importance of market positioning, customer satisfaction, and brand equity in driving business performance. Companies that effectively understand and respond to market demands are better positioned to achieve superior performance outcomes. For example, research has shown that organizations that prioritize customer engagement and satisfaction tend to perform better in terms of sales and market share (Musfar, 2024). This is particularly evident in sectors where consumer preferences are rapidly changing, necessitating agile responses to market trends (Espaillat et al., 2022). Additionally, innovation’s role in enhancing market performance cannot be overstated. Firms that engage in continuous innovation—whether through product development, service enhancements, or process improvements—are more likely to maintain a competitive edge in their respective markets (H. Khan et al., 2022). For instance, a study found that businesses that adopt green marketing strategies not only improve their environmental impact but also enhance their market performance by differentiating themselves from competitors (Tjahjadi et al., 2020). This alignment of innovation with market needs is crucial for sustaining long-term business performance.

We argue that the theory of business performance encompasses both financial and market perspectives, each providing valuable insights into how organizations can achieve and sustain competitive advantages. The financial perspective emphasizes the importance of effective resource management and the integration of sustainable practices to enhance profitability. Conversely, the market perspective highlights the significance of understanding consumer needs and leveraging innovation to improve market positioning.

3. Research Hypotheses

3.1. Marketing Mix and Green Service Innovation

Research indicates that, while innovation can lead to competitive advantages, the relationship between green innovation and marketing performance is not straightforward (Fatoki, 2021). The findings suggest that the marketing mix may not significantly impact green service innovation outcomes, as the focus on traditional marketing strategies can overshadow the unique requirements of green services. This aligns with observations that green marketing does not mediate the relationship between green innovation and behavioral intentions, indicating a disconnect between marketing efforts and actual innovation outcomes (Cheng et al., 2022). Additionally, the marketing mix’s role may be limited in driving tangible green service innovations, as other factors such as organizational culture and employee creativity play more critical roles (Luu, 2022). Furthermore, green service innovation often shows an insignificant relationship with financial performance and sustainable development goals (SDGs) (P. A. Khan et al., 2021).

On the other hand, research indicates that the integration of green marketing strategies with organizational identity enhances the success of innovation, thereby contributing to the competitiveness and sustainability of firms (Majid, 2024). This suggests that a well-structured marketing mix that emphasizes green attributes can drive service innovation by aligning with consumer preferences for sustainability. Moreover, companies adopting sustainability practices can exploit new market opportunities, thereby enhancing their revenue streams and profitability (Adu-Yeboah et al., 2022). This aligns with previous findings that businesses must revise their marketing practices to promote innovation effectively, thereby reinforcing the connection between the marketing mix and service innovation (Soomro, 2023). Furthermore, the relationship between marketing innovation and environmental orientation is supported, which reveals that tactical green marketing orientation directly influences sustainable business performance through enhanced service innovation capabilities (F. Khan et al., 2023). Additionally, the findings reinforce the notion that marketing innovation positively impacts business sustainability, suggesting that organizations that prioritize innovative marketing strategies are better positioned to achieve sustainable outcomes (Hanaysha et al., 2021). Thus, the following hypothesis was proposed:

H1. 

Marketing mix has a significant influence on green service innovation.

3.2. Marketing Mix and Business Performance

Research findings indicate mixed results regarding the impact of market orientation—an integral part of the marketing mix—on business performance, suggesting that the relationship is not straightforward and may even be negative in certain contexts (Mokhtar & Yusoff, 2020). Moreover, a literature review has indicated a generally positive impact of marketing activities on business performance (Köylüoğlu et al., 2021); however, it also acknowledged that this relationship can be influenced by various external factors, which may lead to instances where the marketing mix does not significantly enhance performance. This is echoed by findings that reveal that certain marketing strategies, particularly those focused on talent management, do not exhibit a significant relationship with organizational performance, further supporting the notion that the marketing mix may not always correlate positively with business outcomes (Aina & Atan, 2020). Additionally, the study highlights that, while promotional strategies can impact organizational performance, the effects are not uniformly positive across all sectors (Abdeta & Zewdie, 2021). This suggests that reliance on the marketing mix as a sole strategy for improving business performance may be misguided, particularly in environments where other factors play a more critical role. Similarly, while marketing capabilities can positively influence business performance, certain capabilities, such as pricing, do not significantly impact outcomes, reinforcing the idea that the marketing mix’s effectiveness is context-dependent (Potjanajaruwit, 2023). Furthermore, while marketing communication can positively affect customer satisfaction, the overall impact on business performance is not guaranteed (Frimpong, 2023). This aligns with findings that indicate that the marketing mix model may not yield significant results in all scenarios, particularly when external market conditions are unfavorable (Wijaya, 2024).

