Posted by Ric Garrido

The average point value for hotel loyalty points is shown on credit card sites like NerdWallet.com and PlasticIQ.com. Lucky estimated the value of a point for several airline and hotel programs in his August 2010 InsideFlyer – The Value of a Mile or Point.

Lucky states in his article that it is useful to have a relative value of points and miles when trading or exchanging currencies between programs or choosing whether to earn miles or points for hotel stays.

The last time I seriously delved into the question of the value of a hotel point was last January. I want to develop ideas from that post more fully here.

Three Rules Governing the Value of a Point or Mile

Over the past decade I have developed three rules as Loyalty Traveler I believe govern the value of points for the hotel loyalty program member.

Loyalty Traveler Rule #1: Points have no value until redeemed.

This applies to airline – hotel – credit card – other loyalty programs.

Every hotel loyalty program has the ability to terminate its loyalty program. Your points can be gone tomorrow.

Look at Mexicana Airlines. I may have just lost 100,000 miles. I valued those miles at $10,000 seven years ago when I could have flown Cathay Pacific First Class across the Indian Ocean from Hong Kong to Johannesburg on miles. But I never booked that trip.

I’ll call your ½ cent and raise

So what does it really mean to say a Hilton HHonors point has a value of one-half (0.5) cent or seven-tenths (0.7) of a cent?

I taught junior high math for a couple of years. I know that working in decimals gets confusing for many people so I try to work in whole numbers when talking about the value of points.

Saying a Hilton HHonors point is worth ½ cent is the same as saying 1,000 points are worth $5.00. Since redeeming points usually involves multiples of 1,000 points I use whole dollar values per 1,000 points in Loyalty Traveler data to get away from decimal abstractions and confusion.

Now back to the question.

What does it really  mean to say Hilton HHonors points have the value of $5 or $7 per 1,000 points?

There is a discrepancy between HHonors point values of 0.7 cents/point by Lucky and 0.5 cents/point by NerdWallet. A cardmember who earns 100,000 points has $700 in points by Lucky’s standard or $500 in points by Nerdwallet’s valuation. PlasticIQ drops the value down to $4.30 per 1,000 points or $430 for that HHonors member sitting on 100K in hotel currency.

 

Calculating Hotel Point Value

 

          Value of 1,000 points = Room Rate / Points needed to buy room

Hotel point value is set by redeeming points. Every individual loyalty program member will have his or her own estimate of the average point value based on actual points use and personal history of point redemptions. Lucky states this idea in his article too.

Hilton Amsterdam

Let’s say I want to go to Hilton Amsterdam on November 5-7. I can pay the going rate of 199 EUR per night or use 50,000 points per night.  

Best Available Rate is 199 EUR per night. After tax the rate is €417.90 = US$532 for two nights.

Hilton Amsterdam is a category 7 hotel for 50,000 points per reward night.

My effective points value is $5.32 per 1,000 points when I save $532 by spending 100,000 HHonors points for the hotel stay. (Ignore the points that would have been earned for a paid stay to keep math simpler.)

But should I even use the BAR value of $532 to calculate the value of my points?

I could book the Hilton Amsterdam using an advance purchase rate for 169€ per night. This is a more restrictive rate than using points since there is no ability to cancel or change the reservation, whereas a reservation booked with points can be canceled and points returned to the account.

354.90 EUR = US$457.65 = 100,000 points.

My points value with this Hilton Amsterdam redemption is $4.58 per 1,000 points. This falls well below the $7/1,000 points value from Lucky and even below the $5.00 per 1,000 points used by NerdWallet.com.

The real points value in this example is somewhere between $4.58 and $5.32 per 1,000 points depending on which rate I use, prepaid or refundable rate,  for the cash saved on the hotel stay.

Loyalty Traveler Rule #2: The value of points is not a set value, but will objectively fall into a range of point value for the specific loyalty program.

Establishing the point value range for the different hotel loyalty programs is a challenge. This requires extensive data.

Lucky states Starpoints have a value of $25/1,000 points. NerdWallet states $23/1,000 points and Plastic IQ uses $21.50/1,000 points. These are considered average redemption values.

For example, some Starwood Hotels may only offer $10 per 1,000 points value when using points for a reward night. Other Starwood Hotels may offer $60 per 1,000 points value. The actual value of Starpoints may fall somewhere in this range from low to high reward values.

HHonors has a different range of point values for its program. You are highly unlikely to find a Hilton HHonors reward value in the $60/1,000 points range, whereas you can likely find a Starwood Hotel in that range. HHonors would require finding a reward for a hotel rate in the order of $2,175 per night with a category 7 hotel on an AXON7 four-night award at 145,000 points to have $60/1,000 points value. The upper limit of the value range for HHonors points will likely be somewhat below $60/1,000 points. But if you found any HHonors hotel reward with $60/1,000 points value, then the value of HHonors points objectively would have a range going up to $60/1,000 points.

Calculating the range is a matter of taking numerous hotel samples and analyzing the room rate divided by the cost in points for a reward night using points.

Value of 1,000 points = Room Rate / Points needed to buy room

Each hotel program will have a point value range specific to its hotels and loyalty program reward cost.

