<![CDATA[Purpose – Market sensing capability shows inconsistent effects on marketing performance across prior SME studies, including Indonesia's herbal medicine sector, where firms hold rich biodiversity-based knowledge yet underperform commercially. This study tests value co-creation capability as the mediator reconciling these conflicting findings, with digital engagement capability as a boundary condition. Design/methodology/approach – Data from 300 herbal SME owners and managers in East Java were analyzed with PLS-SEM in SmartPLS 4, complemented by CTA-PLS, the cross-validated predictive ability test (CVPAT), importance-performance map analysis, and necessary condition analysis (NCA). Finding/Results – Market sensing capability and health consciousness alignment significantly strengthened value co-creation capability (β = 0.420, 0.344; p < .001), which significantly predicted marketing performance (β = 0.483, p < .001) and complementarily (partially) mediated market sensing capability's effect on marketing performance while fully mediating health consciousness alignment's effect. Digital engagement capability had no direct effect but significantly strengthened the co-creation-to-performance path (β = 0.090, p = .003). CVPAT confirmed predictive superiority over a naive benchmark throughout and over a linear benchmark for marketing performance and the overall model; NCA identified value co-creation capability as the strongest necessity condition. Originality/Value – The findings offer one plausible explanation for a documented contradiction in the SME literature, consistent with value co-creation capability, rather than an unstable sensing effect, accounting for divergent prior results in this sample, and giving herbal SME managers an evidence-based investment priority.]]>
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