On the other hand, research indicates that a well-structured marketing mix directly influences marketing performance, particularly through the enhancement of brand image in the ready-to-drink beverage sector (Sudarman, 2023). This finding suggests that companies that prioritize customer-centric marketing strategies can achieve better performance outcomes. Similarly, a holistic approach to the marketing mix can create competitive advantages, which are essential for improving business performance (Winata et al., 2020). The integration of consistent themes across the marketing mix elements enables firms to differentiate themselves from competitors, thereby enhancing their market position. Moreover, the effective implementation of the marketing mix in the online food delivery service industry positively impacts brand image and usage decisions, which are critical components of business performance (Savitri et al., 2020). The role of the marketing mix in influencing financial performance is further supported by the finding that green marketing strategies significantly enhance business performance in the textile industry (Zhang & Berhe, 2022). Additionally, market orientation and product innovation, both of which are influenced by the marketing mix, contribute to improved marketing performance (Miftah, 2024). This highlights the interconnectedness of marketing strategies and business performance. Furthermore, the service marketing mix significantly impacts sales performance in the insurance sector, indicating that specific elements of the marketing mix, such as promotional strategies, are crucial for driving sales (Ahmad et al., 2023). Thus, the following hypothesis has been developed:

H2. 

The marketing mix has a significant influence on business performance.

3.3. Green Service Innovation and Business Performance

Research demonstrates that green product innovation significantly influences financial performance, indicating that organizations adopting green practices can achieve better economic outcomes (Acquah et al., 2021). Their findings suggest that the legitimacy gained through green innovations can enhance a company’s reputation and market position, ultimately leading to improved financial results. This aligns with the broader understanding that green innovations can serve as a strategic resource for organizations, enabling them to differentiate themselves in competitive markets. Additionally, the hospitality sector reveals that green innovation positively impacts economic performance, further supporting the notion that environmentally friendly practices can lead to enhanced business outcomes (Gu, 2022). This is particularly relevant in industries where consumer preferences are increasingly leaning towards sustainability, thereby creating a market advantage for businesses that prioritize green service innovations.

Moreover, the role of green logistics and sustainable practices in improving business performance within the transport sector indicates that companies that integrate green practices into their operations can achieve better sustainability and performance outcomes(Thitart & Hotrawaisaya, 2023). This suggests that the benefits of green service innovation extend beyond mere compliance with environmental regulations to encompass significant operational efficiencies and enhanced service delivery. Furthermore, research has highlighted the importance of green psychological capital and green human resource management in fostering long-term sustainability and performance within organizations (S. Khan et al., 2022). By cultivating a workforce that is committed to green practices, companies can enhance their innovative capabilities, leading to improved business performance. This underscores the interconnectedness of employee engagement, innovation, and organizational performance in the sustainability context. Thus, the following hypothesis can be proposed:

H3. 

Green service innovation has a significant influence on business performance.

3.4. Mediating Role of Green Service Innovation

The marketing mix’s role in influencing business performance through green service innovation appears to be less straightforward. For instance, while green marketing initiatives can enhance consumer engagement and brand loyalty, they may also impose additional costs that could detract from the overall performance. The costs associated with developing green products could reduce profit margins, thereby negatively impacting business performance (M. Wang & Liu, 2022). This suggests that the marketing mix, when misaligned with green service innovation, may hinder rather than help business outcomes. Moreover, green service innovation’s mediating effect in the relationship between the marketing mix and business performance is complex. Green competitive advantage mediates the relationship between green innovation and business performance, indicating that the effectiveness of green service innovation may depend on the broader strategic context, including the marketing mix employed (Sudirman et al., 2024). This implies that, if the marketing mix does not support green service innovation, its potential benefits may not be realized, leading to an insignificant influence on business performance. Additionally, the literature suggests that the marketing mix’s effectiveness in promoting green service innovation can be influenced by external factors such as economic policy uncertainty (Liu & Wang, 2022) and environmental competitiveness (Makgopa, 2023).