There are 1,000 Starwood Hotels. Rates fluctuate daily while the cost of a reward night is constant – as long as the hotel reward category does not change. Hotel categories shift over time moving the points cost up or down.

Special offers like Cash & Points, HHonors Pointstretchers, Marriott Rewards PointSavers and Priority Club PointBreaks also reduce the cost for reward nights during limited time discount offers.

Hilton HHonors – Show me the Money Value

What is the value of a HHonors point?

Lucky uses $7/1,000 points, NerdWallet.com $5/1,000 and Plastic IQ $4.30/1,000 points. While the average value of HHonors points may be in the $4 to $7 range for 1,000 HHonors points, loyalty travelers have the potential to get over $22/1,000 points.

Conrad Maldives

(HHonors category 7 hotel – 50,000 points per night)

Nov 5-9, 2010 = $3,276 after tax or 200,000 points

 

HHonors point value is $16.38/1,000 points (1.6 cents/point) for this redemption. 

HHonors elite members have access to VIP rewards. HHonors Silver elite membership requires just four stays in a calendar year. There is a 15% discount for HHonors VIP 4-night rewards reducing the 4-night rate for the Conrad Maldives to 170,000 points.

The HHonors VIP 4-night reward raises the point value to $19.27/1,000 points.

HHonors Silver elite is complimentary with any HHonors American Express card. As an HHonors American Express cardmember the hotel reward rate drops even more to only 145,000 points for an AXON7 award.

The AXON7 award raises the point value for this Conrad Maldives four-night stay to $22.59/1,000 points.

Conclusion: The average value of a HHonors point may be just $4 or $7 per 1,000 points. As a loyalty traveler you should not settle for average. There is potential to get over $20 per 1,000 points with HHonors. The range of HHonors point value has to go up to at least $22.59/1,000 points since I have found that potential value in a bookable HHonors reward.

And this leads us to rule #3.

Rule #3: You personally decide the value of your points when you redeem points.  

Do not settle for average value. You are the points redemption DECIDER.

The third rule of hotel loyalty program point value is you have the choice at what minimum value you are willing to redeem your earned points.

The objective of the loyalty traveler is to redeem in the upper end of point value range for your hotel (or airline) loyalty program.

Nerdwallet.com gives Marriott Rewards points the value of 1.0 cent/point or $10.00 per 1,000 points. Lucky states Marriott Rewards points are 0.8 cents/point or $8.00 per 1,000 points. PlasticIQ is in the middle with $8.80/1,000 points value.

So are 200,000 Marriott Rewards points worth $1,600 or $2,000?

Marriott Monterey

November 3, 2010

$279/night or $308.06 after tax. The Marriott Monterey is a category 6 hotel for 30,000 points per night. The value of points is $10.27/1,000 points.

But change the stay to November 19 and the AAA rate drops to $170/night or $188.16 after tax.

Marriott Monterey points value = $188.16/30,000 = $6.27/1,000 points.

If points are used at the $188 rate, then 200,000 points are worth just $1,254, far less than Nerdwallet’s estimated point value ($2,000) or Lucky’s estimate of 200,000 Marriott reward points ($1,600).

So which value, $10/1,000 or $6/1,000 is the more accurate point value for Marriott Rewards points?

Is the actual value somewhere between $6.27 and $10.27 per 1,000 points?

How many hotels, rates and dates need to be surveyed to get the full range of point values and an accurate and precise estimate of the average point value for any specific hotel loyalty program?

Loyalty Traveler has not determined the upper value for hotel points. I just know that it is much higher than the point values used by Lucky, NerdWallet and Plastic IQ.

 

Conclusion to the Value of a Hotel Point – The main takeaway idea from this post is your points need to be redeemed selectively to maximize value.

Loyalty travelers do not want to settle for average. All your redemptions should be in the top 20% to 30% of high value redemptions. If there is a range of $2 to $10 for 1,000 points giving an average of $6 per 1,000 points, then be the member who redeems only for $8 to $10 value and get better than average value for your points.

Loyalty travelers can get better than average value from hotel points.

There are 35,000 or so hotels in the top 10 hotel loyalty programs. Establishing a point value range requires much more data analysis than I have the ability to access. I do not know what the upper range of hotel point value is for different programs.

I do have an idea of where hotel rates are high and low and the hotel reward categories for hotels in the major hotel loyalty programs.

I was able to quickly find a number of high value redemption opportunities with just a few searches in each program. Each of the examples below had reward availability for the nights searched.

A loyalty traveler can get a much higher value for hotel points than the set values used by Lucky, NerdWallet and Plastic IQ.

