Kotor, Montenegro, aspires to transition from mass to luxury tourism to ensure sustainable economic and environmental futures while contending with the challenges of rising cruise tourism. This study investigates the strategies employed by local restaurant and apartment owners as they navigate these aspirations. Utilizing a quantitative approach, the research surveyed 23 business owners to understand their competitive strategies amidst ongoing shifts in tourism demand. Results reveal a diverse application of differentiation and cost strategies, reflecting the complexity of adapting to a luxury tourism model while maintaining economic viability. This study found that accommodation and restaurant entrepreneurs are not predominately embracing differentiation strategies, which halts Kotor’s transition to a luxury destination. Keywords: Luxury Tourism, Cruise Tourism, Sustainable Tourism, Porter's Competitive Strategies, Tourism Development, Kotor, Montenegro