NEW YORK—After a 20-year career at Marriott International and then 20 more years building Thayer Lodging Group into one of the most high-profile hotel investment companies today, you’d think it was time for Leland Pillsbury to slow down.
Not the case whatsoever.
Pillsbury remains CEO and co-chairman at Thayer, which he co-founded with Fred Malek in 1991. He remains a director of Sunburst Hospitality Corporation and serves on the boards at Cornell University and Northwestern University.
Perhaps one of Pillsbury’s most timely projects, as the hotel industry continues to adapt its distribution strategy to meet shifting consumer buying habits, is his role in the advisory of Thayer Ventures, which focuses on travel technology sector investments.
Pillsbury’s technology background runs deep. He co-founded TIG Global, which provides Internet marketing campaigns and Web development services to the hotel industry, and HUBS1, a central reservation and distribution system for the Chinese hospitality industry.
With his tech hat on, Pillsbury dished on today’s difficult distribution landscape during the recent Revenue Strategy Summit at the Affinia Manhattan, saying the sales model that places high commissions on hotel owners to sell rooms on the Internet will not continue to work.
“You’re not going to buy, build, maintain a hotel with those economics,” he said. “If all the members of the value chain aren’t making an economic return, then the value chain will collapse. It may not happen right away—it took GM a number of years—but if it doesn’t work for all of us it isn’t going to work for any of us.”
History lesson
Pillsbury walked through his 40-plus years in the hotel industry to illustrate the fact that he knows a thing or two about industry strategy and sales models. He said one of the most important lessons of his life he learned in the soda aisle of a grocery store.
The soda aisle is all about real estate, he said, where brands compete to be at eye level at the beginning of the aisle. Lesser-known brands, or those with fewer marketing resources, get pushed down the aisle or to the bottom shelf.
It’s for this reason that Coca Cola, Pillsbury said, continues to introduce new variations of the popular soda—diet, zero, lime and so on. “It’s to force the smaller brands out of the aisle,” he said.
He drew a parallel to Marriott, which has 19 brands. Leading Marriott’s development in the 1970s, Pillsbury oversaw construction of 42 hotels in Atlanta, “looking to do the same thing as Coke.”
“It’s just real estate,” he said. “Product segmentation became the watch word. We were targeting the same guests but for different trip purposes.”
Later down the road, after InterContinental Hotels Group tried and failed at an early version of Priority Club, Pillsbury said he helped “link all Marriott’s brands together” with what he said was the industry’s first loyalty program.
In 1994, Pillsbury said one of Thayer’s hoteliers in Fort Lauderdale, Florida, built the first hotel website and was shocked when a potential guest from overseas contacted the hotel via the Internet. Expedia launched two years later.
Another first: Pillsbury said he put together the hotel industry’s first revenue-management system in 1983. Admittedly, he said he took the idea from the airline industry, and admittedly it wasn’t the right move.
Pillsbury visited with former American Airlines CEO Bob Crandall and took home the notion that when demand goes up, hoteliers should raise rates.
“That was unheard of at the time,” he said. “But it was also without a doubt the biggest mistake I have ever made.”
Pillsbury explained that he thought hotel demand was similar to airline demand but soon realized cutting price does not increase volume and “certainly does not increase revenue.”
“We went into this revenue management with the wrong philosophy,” he said.
Pillsbury blames hoteliers who “drop their pants” and offer Expedia and other third-party distribution companies deeply discounted rates for the largest downturn in the industry’s history. Third parties, he said, are making a mint from hoteliers’ wallets.
“TripAdvisor’s market cap is the same as Marriott’s, and what do they do?” he said. “Not a damn thing.”