On the other hand, a significant positive correlation between green innovation and economic performance exists, reinforcing the notion that green service innovation can lead to improved business outcomes (C. Wang & Juo, 2021). Research indicates that a well-structured marketing mix that incorporates green elements can lead to improved business performance through enhanced customer engagement and satisfaction, highlighting the interconnectedness of green marketing strategies and innovation performance; this suggests that organizations that effectively implement green marketing within their marketing mix can enhance their competitiveness and sustainability, ultimately leading to better business performance (Majid, 2024). This leads to the hypothesis that the marketing mix positively influences business performance through the mediation of green service innovation. Furthermore, the role of green market orientation in fostering green service innovation is critical. Green market orientation significantly impacts green product innovation, which is a component of green service innovation (Du & Wang, 2022). This suggests that firms with a strong green market orientation are more likely to develop innovative green services, which can enhance their overall performance. Therefore, it can be hypothesized that green service innovation mediates the relationship between the marketing mix and business performance, especially in firms that emphasize a green market orientation. Thus, the following hypothesis has been developed.

H4. 

Green service innovation significantly mediates the effect of the service marketing mix on business performance.

Figure 1 illustrates the conceptual framework tested in this study, comprising four hypotheses that examine the direct and mediating relationships between the marketing mix, green service innovation, and business performance within Bali’s tour and travel SMEs.

4. Materials and Methods

4.1. Data Collection

For this study, we adopted a quantitative survey-based research design to investigate the relationship between the marketing mix, green service innovation, and business performance among tour and travel SMEs in Bali. We targeted 416 business owners registered with the Bali Provincial Tourism Office between 2019 and 2024, with Bali selected due to its vital role in Indonesia’s economy and its strong emphasis on sustainable tourism. Data were collected between November 2024 and April 2025. Structural Equation Modeling (SEM) was utilized to validate the theoretical framework and test the hypothesized relationships, given its capacity to analyze complex causal models and evaluate both direct and indirect effects among latent variables. SEM’s confirmatory capabilities made it particularly appropriate for assessing multiple constructs and their interdependencies. Of the 416 distributed questionnaires, 399 responses were returned, with 12 excluded due to incomplete data, resulting in a final sample of 387 for analysis. The respondents’ demographic profile is presented in

Table 1. Profile of respondents (N = 387).

Variable	Category	Frequency	Percentage (%)
Gender	Male	279	72
	Female	108	28
Generation	Baby Boomers	0	0
	X	151	39
	Millennials	236	61
	Z	0	0
Education	Master’s	81	21
	Bachelor’s	263	68
	Associate’s	43	11
Work Experience	<3 years	0	0
	3–5 years	255	66
	6–10 years	120	33
	>10 years	12	3
Duration of Business	<6 years	0	0
Operation	6–10 years	89	23
	11–20 years	139	36
	>20 years	159	41
Length of Time	<3 years	0	0
Managing Business	3–5 years	19	5
	6–10 years	163	42
	11–20 years	116	30
	>20 years	89	23
Number of Employees	0–5 people	0	0
	6–19 people	105	27
	20–99 people	282	73
	>99 people	0	0
Total Sales	<IDR300 million	0	0
	IDR300 million–2.5 billion	105	27
	IDR2.5 billion–50 billion	282	73
	>IDR50 billion	0	0

.

4.2. Measurement of Development

We employed a structured survey questionnaire as the primary data collection tool, which comprised two main sections. The first section gathered demographic information from respondents, including gender, age, educational background, work experience, years of business operation, duration of business management, number of employees, and total sales. The second section focused on measuring this study’s latent variables: the marketing mix (product, price, place, and promotion), green service innovation (new practices and improvements), and business performance (financial and market perspectives). The measurement items were derived from established scales in the existing literature and were adapted as necessary to ensure contextual relevance to the tourism SME sector in Bali Island. Respondents provided their answers using a six-point Likert scale, ranging from 1 (strongly disagree) to 6 (strongly agree), with intermediate options of 2 (disagree), 3 (tend to disagree), 4 (tend to agree), and 5 (agree).