Moscow Marriott Grand Hotel (Marriott Rewards category 5 = 25,000 points/night)

  • October 18-23, 2010 (5-night stay)
  • $2,698 after tax
  • 100,000 points reward (5th night free)

 

Marriott Rewards Point Value = $26.98/1,000 points (Lucky $8; PlasticIQ $8.80; Nerdwallet $10)

 

InterContinental Geneva (Priority Club = 40,000 points/night)

  • Monday, Feb 14, 2011 – Friday, Feb 18, 2011 (4-night stay)
  • US$10,078 after tax (advance purchase prepaid rate)
  • $10,078/160,000 points =

Priority Club Points Value = $62.98/1,000 points (Lucky $6; Nerdwallet $6)

 

Hyatt Regency Pittsburgh International Airport (Gold Passport category 2 = 8,000 points/night)

  • Monday, October 18, 2010 – Tuesday, October 19, 2010
  • $227.09 after tax (BAR)
  • $227.09/8,000 points =

Hyatt Gold Passport points value = $28.38/1,000 points (Lucky $15; Nerdwallet $15) 

 

Grand Hyatt Sao Paulo (Gold Passport category 2 = 8,000 points/night)

  • Monday, October 18, 2010 – Friday, October 22, 2010
  • 2,964 BRL after tax (BAR)
  • US$1,715.58/32,000 points =

Hyatt Gold Passport points value = $53.59/1,000 points (Lucky $15; Nerdwallet $15)

 

 

xe.com Brazil Reals to US Dollars Currency Conversion

 

Starwood Le Parker Meridien New York (SPG category 5 = 12,000 points/night)

  • Sunday, October 17, 2010 – Friday, October 22, 2010 (5-night stay)
  • $553.15/night or $2,765.75 after tax for five nights
  • $2,765.75/48,000 points (5th night free reward) =

Starwood Preferred Guest points value = $57.60/1,000 points (Lucky $25; PlasticIQ $21.50; Nerdwallet $23)

I found all these examples in random searches on random dates in about 45 minutes. There must be hundreds of hotels with similar reward night value. 

Having an idea of the value of a point is useful information. Lucky did a good job at pointing out relative value of points and miles in his article. These values are a benchmark you can use for trades, exchanges, and promotion analysis. Just keep in mind that points and miles have no set value.

Remember the three rules governing the value of points and miles:

  1. Points and miles have no value until redeemed.
  2. The actual value of points and miles is a range and not a set value.
  3. You decide the value of your points with your redemptions.

Loyalty travelers can get better than average value from hotel points.

13 Responses

  1. Excellent post.

    Do you have any posts about Elite benefits on award stays? I normally stay at SPG and Hilton brands on Award stays, and enjoy Platinum and Diamond benefits on these stays, but was surprised to hear that Hyatt, Marriott, and Priority Club do not always honor Elite benefits on award stays.

    Thanks.

  2. FlyerTalk is the best source for information about elite treatment on award stays. I know how I am treated.

    Personally I have always received elite benefits and plenty of upgrades with Hilton, SPG and Hyatt on award stays.

    In the past I received some elite upgrades with Marriott even when staying on Priceline nights.

    Posts by Gary (View from the Wing) and Ben (One Mile at a Time) indicate Priority Club is less generous about upgrades on award stays.

    Elites are treated differently based on FlyerTalk reports and you need to figure out personally how the program treats you.

    I have always had pretty good luck with upgrades even long before I was Loyalty Traveler.

  3. You’re mistaking the value calculation. You have to compare points spent versus what you’re *willing* to pay, not what the actual cost of the hotel room is. You’re making the same mistake a lot of ft’ers make when talking about premium cabin redemption by arguing that they got $40,000 of value for booking a first class redemption. Sure, that’s the list price, but there are few out there that would think that spending $40,000 for first class tickets to Thailand would be a good use of their money, so they didn’t “save” $40,000 at all, they only saved at most what they would have been willing to pay had they not had any miles at all (which is entirely subjective) and in any case is almost certainly less than $40,000.

    In your example, for Geneva, not many people in their right mind would pay $2,500 per night to stay at the IC there, given roughly equivalent properties likely exist for substantially less money. Most of us (unless you absolutely had to be staying at the IC during those 4 days) have some price limit premium on just how much they are willing to pay to stay at the IC on those particular days.

    Say that a person is generally willing to spend $200/night on a hotel room in Geneva, and is somewhat flexible on dates and properties, but would pay a $50 premium to stay at an IC property on those particular days as opposed to moving days, hotel, location, or some combination of the three to get the price down. The value of the points then generally works out to be about $6.25 per 1,000 Priority Club Points, not the astronomical value that you calculated.

    Let’s look at the case of someone with less willingness to spend. Say person 2 is only willing to spend about $100/night at a hotel in Geneva, on average, and would be willing to spend a $25 premium to stay at an International Hotels Group (IHG – includes Crowne Plazas, Holiday Inns, etc) hotel as opposed to shopping around. Now, the expectations for what one gets at $100/night is much less than for what one gets at $200/night. I don’t know many people that expect to be able to routinely get Intercontinental Hotel nights for $100/night. So maybe this person would be maximally willing to spend up to $150/night to stay at an Intercontinental (breaking their previous budget) because it is a nicer hotel (better value for the money). In this case, the value of the same stay at the Geneva IC is even less, clocking in at $3.75 per 1,000 points.

    So those who are generally less willing to pay for higher end hotel rooms get less value out of hotel points (willingness to spend is a proxy for how much a person values something – i.e. the opportunity cost a person has for that money; we are ignoring for the moment corner solutions in which a person simply does not have enough funds period to buy a theorized hotel room stay).

    In general, I think it’s much wiser to look at a hotel group’s properties, decide on how much you’re generally willing to spend to stay at each level of hotel in the group, then divide by the average cost of redemption in that group (works even better when narrowing this math to likely preferred redemption locations) to create a rule of thumb about how much value each point has.

