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Tuesday, March 19, 2013

The True Value of Miles and Points Part Two



I wrote in the past about the value of points and why I thought the “experts” were wrong.  My position on the subject had to do with how each of us makes an unconscious decision when purchasing an item with cash based on what we intuitively know is the value of a dollar.  Each of us has our own perspective on what that is based on our past experiences.  The value of a point or mile is not so clearly understood by most of us.  Some of the “experts” have tried to put a value of a particular program's point or mile based on the average of the many types of possible redemptions.  The problem with this approach is that there is so much variation in redemption methods, so many ways to acquire points, and different subjective values that each of us place on different types of travel, so as to render their valuations almost worthless for an individual.

I propose a different way to look at this situation.  I am a Cosmetic Dentist and have no formal business training, but I do run a small business.  All businesses have a cost to acquire goods, and a price at which they sell their product.  The difference is our profit. 

If we look at miles and points in the same way, it gives a much more accurate “value” to each mile or point.  In my opinion, Starwood points are valuable points when you go to redeem them, but they have a high acquisition cost.  The ONLY ways other than a sign up bonus to earn Starpoints is 1:1 spending on a credit card or by staying at a Starwood property.  On the other hand, Ultimate reward points and Hilton points are very EASY to earn in large quantities due to the multipliers for certain spending categories.  The cost of acquiring those points is relatively low.  I can go into an office supply store and “buy” 10,000 UR points for around $20 by purchasing $2000 in gift cards to be redeemed at a later date. Now that’s not the only cost of those points, but surely the “cost” to buy 10,000 Starpoints is several orders of magnitude higher. 

Depending on how we PERSONALLY redeem our miles and points, will determine how much “profit” we have. This is the unconscious decision making process we use to determine, should I pay with points and miles, or should I put it on my credit card?  If we have a large “profit” from the redemption of points, we use points.  If not, it may make sense for us to charge it.  Each person redeems their points and miles differently.  If someone ONLY redeems their points and miles for aspirational first class travel, they are going to have a much higher profit margin on their redemptions than someone who uses their points and miles for budget domestic travel.  How does an individual determine the value of staying in a suite or flying first class?  I’ve heard some well respected bloggers say “even though this hotel room costs $500/night, I value this hotel redemption at $300/night because I would never pay more than that for a room so I wouldn't stay here if it weren't for the points.  How subjective is that? I've heard one young blogger say he doesn't like to redeem his Starpoints, because they are so valuable.  What he is saying is that they are really hard to earn back once they are gone, so he spends them very carefully. The real test of value is which points do you redeem most often?  For me, It’s UR points.  They are so easy to earn, that I don’t mind spending them. I know I just need a trip to the office supply store to earn them back!

The bottom line is that each of us has different preferences in our travel, and differences in the way we earn and redeem points.  If we look at the situation from the perspective of how much did it cost to acquire the points and how much perceived value we are getting from the redemption, then this seems to be a more accurate way to place true value. 


About The Points Doctor

The Points Doctor is Bruce J. Wilderman DDS of Artistic Expressions Dentistry.Dr. Wilderman has a practice limited to Cosmetic Dentistry, serving patients of the Philadelphia Area since 1986.He and wife of 30 years enjoy traveling the world for little or no money with the points and miles they have earned from the credit card companies. Dr. Wilderman would love to teach you how to do the same. You may reach him at ThePointsDoctor@comcast.net





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