The measurement scale for the marketing mix used in this study was adapted from prior research to ensure its relevance and suitability for the research context (Ho et al., 2022; Rosha, 2018). There were seven dimensions of the marketing mix: product, price, place, promotion, people, process, and physical evidence. The indicators selected from these dimensions aligned with the focus of this research, namely, product, price, place, and promotion. Accordingly, for the purpose of the present study, a short scale consisting of fourteen items was believed adequate to measure the relationship between marketing mix and business performance in the context of tour and travel business owners in Bali, Indonesia. The sample items were as follows: (1) product (nature and culture tour package; hotel booking; transportation ticket booking; attraction ticket booking), (2) price (price according to quality; price is competitive with competitors; payment method), (3) place (physical office location is easy to find; office location is easy to find online; tour products are available to purchase online), (4) promotion (advertising in social media; fast and responsive customer service; sales promotion; frequent participation in travel fair exhibitions).

The measurement scale for green service innovation was adapted from a previous study (Lin & Chen, 2017). There were eight sample indicators to measure: (1) new practices (in recent years, our company has frequently offered new products/services for the environment; in recent years, our company has frequently promoted new products/services for the environment; in recent years, our company has frequently developed new products/services for the environment; in recent years, our company has frequently developed new practices in internal administration and operations based on its environmental concerns); (2) service improvement (for the past few years, our company has frequently repackaged existing products/services to highlight our environmentally friendly reputation; in recent years, our company has frequently responded to customer information inquiries and given consultation on environmental concerns; for the past few years, our company has frequently revised and improved existing products/services, to highlight our environmentally friendly reputation; for the past few years, our company has frequently innovated existing products or services based on environmental concerns).

The scale of business performance was adapted from that presented in a previous study (Singh et al., 2022). There were eight items for measuring business performance dimensions: (1) financial perspective (sales growth; profitability; customer retention; overall financial performance); (2) market perspective (entering new markets more quickly than competitors; introducing new products/services faster than competitors; better success rate of new products/services as compared to competitors; market share exceeds that of competitors).

5. Analysis and Results

5.1. Assessment of the Measurement Model

SPSS version 29.0 was used for the preliminary analysis, and AMOS version 26.0 was used for the Structural Equation Modeling (SEM). Descriptive statistics were first employed to summarize the respondents’ demographic profiles. Subsequently, the SEM analysis commenced with an evaluation of the measurement model to assess the extent to which theoretically derived indicators accurately represent the associated latent constructs. This stage involved both validity and reliability testing through a Confirmatory Factor Analysis (CFA). The indicator validity was determined using Standardized Factor Loadings (SFLs), where values exceeding 0.50 indicated acceptable indicator relevance (Byrne, 2016; Hair et al., 2019). Validity was assessed further via the Average Variance Extracted (AVE), with a threshold of ≥0.50 denoting sufficient convergent validity (Hair et al., 2019). The Construct Reliability was evaluated using the Construct Reliability (CR) metric, where CR values above 0.70 confirmed internal consistency. The model fit was examined using the Comparative Fit Index (CFI), which ranges between 0 and 1; a CFI value greater than 0.90 indicates a well-fitting model, reinforced by Hair et al. (2021). These procedures ensured the robustness and accuracy of the measurement model prior to hypothesis testing.

