<![CDATA[Construction service firms face increasing pressure to adapt to digital transformation and intensifying market competition. However, the mechanisms through which digital marketing transformation and market segmentation contribute to competitive advantage, particularly through innovation strategy, remain insufficiently understood in the construction services context. This study examines the direct and indirect effects of digital marketing transformation and market segmentation on competitive advantage, with innovation strategy as a mediating variable. Data were collected from 200 managerial-level respondents in Indonesia and analysed using partial least squares structural equation modelling (PLS-SEM). The findings reveal that digital marketing transformation significantly affects innovation strategy (β = 0.55; p < 0.001), as does market segmentation (β = 0.40; p < 0.001). Innovation strategy has the strongest effect on competitive advantage (β = 0.60; p < 0.001). Digital marketing transformation and market segmentation also have direct effects on competitive advantage, with coefficients of 0.25 and 0.18, respectively. The mediation analysis indicates positive indirect effects through innovation strategy of 0.33 for digital marketing transformation and 0.24 for market segmentation. The model explains 48% of the variance in innovation strategy and 62% in competitive advantage. This study contributes to the strategic management literature by integrating digital marketing transformation and market segmentation within a mediation framework that identifies innovation strategy as a key mechanism linking these factors to competitive advantage in construction services. The findings highlight the importance of aligning digital marketing capabilities and market segmentation with innovation-oriented strategies to strengthen firms' competitive positions.]]>