    For example, person 2 might break down the IHG group as follows:

    (per night willingness to spend)
    $100 max to stay at Holiday Inn Express (typically 15,000) == $6.7 per 1,000
    $125 max to stay at a Holiday Inn (typically 20,000) == $6.25 per 1,000
    $150 max to stay at a Crowne Plaza (typically 25,000) == $6 per 1,000
    $200 max to stay at an Intercontinental (typically 40,000) == $5 per 1,000

    Rough average: $6 per 1,000.

    You also should probably mention that the value of points should incorporate likely earning ratios from a program for the stay’s spend, although I realize your post was already fairly long.

    Comment by Andrew MacDonald on September 8th, 2010 at 3:35 am
  4. Andrew – First there is a fundamental difference between staying at a specific hotel and taking a flight from point A to point B.

    You do not have to be in First Class to fly from San Francisco to Geneva. A flight is needed to get you from point A to point B. Regardless of the airline and the route and class of service, you have lots of options for getting from San Francisco to Geneva. So there is a valid reason for saying the value of a point is not really the cost of a First Class flight. Two people on the same plane get to Geneva and one paid $10,000 to fly in First Class and the other spent $800 for economy. Both arrive at the same time on the same plane.

    Hotels are different. When a conference is happening at a particular hotel, then you may need to be at that specific location. The Holiday Inn across town or a Priceline hotel somewhere in the city may not be an alternative cheaper solution to an outrageously priced hotel.

    When you are spending several days in a city and you need a specific hotel, then regardless of what is being charged you may need to pay for that hotel room to be in the location you need.

    The willingness to spend may not even be a factor. Again you do not have to fly in First Class, but you may have to have a room at a specific hotel (or at least someplace immediately in the vicinity.)

    In regard to incorporating earning ratio and value of points, I took that approach in my article for InsideFlyer April 2010.
    Hyatt and Marriott consistently came out on top when comparing hotel rewards for different cities correlated to the base rate of points earned.

    http://www.insideflyer.com/articles/article.php?key=6053

    But I think you are saying that I should deduct the points not earned for a paid stay from the value of points used for an award stay. I do consider that when I am debating between paying for a hotel or using points.
    I often spend points at hotels I would never consider paying for since they are out of my budget range. So it really isn’t even a factor much of the time because I would not have stayed at the particular hotel if the room were not purchased with points. I am not missing out on an opportunity to earn points from a paid stay.

    Safety and security is a second fundamental difference between air travel and hotel travel. There are certainly cheaper hotel options in Sao Paulo, Brazil but when traveling in some cities I truly enjoy the security of a major hotel. Propping the chair or some furniture in front of the door, measures I have taken for security at night does not create a sense of safety and comfortable sleep.

    The IC Geneve rate is extreme and a reader has indicated evidence this might be a rate entry error. So here is a real example of how price differences have impacted my hotel stays when staying in a specific city.

    Amsterdam is a city where I have stayed at every Marriott, Starwood, Hilton and numerous Priceline and independent hotels. I have never stayed at the IC Amstel. The price of the IC Amstel was always the highest priced hotel of the ones I wanted and way out of my budget range.

    Should I say my 40,000 Priority Club points in my account are not really worth $400 ($10/1,000 points)because I think $400 is too high a rate for the IC Amstel when I can stay at the Hilton for less than $250 per night? That is why I am a loyalty traveler. I can stay at hotels I wouldn’t stay at if I did not have points.

    Elite status and the loss of benefits or upgrade opportunities by not staying with a particular brand is also a major factor for many loyalty travelers.

  5. Sure, I completely understand that there are differences in hotels in the same cities making them not all equally attractive, and that people have different preferences over many of the hotels in the same cities (i.e. some people find Holiday Inns below their comfort level, some consider them their main chain that they prefer to stay in).

    My point is that you have to consider the price premium you are willing to pay to stay in certain hotels absent spending the points to stay there.

    Let’s take your example of the Hilton and the IC in Amsterdam. If you didn’t have points in either program (say you ran out of points but let’s also you expected equal elite treatment at either for the sake of argument), how much more would you be willing to pay to stay at the IC Amstel as compared to the Hilton? $50? $100? $150?

    Whatever that number is (say you would be willing to pay an extra $50 for a total of $300/night) is how much *value* you get out of staying at the IC Amstel. Then the value of your points is $7.5 per 1,000, because you’re getting $300 in value for the points. Unmooring the connection between personal valuation and points gives you ridiculous results otherwise. What if the Amstel was $4,000/night? Would you now say your points were now worth $100 per 1,000? I’m almost certain I’ve never felt like I got $4,000 worth of value out of a hotel night, so why use that number as the numerator in your value equation?

    Let’s consider the question more broadly. I think the essence to understanding valuation is to start thinking about where you’d choose to stay if you didn’t have any points at all (again, let’s assume all elite benefits would apply), and how much you’d be willing to pay. Let’s take San Francisco and a hypothetical weekend stay in mid-November this year. If I didn’t have any points at all and I was looking for a nice weekend getaway, I might be willing to spend about $175ish a night for a hotel room. I would like to be near Union Square area, but would likely not be incredibly picky about location (an area roughly including a few blocks either side of Union Square, plus Nob Hill and Yerba Buena would be fine with me).

