FedEx Knows Brand Equity

Two days ago, my brother's employer changed its name. After seven years as TVisions, the privately held Internet services firm changed its name to Molecular and announced it will begin "promoting its expertise, and building a brand indicative of a company already competing on a national and global scale." The company press release detailed why the name Molecular was chosen and the image the company wished to covey with the new name. Words and phrases like "precision," "granular thinking," "power," "longevity," and "universal understanding" were used to describe the intended message. Come on! All this from a name? You better believe it.

The Maker port is always spouting off about brand power and how it relates to competitive advantages. Intel (Nasdaq: INTC) advertises its Pentium brand so that consumers will demand a Pentium processor even though only a tiny fraction of consumers can tell the difference. Could you tell the difference between an Advanced Micro Devices (NYSE: AMD) and Intel microprocessor?

We've covered the perception American Express (NYSE: AXP) creates to differentiate its credit and charge cards. Companies have brands just like products do. Long-time Rule Maker holding Coca Cola (NYSE: KO) knows this better than any company. It sells sugar water for Pete's sake. Without a brand, Coke could easily be reduced to just another beverage company. It needs an image.

Not so long ago, investors, venture capitalists, and 22 year-old Internet CEOs were more concerned with mindshare than cash flow. Billions were spent attempting to build brands during the "Internet era" and for what? eToys is headed for the eGrave, Boo.com will forever be a reminder of the large percentage of companies that are NOT supposed to survive even if the venture capitalists throw money at them, and rumors have it that the Pets.com sock puppet has been forced to return to his old line of work as a sock. These companies mistook name recognition for brand equity.

So why on Earth is this relatively small Internet services firm spending money researching the right name when it could be paying my brother more money? Didn't these guys learn anything over the last year about mistaking name recognition for brand equity and the importance of a business plan? Maybe they did.

Brand equity is more than "Hey, I've heard of those guys." It's about trust and quality and the "right image." So, maybe Molecular gets it after all. FedEx Corp. (NYSE: FDX) certainly thinks so.

FedEx is in the midst of an image remake. It recently changed its name from FDX Corp to FedEx Corp. Not Federal Express but FedEx. Federal Express is too long. It doesn't convey the speed of FedEx. People are too busy to say Federal Express. If someone needed to get a package out ASAP, precious time could be lost on all those syllables. Just FedEx it.

Like Coke, Kleenex, and Q-Tip, FedEx has earned a place in everyday vernacular. FedEx it. We all know exactly what that means. In most cases, it doesn't even mean use FedEx. It just means send it overnight. Coke has come to mean any soda, Kleenex refers to any tissue, and when was the last time you heard someone say, "Do you have a cotton swab?" After years of operating several different businesses under several different names, FedEx is cashing in on its brand equity.

Now, FedEx is not a Rule Maker, nor is it likely to become one. With its exposure to volatile fuel prices, high capital expenditures, and thin margins, FedEx can't stand up to the rigorous Rule Maker quantitative criteria, but its brand power is a perfect example of a sustainable competitive advantage. FedEx has nearly $20 billion in annual revenue, employs more than 200,000 workers, and ships over 3 million packages a day. Along the route, those packages, the planes that carry them, the trucks that deliver them, and the people that handle them leave impressions on customers.

FedEx finally slapped its name on its ground delivery service, formerly known as RPS, and is taking on United Parcel Service (NYSE: UPS) with FedEx Home Delivery. It has a global logistics company now bearing the name FedEx Global Logistics, and if your package absolutely, positively has to be there on time, try FedEx Custom Critical for, you guessed it, "time-critical shipments."

Here's the kicker: There is nothing wrong with FedEx's image. Nada. But according to a recent eCompany Now article, "For the past two years, FedEx has been quietly working on an extensive overhaul of its image, rethinking and redesigning everything from its customer centers to its drop boxes to the bags carried by its couriers." It is going so far as to redesign the electronic scanners carried by FedEx drivers. The goal is to design a device that makes people think, "Wow, those guys are on the cutting edge with technology!"

The article gives an extreme example that drives home the sensitivity of a brand. The brand consultant and product development firm hired to help FedEx with its image make-over was concerned about the impact on customers of the sound made by closing one of its lock boxes. Does it sound cheap? Does the customer walk away feeling comfortable that his package is safe? Little things like that often get overlooked for the bottom line. But FedEx is aware that that impression may make the difference between using FedEx or DHL.

FedEx could do without that extra millimeter of steel that prevents its boxes from feeling thin. It could skimp on the rubber that stops the lid from making a horribly loud noise when the lid slams down, but it doesn't.

Fred Smith, FedEx's founder, long-time Chairman, President, and CEO (he's a busy man!), understands that each truck, drop box, and uniform seen on the street is a brand impression. Passing up the opportunity to create a favorable impression is not only stupid, it's bad business. FedEx is working all the angles to protect and extend its brand equity.

So, what's in name? Only the last chance to make a first impression.

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Todd Lebor owns shares of FedEx, Intel, and Microsoft, and is negotiating a new contract with his image consultants. Todd's other holdings can be found online along with the Fool's complete disclosure policy. The Motley Fool is investors writing for investors.