The analytical procedures for this study were executed using SPSS version 29.0 and AMOS version 26.0. Initially, a descriptive statistical analysis of the respondents’ demographic characteristics was carried out using SPSS. The first stage carried out in SEM processing was to analyze the measurement model. This was performed with the aim of determining whether the observed variables or research indicators that were determined theoretically represented the related latent variables in the research model. In addition, at this stage in the analysis, this step was carried out to determine whether the variables or items represented the research construct; therefore, at this point, a validity analysis and reliability analysis were conducted using the Confirmatory Factor Analysis (CFA) technique. The validity was represented by the Standardized Factor Loading (SFL) value so that valid or relevant indicators could be identified based on the respondents’ answers. An indicator is said to be valid if the SLF value is greater than 0.5 (Byrne, 2016; Hair et al., 2019). In addition, the validity test can be carried out based on the Average Variance Extracted (AVE) value, which is said to be valid if the value is ≥0.5 (Hair et al., 2019). In the reliability test, the Construct Reliability (CR) value is used, which is said to be reliable if the CR value is more than 0.7 (Hair et al., 2019). Meanwhile, the Comparative Fit Index (CFI) value is used to meet the SEM testing requirements, which are in the range of 0–1. The minimum value set is >0.9, which is considered to represent a fit model in SEM (Hair et al., 2021). Based on these analyses, all fourteen indicators for the marketing mix (Figure 2) were valid; however, only five out of the eight indicators for green service innovation (Figure 3) and five out of the eight indicators for business performance (Figure 4) met the validity criteria.

Based on the results presented in Figure 2, Figure 3 and Figure 4 and

Table 2. Validity and reliability of the scales.

Construct	Dimension	Items	SFL	AVE	CR	CFI
Marketing Mix	Product	MM11	0.723	0.821	0.985	0.945
		MM12	0.635
		MM13	0.802
		MM14	0.842
	Price	MM21	0.862
		MM22	0.806
		MM23	0.878
	Place	MM31	0.872
		MM32	0.830
		MM33	0.895
	Promotion	MM41	0.806
		MM42	0.882
		MM43	0.847
		MM44	0.649
Green Service Innovation	New Practices	GSI11	0.801	0.782	0.947	0.962
		GSI12	0.858
	Service	GSI22	0.753
	Improvement	GSI23	0.690
		GSI24	0.711
Business Performance	Financial	BP11	0.610	0.694	0.918	0.961
	Performance	BP12	0.702

, all measurement indicators demonstrated Standardized Factor Loading (SFL) values exceeding 0.50, confirming their validity. Additionally, the Comparative Fit Index (CFI) surpassed the threshold of 0.90, indicating a good model fit. The Average Variance Extracted (AVE) values were all above 0.50, and the Construct Reliability (CR) values exceeded 0.70, thereby affirming that the measurement constructs used in this study are both valid and reliable.

5.2. Assessment of the Structural Model

The structural model analysis comprised two key components: the goodness-of-fit (GOF) assessment and the evaluation of path coefficients to determine the causal relationships among the constructs. Upon confirming an acceptable model fit, the analysis proceeded to test these causal links. As illustrated in Figure 5 and detailed in

Table 3. Model fit statistics summary.

	Goodness of Fit Index	Criteria	Value	Description
Absolute Fit Indices	Chi-Square	Low Number	556,955	Poor-Fit
	Probability	>0.05	0.000	Poor-Fit
	CMIN/DF	<2	2.311	Marginal-Fit
	RMSEA	≤0.08	0.058	Good-Fit
	GFI	≥0.90	0.899	Marginal-Fit
Incremental Fit Indices	AGFI	≥0.90	0.874	Marginal-Fit
	CFI	≥0.90	0.949	Good-Fit
	TLI	≥0.90	0.941	Good-Fit
	NFI	≥0.90	0.914	Good-Fit
	RFI	≥0.90	0.901	Marginal-Fit
	IFI	≥0.90	0.949	Good-Fit
Parsimonious Fit Indices	PGFI	The Bigger, The Better	0.722	Good-Fit
	PNFI	The Bigger, The Better	0.798	Good-Fit

, the structural model of this study met the criteria for a good fit based on the guidelines provided by Hair et al. (2021). The model satisfied at least four GOF indices, including absolute, incremental, and parsimony fit indices, thereby indicating that the model was theoretically and statistically sound. With an established fit, the model proceeded to examine the path coefficients. The causal relationships were assessed using t-values, with a significance threshold set at 5%. A hypothesis was supported if the absolute t-value exceeded1.96 or if the p-value was below 0.05. Conversely, the hypotheses were rejected if the t-value was ≤1.96 or the p-value was ≥0.05. The results of these direct relationships between the study variables are presented in

Table 4. Results of direct influence relationship test.

