<![CDATA[Digital transformation has reshaped the marketing practices of small and medium-sized enterprises (SMEs) and encouraged businesses to strengthen their innovation capabilities in response to an increasingly dynamic competitive environment. This study aims to analyze the relationship between digital marketing transformation, innovation capability, and business performance through the mediating role of competitive advantage. A quantitative approach with an explanatory research design was employed, involving 150 SME owners and managers selected using purposive sampling. Data were collected through a Likert-scale questionnaire and analyzed using Partial Least Squares Structural Equation Modeling (PLS-SEM). The results indicate that digital marketing transformation and innovation capability have positive and significant relationships with competitive advantage, with path coefficients of 0.391 and 0.462, respectively. Competitive advantage is also positively associated with business performance, with a coefficient of 0.438. Furthermore, digital marketing transformation and innovation capability have direct relationships with business performance, with coefficients of 0.214 and 0.276, respectively. Competitive advantage partially mediates these relationships, with indirect effects of 0.171 and 0.202. These findings highlight that integrating digital marketing, innovation capability, and competitive advantage is an important mechanism for sustainably improving SME business performance.]]>
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