InterContinental Hotels Group CEO banks on branding

FORTUNE -- The hospitality industry has taken a hit during the recession, but some chains are climbing back. And if they want to stay on top, brand strength is going to be a key part of the rebound, says InterContinental Hotels Group CEO Andrew Cosslett.

Brands are especially relevant to Cosslett -- InterContinental (IHG) spans seven different nameplates, and each one needs to tailor to a different customer, he says. We'll see if the strategy works: First quarter revenue rose just 3% year over year to $362 million.

Cosslett has big projects in the works, including a major redesign for one of InterContinental's best-known brands, Holiday Inn. He's also planning to open 30 new hotels in China this year. He filled Fortune in on homegrown Chinese hospitality, how a Meatloaf song helped him realize the importance of background music, and what a Holiday Inn should smell like. Edited excerpts below.

You have so many brands, how do your hotels cater to target different customers?

You use what we call "psychographics." This is how people feel. It all sounds like hocus pocus, but it's very simple: You try to identify groups of people who think the same, and then offer them brands and products that they really buy into.

The history of the hotel industry has been that all the brands have been pretty much based on price stratification. Now the industry's trying to change -- we're hopefully leading that. We're trying to pull our brands apart, one from the other.

How do you think about separating them?

Well, Holiday Inn is an icon of the industry. We're bringing it up to date. A lot of that is about the physical property, because the brand is very clear in its position about being authentic and real. You know, down to earth.

Intercontinental is for the internationally minded person. That doesn't mean that they have to travel internationally, it just means that they have an outlook on life that is more cosmopolitan. They like to have special knowledge of a place or culture wherever they are, even if they're an American traveling in America.

So who is traveling in this economy?

Everybody. The genie's out of the bottle on that one. In the downturn, we saw almost a complete absence of corporate travel, but the leisure side stayed up. Most people are amazed when they hear this, but we had more leisure travel last year than the previous year. That tells me that people are now placing leisure travel higher up the list of must-haves than it used to be.

What's driving the market today is that business travelers are coming back. The fact is the world runs better when you have meetings, and people have really missed them.

What about your market overseas, is that a big part of your strategy?

We're the biggest players in China. It's a very exciting place given the infrastructure that's going on. They're building all these freeways, and 96 airports are in development right now. We want to be the primary mover, making sure that we're at the end of all these transport links.

How do you field the kind of talent you need to fill all the hotels you're building?

Because there's no indigenous hospitality business in China, we've got to basically grow our own. Over the past five years, we've built a bunch of academies all around China, and we've helped create hospitality diplomas. There are about 5,000 students a year going through that program. If we can pick up a fair proportion of that, it means that we've got this feeder system of ripe English-speaking workers who are pretty well trained already, so that's great.

You've put a lot of work into your branding in China, right?

We've been there a long time, so this generation thinks Holiday Inn is a cleverly constructed Chinese brand that was made to look western. People assume that we're looking after wandering westerners abroad -- that's not what we do. Hotels in China are for Chinese domestic customers.

Don't you have to deal with a different value system for Chinese customers?

Nope. That's the skill. There are differences in some of the aspects of how you deliver things, but these groups of how people think are common around the world.

For example, Holiday Inn Express is very well known in America. We know that people who stay at the Holiday Inn Express love the breakfast because it's efficient and quick. We have these proprietary cinnamon rolls. It's our trademark. So we have exactly the same type of people in China -- but you can't give them a cinnamon roll, so you give them congee. The local delivery is different, but the need stays the same.

How did you begin to figure that out?

There was one famous afternoon and I was in one Crown Plaza in the Amsterdam airport. There was no one in the hotel over the age of 35. These were young, trendy European business couples charging around. And the music playing was Meatloaf. I think it was "Bat out of Hell," but it might have been "Dead Ringer for Love" -- I'm not sure. It's a very inappropriate song to be playing in the middle of the afternoon. And I said, "Who chooses the music?" and nobody could answer the question.

We figured out it was Gus the barman. Gus the barman's this big 50-year-old guy with a handlebar mustache, and if he had liked Gregorian chants, we would have had those on. This industry doesn't get it, sensory engagement is very important -- how it smells, how it sounds, how it feels, how it looks. It's common sense. If you go into a retail supermarket, it smells of bread. That's because people buy more food if they smell bread because it makes them hungry. We've known that for ages, but no one's thought to actually put that in a hotel situation.

So what does an American Holiday Inn smell like?

Gorgeous. It's lemongrass and perilla leaf with some ginger notes to it. So it's not spicy, but it's got something in it that just gives you a sense of freshness and a sense of place.