Hypothesis	Relationship	Estimate	S.E.	t-Value	p-Value	Description
H1	MM → GSI	−0.092	0.055	−1.599	0.110	not significant
H2	MM → BP	0.046	0.033	0.819	0.413	not significant
H3	GSI→ BP	0.590	0.060	6.040	0.000	significant

.

As presented in Table 4, the relationship between the marketing mix (MM) and green service innovation (GSI) shows a negative path coefficient of −0.092, with a t-value (C.R.) of −1.599 (≤1.96) and a p-value of 0.110 (≥0.05), indicating no significant effect. Consequently, Hypothesis 1 (H1), which posited a significant influence of the MM on GSI, is rejected. Similarly, the second hypothesis (H2), proposing a significant relationship between the MM and business performance (BP), is also rejected. Although the path coefficient is positive (0.046), the t-value of 0.819 (≤1.96) and p-value of 0.413 (≥0.05) suggest a statistically insignificant relationship. In contrast, Hypothesis 3 (H3) is supported, with GSI demonstrating a significant positive impact on BP. The path coefficient for this relationship is 0.590, with a t-value of 6.040 (>1.96) and a p-value of 0.000 (<0.05), confirming the pivotal role of green service innovation in enhancing business performance.

As shown in

Table 5. Results of indirect influence relationship test (mediation).

Hypothesis	Relationship	Estimate	p-Value	Description
H4	MM → GSI → BP	−0.054	0.117	not significant

, the indirect effect of the marketing mix (MM) on business performance (BP) through green service innovation (GSI) yields a path coefficient of −0.054 with a p-value of 0.117 (≥0.05). These results indicate that GSI does not significantly mediate the relationship between the MM and BP. Consequently, the fourth hypothesis (H4), which posits that green service innovation significantly mediates the effect of the service marketing mix on business performance, is rejected.

6. Discussion and Conclusions

6.1. Theoretical Implications

The findings of this study contribute to the existing body of knowledge on sustainable tourism and strategic business management by offering empirical insights into the relationships between the marketing mix, green service innovation, and business performance in SMEs in the tour and travel industry in Bali Island. Contrary to theoretical expectations, the first hypothesis (H1), which proposed that the marketing mix significantly affects green service innovation, was rejected. This study aligns with and adds depth to prior research (Cheng et al., 2022; Fatoki, 2021; P. A. Khan et al., 2021; Luu, 2022). This finding challenges the assumptions of classical marketing theory, which views the marketing mix—product, price, place, and promotion—as the primary levers for shaping innovation and competitive advantage (Kotler et al., 2021). Several contextual factors may explain this disconnect, such as resource constraints: many SMEs in Bali operate with limited financial, technological, and human capital, which restricts their capacity to convert marketing strategies into tangible innovations (Fatoki, 2021; M. I. Khan et al., 2021); short-term focus: marketing decisions are often guided by short-term goals such as seasonal tourist demand or price competitiveness, rather than long-term sustainability goals; and weak sustainability integration: in many cases, sustainability is not yet embedded into the core business or marketing philosophy, resulting in disjointed or superficial green initiatives that lack strategic alignment. Theoretically, this calls for an evolution beyond the conventional four Ps toward green marketing orientation frameworks, which emphasize ecological responsiveness, stakeholder engagement, and strategic sustainability (Hadrian et al., 2021). In other words, traditional marketing tactics must be adapted to reflect environmental values before they can effectively support green service innovation.

Similarly, the second hypothesis (H2), which predicted a significant relationship between the marketing mix and business performance, was also rejected. This study’s findings in this regard also align with and expand upon prior research (Abdeta & Zewdie, 2021; Aina & Atan, 2020; Frimpong, 2023; Köylüoğlu et al., 2021; Mokhtar & Yusoff, 2020; Potjanajaruwit, 2023; Wijaya, 2024). There are several possible explanations for this result, such as saturation and commoditization: the tourism market in Bali is highly saturated, making it difficult for SMEs to differentiate themselves through conventional marketing activities such as price or promotion; changing consumer values: today’s travelers are increasingly drawn to brands that demonstrate authentic environmental and social responsibility. In addition, marketing strategies that fail to reflect these evolving preferences may have diminishing returns on performance (Frimpong, 2023); the disconnect between strategy and execution: in practice, many SMEs may not fully implement the marketing mix in a strategic, consistent, or targeted manner, reducing its potential impact. This finding supports the strategic marketing theory argument that performance is not simply a function of tactical marketing execution but also of strategic alignment, stakeholder relationships, and innovation capabilities. In sustainability-conscious industries, marketing effectiveness is often mediated by trust, ethical branding, and long-term reputation rather than short-term sales promotion.