    Now, let’s consider the St. Regis on this trip. It’s certainly a nice hotel and I’d love to stay there. However, there are also lots of good 4 star hotels in this area that I’d be more than happy to stay with – the ICs on the weekend in this time of year are usually around $175, often either the Westin or the W can be had for this on the weekend, as can occasionally the Grand Hyatt, all reasonably well located, safe, and acceptable options considering my hypothetical budget (this doesn’t even get into the Kimpton hotel options in the area).

    The St. Regis this hypothetical weekend lists for $400 a night. No way am I going to pay that when I have so many other reasonable options that are close to my budget. At most, I might pay $200 to $225 a night to stay in the St. Regis (nevermind that they would never offer rates that low for the moment).

    Now let’s bring points into the equation for the St. Regis. The St. Regis goes for 20,000 points. According to you, we should calculate the value of the points for that stay based on the $400 (so about $20 per 1,000). I argue that this calculation should be made not based on list price but instead based on personal valuation (i.e., I only value the St. Regis at $200 night, not whatever the list price is). So, based on that, the point value is about $10 per 1,000.

    I argue that this actually captures how much value I’m getting out of my points rather than creating some fictive high valuations based on room rates that (almost) no one would ever actually be willing to pay. If the St. Regis were charging $10,000/night for a base room (say some Middle Eastern Sheik had more or less rented the place out for the weekend), and the other 5 star options nearby in major chains were all $300/night (Mandarin Oriental, Four Seasons, etc), would you still calculate the value of those 20,000 points at $500 per 1,000?

    Maybe I’m wrong, but I suspect most people have a rough idea of a budget per night that they are willing to spend for hotels on most vacation nights (and is obviously variable by person), with some allowances for value/money and elite benefits. I see points as taking the place of spending on those vacation nights, so I have to consider how much money the points are actually displacing (which is roughly in line with my budget for hotel nights). To do that, you have to consider what you would otherwise be willing to pay for the night at that same hotel (which captures your valuation of that hotel night), which depends on your own personal flexibility and the availability of competing options.

    I suppose there are also some that see points as “free” or additional hotel nights that they get in addition to some fixed yearly hotel budget that they have for themselves. But if that’s the case, then there’s no point in considering the monetary value of points because they aren’t displacing money anymore. At that point, you might as well just rank hotels based on personal utils of enjoyment versus redemption cost.

    There are, as you note, some interesting corner cases, when you absolutely have to be at a hotel for a conference or some other engagement, and then the value of the points rises to the cost. Likewise, if you simply cannot afford at any price a hotel night stay (say maybe you lost your job but have lots of points), then this doesn’t serve as a good valuation scheme. But I would argue that this is a much smaller category of redemptions. I’d be willing to bet quite a lot that scenarios like I’ve outlined above in San Francisco, where there is some flexibility regarding hotels and location, is a much more common redemption scenario.

    Comment by Andrew MacDonald on September 8th, 2010 at 7:46 pm
  6. Andrew – I appreciate your thoughts on the value of points. You are taking the value issue into a subjective and philosophical area. I am trying to be pragmatic in guiding people to consider the value of loyalty points in objective terms based on the reality of room rates in various places. As consumers we are faced with the cost of items and whether are personal valuation of the item is more or less does not change the cost set by the seller of the item.

    You state that I have to place my own subjective price premium on the IC Amstel that I would consider acceptable extra cost over the Hilton Amsterdam. I do not see how my personal price premium comes into play here. In real travel I never placed any extra value on the IC Amstel. It was out of range for my personal finances. That is why I never stayed there. I had no points for a free night and the room rates never dropped to a level I would pay.

    The earning side of loyalty program points comes into play here. Say I want to stay at the IC Amstel just for the experience, but I will not pay $400 for a room night to have that experience. Now I can plan to spend $800 over the next eight months on IHG hotels and earn 200,000 Priority Club points through my “Crack the Case” offer and other PC bonus point promotions.
    I can stay five nights next summer at the IC Amstel on 200,000 points. I can plan for my hotel cost to be $800 for 10 nights at an average cost of $80 per night and I will earn 200,000 points for five free hotel nights at the IC Amstel.

    The room rate at the IC Amstel next summer is irrelevant to me. The room can be $800 per night or $200 per night. The only relevant issue to me is the amount I pay to earn the 200,000 points and I have set $800 as my target spend. I am willing to pay $800 to earn 200,000 points and my end goal is to stay five nights at the IC Amstel.

    I believe I can remove the actual hotel room rate from my personal valuation simply because I do have hotel loyalty points I can use in lieu of cash. I would not pay $4,000 per night for the IC Amstel or $400 per night. But I can stay at the IC Amstel using 40,000 points per night.

    The value of those 40,000 points at the IC Amstel is $400 or $4,000 or whatever the hotel is asking for the nights I stay on points. The actual room rate is irrelevant when I pay with points. My personal value for those points is $800 or somewhat less assuming I get some value from the ten nights I stay at IHG hotels to earn 200,000 points.

