Web-based marketing remains viable if well executed. (Entrepreneur's Notebook).

THESE past two years have seen the fall of the New Economy and a return to traditional business fundamentals. The buzz words have changed: No longer is B-to-B, B-to-C or P-to-P guaranteed to secure funding or company valuation. The dot-com hype is gone, and now companies are scrambling to define their core businesses and turn a profit.

After three years of industry focus on creating destination Web sites it has become clear that this type of pure-play distribution channel doesn't often make economic sense. Although early players in the Internet space touted the low cost of customer acquisition, it is often 1.5 to 2.5 times more expensive to acquire a customer online today than through traditional distribution methods.

In addition, the economic model of most destination Web sites requires that a company build an ongoing relationship with each customer in order to recoup customer acquisition and site expenses, prolonging the period in which it takes to turn each customer into a profitable investment.

Now that investors are frowning upon large, mass-media marketing budgets, companies need to be more focused on how they attract customers, as well as what they have to offer those customers. Having an effective Internet strategy is no longer as simple as just having a Web site. It is about leveraging partnerships, gathering and processing valuable customer profile data, and embracing technology that will seamlessly integrate both components.

Targeting customers

As the Internet gets more ubiquitous, marketers will be afforded opportunities to target customers within the context of their daily lives.

Through the ever-increasing use of the Internet via cell phones, PDAs, cars, and home appliances, marketers will be able to identify a customer's exact location and need. This will enable companies to tailor customer-specific messages and offers to that exact moment of need.

For example, cars are already being equipped with on-board computer systems that allow drivers to locate the nearest gas station or parking garage based on their current location or destination. Consider how much more powerful that marketing message will be when those vendors can offer personalized, time-sensitive promotions at the moment the customer is making a decision.

Why choose the gas station on the far side of the street when the one around the corner will give you a free car wash? The example could also be much simpler: a customer downloading a recipe for chicken soup might also receive a coupon from a food manufacturer whose product could be used in the recipe.

While many of these marketing tactics have been employed to a lesser degree in the past, the importance of these types of contextual messages will continue to increase as consumers' access to the Internet expands beyond the PC.

Developing critical partnerships is the first step toward the best use of contextual marketing. Whether the partnerships are content or technology-based, online or offline, they will ultimately lay the groundwork for access to customers at their most crucial point of need.

Companies also must focus on acquiring and analyzing customer data. Customer data is no longer just name, address and e-mail address; it is dynamic data such as frequently visited locations, typical shopping purchases, and community interests. It is data that allows a company to extend its brand to the daily functions of its customers. Amazon.com broke ground with software that enabled the company to track and identify customer interests and recommend products based on the profiles the company developed over time.

In this next generation of the Internet, marketers may often need to rely on intermediaries to gain access to this valuable customer data. This places even greater significance on the value of well-positioned partnerships since companies will no longer be targeting their own customers as they did with destination Web sites and outlets.

Using intermediaries

Finally, companies must understand that the Internet is one of many channels of distribution and leverage it to complement the other, traditional channels. Two and a half years ago everyone believed that eToys would put Toys R Us out of business. By Christmas 1999, the two companies were processing comparable numbers of transactions; and by Christmas 2000 eToys was on its last legs. This was largely due to the fact that Toys R Us could provide customers with options: browse online, buy in the store; browse in the store, buy online; buy online, return in the store.

For traditional retailers, employing contextual marketing techniques enables them to complement their core business by driving prime customers directly to local outlets where they can physically touch products and interact with salespeople. Not only does this generate revenue, but it also establishes a competitive advantage that far exceeds those of a prime retail space on a heavily trafficked thoroughfare.

Yes, the Internet bubble seems to have burst and the market is demanding a return to traditional, realistic goals. But there is still great potential for companies to harness the Internet to establish even deeper relationships with partners and customers.

The key is to leverage the benefits that the Internet affords as a component of an overall business strategy, and not make the Internet the focus of the business itself.

Kimberly Carter is a co-founder of BD Group, a consulting firm. Carter can be reached at [e-mail].

Entrepreneur's Notebook is a regular column contributed by EC2, The Annenberg Incubator Project, a center for multimedia and electronic communications at the University of Southern California. Contact James Klein at [phone] with feedback and topic suggestions.