In contrast, the third hypothesis (H3), which posited that green service innovation significantly affects business performance, was accepted. Our findings agree with and add to the existing literature (Acquah et al., 2021; Gu, 2022; S. Khan et al., 2022; Thitart & Hotrawaisaya, 2023). The results confirm that SMEs in the tour and travel sector that actively implement green service innovations, such as eco-friendly travel packages, sustainable operations, and digital transformation efforts, experience notable improvements in their business performance. This finding supports the existing literature that emphasizes the role of sustainability-oriented innovation in enhancing competitive advantages, increasing customer satisfaction, and improving financial outcomes. This study reinforces the notion that green service innovation is not merely an ethical responsibility but a strategic imperative for businesses operating in environmentally sensitive regions such as Bali Island.

Finally, the rejection of H4—suggesting no significant indirect effect of the marketing mix on business performance via green service innovation—further reinforces the limitations of traditional marketing models in catalyzing meaningful innovation and performance outcomes in sustainable tourism. Again, these findings align with and add depth to prior research (Liu & Wang, 2022; Makgopa, 2023; Sudirman et al., 2024; M. Wang & Liu, 2022). This result can be interpreted through several theoretical and contextual lenses, such as the lack of strategic integration: marketing and innovation functions may operate in silos within SMEs, making it difficult for marketing activities to stimulate or support green innovations that have measurable performance impact; the insufficient scale of innovation: even when green service innovations are present, they may be too incremental, poorly marketed, or not aligned with customer expectations to influence overall performance metrics; and external barriers: factors such as weak institutional support, the lack of regulatory enforcement, and low consumer awareness about green tourism may limit the potential for green innovation to mediate marketing impacts (Makgopa, 2023; M. Wang & Liu, 2022). From a process-based perspective, this suggests that green innovation in tourism is a complex phenomenon influenced by multiple interacting variables—not solely by marketing input. Future research should consider alternative mediators or moderators—such as environmental leadership, consumer environmental concern, digital adoption, or regulatory incentives—to better capture the pathways linking marketing strategy, green innovation, and business outcomes.

Conclusion: Taken together, the non-significant results for H1, H2, and H4 underscore the crucial insight that traditional marketing strategies alone are not sufficient to drive sustainability-oriented innovation or performance in the context of Bali’s tour and travel SMEs. This calls for a paradigm shift in how marketing is conceptualized and practiced—moving from conventional, transactional models toward value-driven, sustainability-integrated approaches that are responsive to environmental challenges and evolving customer expectations. These findings also suggest that the success of green service innovation as a pathway to enhanced performance depends not just on marketing inputs but on a broader ecosystem of enabling conditions—including policy support, consumer education, cross-sector collaboration, and internal sustainability capabilities.

6.2. Practical Implications

The findings of this study offer significant practical implications for small and medium-sized enterprises (SMEs) in the tour and travel sector in Bali, especially in terms of marketing innovation, sustainability adoption, and business performance enhancement.

First, the rejection of the first hypothesis (H1), which posited a significant impact of the marketing mix on green service innovation, suggests that traditional marketing approaches (product, price, place, promotion) are no longer sufficient to drive sustainability-focused innovation. This calls for a strategic shift where marketing is not only about attracting tourists but also about embedding sustainability values. SMEs should adopt eco-branding strategies—for instance, promoting themselves as eco-conscious operators through visual storytelling and brand narratives that emphasize environmental care and community engagement. Moreover, SMEs should restructure their marketing mix to highlight green differentiation, such as offering carbon-neutral tour options or partnering with local conservation programs. Promotional efforts should move beyond price discounts and instead emphasize value-added eco-experiences, such as tree-planting tours, cultural preservation visits, and waste-free travel packages.