    In my opinion the value of points when redeeming for a free room is whatever the cash cost would have been to buy the room with cash. My subjective opinion as to whether the hotel is ridiculously priced is not a factor. The hotel sets its room rates and the only two alternatives I have are to pay the cash price or the points price.

    Your argument seems to be I can stay somewhere else that is within my economic comfort zone. Well that was my preferred choice for years until I started working hotel loyalty programs to leverage lots of low cost stays into high value redemptions.

    Now my concern is just the cost of hotels for earning points and the cost of hotel reward nights with the loyalty program. The room rate for a hotel where I am using points is only a consideration when I am seriously debating between using points or paying the room rate. The cost in points is my only consideration when room rates are high priced. (My personal room rate comfort zone for an upper-upscale hotel is about $150 after tax.)

    Hotels do not arbitrarily set room rates. They are businesses who need customers and the room rates they ask are the competitive room rates for the specific city and hotel market segment. If the St. Regis San Francisco charged $10,000 per night while its competitors like Four Seasons and Mandarin Oriental charged $400 per night, then the St. Regis would be out of business before long. Just like airlines price fix with competitors, hotels set rates based on their hotel market competitive set for the location. These rates are usually within 10% of each other for hotels in the same market segment.

    I am one of the people who views hotel reward nights as additional nights I get on top of my annual budget for hotels. By using hotel loyalty programs I can strategically earn points on relatively low cost stays and redeem points for hotels that are in desirable locations, but more than the cost I want to pay.

    Next month I am going to Chicago. Hotel rates in the city are $300+ for the top tier hotels. I could stay in the suburbs for $100 per night and earn points and elite stay credit. I could Priceline downtown Chicago for $100 per night.

    Blowing points for the Park Hyatt, InterContinental Chicago and the Westin Chicago River North are subjective choices since I have never been to Chicago and I want to stay in some of the best hotels in the city. One of my motivational factors for getting into hotel loyalty programs was the opportunity to stay in nice hotels in central city locations. Priceline is a cheaper alternative to loyalty points but loyalty program elite status provides added value for these hotels. I like rooms with a great view and complimentary upgrades.

    Westin Chicago River North is $350 per night after tax or 12,000 points = $29.17/1,000 points.

    Park Hyatt Chicago $533.73 or 22,000 points = $24.26/1,000 points

    IC Chicago $310.54 or 40,000 points = $7.76/1,000 points

    I am not willing to pay the cash rate for any of these hotels. They are beyond my budget. But this is a business vacation and I want to be in the center of the city.

    What is the subjective value of points? That is a complex economic and philosophical question. I am looking at the value of the points objectively by calculating value simply on the basis of cash payment or points payment for a specific hotel.

    In these Loyalty Traveler posts on credit cards and the value of a point, I have used the values generated by Lucky of One Mile at a Time, Plastic IQ and NerdWallet. These three Chicago hotels give better than average point value in these redemptions based on others estimated value of hotel points.

    What is the true value of points? I don’t know.

    I just know that I have enough points to stay at any of these Chicago hotels and my plan is to spend points. The high room rates are irrelevant to me. I will be in downtown Chicago. I may try to Priceline the Conrad Chicago for $90 since I do not have elite status or 50,000 points with HHonors. But even if I get the Conrad for $100 I do not think that lessens the value of my points spent for the other hotels. Each hotel is its own destination.

    There is a scene in the movie ‘Good Will Hunting’ that comes to mind about experience when Robin Williams character Sean the college professor says to Matt Damon’s character Will –

    “Michelangelo, you know a lot about him. Life’s work, political aspirations, him and the pope, sexual orientations, the whole works, right? But I’ll bet you can’t tell me what it smells like in the Sistine Chapel. You’ve never actually stood there and looked up at that beautiful ceiling; seen that..”

    That thought encapsulates the subjective value of staying at a hotel that I might never sleep in if it were not for hotel loyalty points.

  7. I can certainly appreciate the subjective feeling of the value of points, and I think maybe our misunderstanding comes from the fact that we’re coming at this from different directions (and, admittedly, I hadn’t really written about this before).

    Let’s think about why people put value on points in the first place (which is maybe where our disconnect comes from – you seem to be doing it mostly to judge redemption opportunities no?).

    I value points so that I can understand whether it is a good idea to acquire them in the first place, particularly with promotions. I.e. is it a good idea to buy some useless $20 item off of the Priority Club store so that I could earn 4,000 points? Or is it a good idea to buy up to a 10,000 point package for an extra $50 in room rates? The answer for this very much turns on the question of how much a point is worth. I also value points to consider whether I should pay for a stay at a night in a hotel or if I should use points. If a night at the SF IC is running at $200/night, should I use points or should I save my points for a more ‘valuable’ redemption opportunity?

    When making my stay decision, I consider that points will likely displace paid spending on a hotel night (i.e. if I had no points, then I would have to pay money for the night). Here’s where the valuation becomes important. When I’m considering paying extra for more points at some earlier juncture, I have to consider how much spending on that future night those points will displace later to get an accurate valuation.

    You write that there are something ineffable about staying at these higher end hotels that makes it difficult to value the premium of staying in nicer hotels than you could otherwise afford.

    My point is that, for me, from the earning side of points, you have to put a dollar premium on exactly how much extra you’d be willing to stay at that particular hotel (say the IC Amstel) than the competition. (In my previous example, I said that maybe you might pay a $50 premium over the Hilton in Amsterdam to stay at the IC Amstel, although the room rates are $250 and $400. So you’d be willing to pay at most $300 out of pocket to stay a night at the Amstel, hypothetically). Otherwise, you end up getting suckered into paying the full cost of the room you just said you could never afford!

    First, a simple example. Let’s say I absolutely am in love with the St. Regis in San Francisco and want to stay there for my honeymoon – price is no object. Room rates are roughly $400/night. So I should make decisions about how I acquire points based on a valuation of 400/(20000 = redemption cost) = $20 per 1,000. So any opportunity to acquire points for less than $20 per 1,000, I should jump at.

    Now, let’s work through the Amstel example in which price is an object and you wouldn’t be willing to pay the average nightly rate for a night there. You claim the valuation should be based on the room rates, or $400/40,000 for $10/1,0000 for Priority Club points. I claim it should be your willingness to pay. As you said, you’d never pay for the Amstel out of pocket as the rates are unjustifiably high for your budget. So your valuation of a room night (how low the rate would be to entice you to switch from the Hilton if you had no points) at the Amstel has to be less than $400; let’s call it $300 for a valuation of $7.5 per 1,000 PC points.

    Now, let’s consider when we’re earning points for this hypothetical stay we are saving up for. Say you’re going to stay ten different nights at Holiday Inns across the country on a road trip. Let’s also say IHG is running a promotion offering a special point buying package rate for each night whereby you can get an extra 4,000 points for an extra $37.50 in room rate.

    From your valuation strategy for the IC Amstel (the hypothetical hotel for which we are saving up points), we should jump at this point buying opportunity, as we can get points for $9.4 per 1,000, while, according to your valuation of the redemption at the Amstel, we’re getting $10 per 1,000, so it’s a a deal (maybe not a great one, but still coming out ahead, according to your scheme).

    However, at the end of the trip, we’ve now just spent $375 dollars to get enough points to stay in a $400/night hotel room that, at the beginning of the trip, we said was way above our price range (no way we’d stay stay there at $375 a night either)!

    Now look at it using my valuation scheme. I’d look at the 4,000 points for $37.50 and say no way; I’m only willing to spend $300/night to stay in the Amstel max and this is going to cost me $375 so I’m not going to spend the money on these point packages, which I think is the correct way to look at it.

    Admittedly, most of the time us loyalty travelers aren’t directly buying points along the way, but there are lots of paid stays were I will compare an IHG hotel night (I’m an RA) vs. staying at a hotel where I will not earn any points. To get a comparable rate, I subtract off of the IHG hotel rate the amount, in dollar value, the points I expect to earn.

    Again, using your example of a valuation of points based off of the room rate at the Amstel ($10 per 1000), I might be willing to pay up to a $40 premium each night to stay at an IC, because I know I will get 4,000 points from staying at the IC (so those 4000 = $40, according to our valuation). Say I pay $40 extra over the local, non-chain, four star hotel for comparable rooms (including upgrades, etc) for 10 nights, now I’ve just paid $400 for those 40,000 points to stay at the Amstel, which is a rate that, as we stipulated at the beginning, you were never willing to pay in the first place.

    That’s why it’s crucial, when calculating the value of the points when you are earning them, to put the value at what you *would* pay for the room, not what the actual room rate costs.

    Otherwise, if you calculate the value of the points at the actual room rate, you end up making point buying decisions that, effectively, will cost you the actual rate of the room, even if you would have never paid that in the first place.

    Now, if all of one’s earning is done on a company’s dime then this doesn’t necessarily apply since there are few points at which one has to consider the cost of acquiring points. But I think most loyalty travelers have at least some personal paid stays during the year, for which this point about valuation absolutely applies.

    Comment by Andrew MacDonald on September 9th, 2010 at 7:50 pm
  8. We may be getting closer to a common understanding.

    My post focused on the redemption side of the value equation since the credit card sites I had written about this week state points have a certain value based on redemption opportunities. The only earning considered comes from credit card spend.

    Earning points does need a personal point valuation.
    The values used by Lucky and credit card sites are adequate for the estimate of the earning side of the equation.

    This is what I consider when I calculate the value of points earned from a hotel stay.

    For example, Crowne Plaza Hotel costs $100 per night and after tax is $115. This hotel is 25,000 points for a reward night. I do not want to spend points at such a low redemption value of just $4.60/1,000 points.

    There is a consensus that Priority Club points are worth at least $6/1,000 points and I’ll even go higher and say $7/1,000 points. So I do not want to use points for a free night where I only get $4.60/1,000 points redemption value.

    I can pay $115 for the night at the Crowne Plaza. My stay will earn an estimated 4,000 points with whatever promotion is going on during my stay. I value 4,000 Priority Club points at $24 based on Lucky or Nerdwallet or I value that at $28 according to some blogger Ric Garrido.

    I can only value the points of this hotel stay at an estimated $24 or $28 value for a future hotel stay if I am confident I will get that value back.

    My strategy is to make sure I get more than $28 value from future hotel stays. Sure I might spend 25,000 points next month because my parents don’t want to spend $115 for that LAX hotel. But then right after that I redeem 30,000 points for a $430 room at some InterContinental Hotel.