Second, the rejection of the second hypothesis (H2), which expected a direct effect of the marketing mix on business performance, implies that conventional marketing strategies alone do not ensure better financial outcomes. Therefore, SMEs must align their marketing messages with the values of responsible tourism, appealing to the growing segment of eco-aware travelers. Practical steps include the following: obtaining eco-certifications such as Green Globe, EarthCheck, or Indonesia Sustainable Tourism Certification (ISTC) to build credibility and consumer trust; offering eco-friendly travel packages that include sustainable accommodations, electric vehicle transfers, and low-impact itineraries; and using sustainability labels on promotional materials and online platforms to signal environmental commitment.

Third, the acceptance of the third hypothesis (H3), which affirms a significant influence of green service innovation on business performance, underscores the strategic value of sustainable innovation. SMEs should prioritize operational innovations such as the following: transitioning to electric or hybrid transportation fleets to reduce carbon emissions; implementing digital ticketing systems and mobile booking platforms to cut down on paper waste and streamline operations; collaborating with eco-conscious hotels, restaurants, and local artisans to create comprehensive green tourism packages; adopting waste management and water-saving initiatives, particularly for tours involving nature or marine destinations. These efforts not only lower operational costs but also strengthen brand positioning in a market increasingly shaped by climate-conscious decision making.

Fourth, the rejection of the fourth hypothesis (H4), which hypothesized that green service innovation mediates the marketing mix’s effect on performance, indicates that marketing strategies alone cannot catalyze green innovation or ensure performance gains. This finding highlights the need for deliberate investment in green initiatives independent of standard marketing activities. Specific recommendations include the following: participating in CSR initiatives that directly benefit local communities or ecosystems (e.g., beach clean-ups, education programs); applying for government subsidies and support programs offered by Indonesia’s Ministry of Tourism for sustainable tourism development; leveraging digital tools and social media campaigns to promote sustainability narratives, such as virtual tours showcasing eco-practices or behind-the-scenes content on waste reduction; and using data analytics to track consumer preferences and environmental impact, allowing for more targeted innovation and service customization.

Finally, to truly transform Bali’s tourism sector, SMEs should actively engage in collaborative networks involving local governments, tourism boards, NGOs, and other businesses to build a shared vision for sustainability. Initiatives may include joint eco-tourism campaigns, shared certification platforms, or destination-wide green standards.

In summary, this study emphasizes the urgency for Bali’s tour and travel SMEs to transition from conventional marketing-driven models to sustainability-integrated business strategies. By embedding green service innovation at the core of their operations, SMEs can enhance their competitive edge, build consumer loyalty, and achieve long-term profitability—while contributing meaningfully to the preservation of Bali’s cultural and natural heritage.

6.3. Limitations and Future Research

While this study offers meaningful contributions to the understanding of sustainable tourism strategies, particularly green service innovation’s mediating role between the marketing mix and business performance among SMEs in Bali’s tour and travel sector, several limitations must be acknowledged.

Firstly, the use of a cross-sectional survey design limits the ability to infer causal relationships between variables. Although significant statistical associations were observed, longitudinal research is necessary to determine how the effects of green service innovation evolve over time in response to changes in marketing strategies or business environments.

Secondly, this study is geographically confined to the Bali region, which presents unique environmental policies, cultural values, and tourism dynamics. As such, the generalizability of the findings to other regions or countries with different regulatory or market conditions may be limited. Comparative studies across multiple destinations would offer broader insights into the applicability of green service innovation in various tourism contexts.

Thirdly, the marketing mix framework utilized in this research is based on the traditional 4Ps model. While this provides a solid foundation, the omission of extended elements—such as people, process, and physical evidence—may not fully capture the complexity of service delivery in tourism enterprises. Future research could adopt the extended 7Ps framework to better reflect the service-oriented nature of the industry.

Finally, this study did not consider potential moderating variables, such as the firm size, access to green technology, government support, or market competitiveness, which could influence the strength of the relationships identified. Including such moderators in future research could yield a more refined and context-specific understanding of how sustainable innovation strategies interact with business performance.

By recognizing these limitations, the present study lays the groundwork for deeper investigations into sustainable tourism innovation, offering opportunities for researchers and practitioners to expand and refine the strategic models that guide environmentally responsible business performance in the tourism sector.