    The value of points increases as you increase the difference between the cost to earn points and cash savings with hotel free night reward redemptions.

    I don’t have clear personal valuations for Priority Club because the program is an oddity. The ease of earning points with combined promotions on a single hotel stay makes it difficult to value points. Points can be earned so cheaply with IHG stays.

    Other hotel loyalty programs are not so generous with points and it is easier to calculate earning potential from hotel stays.

    As far as buying stuff for points. I focus on hotel stays for earning and burning points. I don’t buy much stuff and I don’t worry about points when buying stuff. I get enough points from hotel stays and I typically don’t want to spend the extra time to analyze purchase decisions for points and miles.

    It can be a good strategy. I earned a couple million points and miles in the tech boom (98-01) buying stuff online and I didn’t spend a whole lot of money. Now I just don’t bother with that route too often.

  9. Ric, I agree with Andrew that VALUE is calculated differently, based on what you value that stay as worth. What you are calculating here is MARKET PRICE averted. If you HAVE TO stay at a particular hotel, then they are the same. If the value of staying is less than the price, you won’t stay unless forced. If the value of staying is more than the price, and better than you can get at another hotel, you’ll stay. The value to you of staying at those hotels probably is more than their value to Andrew or I.

    Example:
    Last year, my girlfriend and I were travelling and were using points for nights. Two hotels in the same chain with the same amenities and similar dollar prices in the same city with the same convenience, for us, cost a different amount of points for a stay. Their value was the same for us. The price was different. The higher point priced hotel was near a tourist destination in which we were not interested. To someone who was interested, maybe it would have been a better value, weighed against driving back and forth. By choosing the hotel we did, we achieved both a higher value and a higher averted market price per point used by staying where we did. Even if the other hotel had a rack rate 3 times as much, we would not have received any more value out of staying there, but would have spent 50% more points.

    Your 3 rules are still valid though, both for price and value.

    In fact, as shown in my example, rule 3 has other applications. You can get a better value per point by spending less per value as well as by getting more value for the same number of points.

    This article has great value in expanding thoughts on how to achieve more than average with points. The price is $0 and a few minutes. :-)

  10. Charles – Your comment reminds me of a story I heard yesterday on NPR. A study (Denver?) was conducted on spending patterns and showed households making $70,000 more per year spent 5% more than those making less than $70,000 per year for the same items.

    The rationale is a person weighs cost vs. time. The more money someone makes, then the less time they spend on price comparison shopping.

    Saving time is valued more highly than saving money.

    One of my rationales for using loyalty programs is the time-saving factor of being able to limit my search from 400 hotels in a location to fewer than 20 that are in the loyalty programs and location and price point I desire.

    Sure I may miss some hotel gems in some places, but I don’t want to spend weeks planning a one week vacation. My time is more valuable than that.

    In past years I would often stay in the suburbs of a major city at a hotel for 25% of the cost of being downtown.

    These days I want to be in the center of activity and I am more likely to splurge on points redemption and get a top hotel. It certainly helps that I can then get a Loyalty Traveler article out of my stay.

    I am still more price sensitive than time sensitive for most of my travel. That is why I spend lots of time racking up points in the suburbs so when I go to the big city I can stay for free.

    Though I still comparison shop and look for the best value for my points within the parameters of my trip objectives.

  11. [...] Loyalty Traveler’s Three Rules for the Value of Hotel Points (Sep 7) This entry was posted in Check Out Desk. Bookmark the permalink. ← Loyalty Traveler 2011 HELP Sheet#2 – Current Hotel Loyalty Promotions and Rate Discount Links [...]

  12. There are also articles by the neo-economists about price sensitivity. Some folks, regardless of how much they make, are more sensitive to how much something costs, so marketers can get them to modify their behaviour to save money. This allows the marketers to fill the slots that the price insensitive folks wouldn’t fill – e.g. red-eye flights, off season, early bird specials, etc.

    I’m finding that, as I accumulate more points/miles, my aspirations are increasing. It is also getting easier for me to accumulate those points/miles, so my time spent stays the same or drops even though I’m moving up the scale. I think these you are already quite far along with these two factors and they combine so that you take a higher priced award night over multiple award nights at a lower valued hotel. My nephew is going on a road trip with his family and while he may enjoy a room that cost 30K points, he’d much rather have 4-5 nights that cost 6K-7.5K each. Free breakfasts is probably all he would be willing to spend more points for.

    I really feel your point about the time-saving factor. Though that happens when you have no loyalty also. It is just based on price or amenities, so you don’t have to do the point value computations to determine if something is worthwhile. I recently booked an award flight where I was checking out the redemption possibilities for 6 different airlines and comparing them to the cost of buying a ticket. I ended up finding the a saver award that had just about perfect times versus standard awards mainly with bad times. It took more time than I had expected and I probably would have bought a ticket if they hadn’t been 50% more than I was expecting. If I only had miles in one program, the comparison would have been much quicker.

    I do find the values others place on points/miles useful as goals to meet or exceed. I’m also striving to beat my own achievements in awards.

    Thanks for the articles. I really appreciate your mathematical approach.

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