## Ben is wrong. Gary is right. Neither is helpful.

If you regularly read View from the Wing or One Mile at a Time you know that Gary and Ben have been duking it out lately regarding the value of Hilton points.  Gary thinks Hilton points are worth about half a cent each whereas Ben thinks they’re worth about .8 cents each.  If you’re interested in catching up on the debate, follow these links for the blow by blow:

I find this debate interesting not because I’m looking for the right answer for what a Hilton point is worth, but because it highlights different ways of thinking about what points are worth. This is a very important topic because people need to know what points are worth.  The information is needed to help decide which cards to signup for (how much are the signup bonuses worth?), whether to buy points during special promotions, which cards to use for day to day spend, and whether an award is a good value.

Ben and Gary have very different ways of thinking about the value of points.  For example, Ben says:

Points are only worth what you’d otherwise pay for a product, and not the retail cost.

Whereas Gary says:

[T]he value of a loyalty program point, expressed in dollars (cents), is the amount at which you are indifferent between holding points and holding cash.

I think that Ben is wrong, Gary is right, but neither is helpful.  Read on:

### Ben is wrong

Ben’s argument sounds reasonable.  He argues that when you redeem points for an experience (flight, hotel, etc.), the points are worth whatever you would have been willing to pay for a similar experience.  So, if you spend 30,000 points for a hotel night in a city where you would have been willing to pay \$300 for a similar experience, you can then say that your points were worth 1 cent each.  That much is true.  I agree with Ben there.  But that formula is looking at only how much the points are worth for a specific redemption.  It says nothing about the value of points sitting in your account.

The value of a point is not the same as its redemption value.

Take a coupon as an analogy.  Lets say you pay \$1 to download a coupon from the internet and you redeem it for \$100 off something you would have bought anyway.  In that case, the redemption value of the coupon was \$100.  Does that mean that similar coupons are worth \$100 each?  No!  Since the coupon is readily available for \$1, its value is, at most, \$1.  It can be worth \$100 when redeemed, but not when it is sitting on a shelf.

### Gary is right

I’ll repeat Gary’s definition: “[T]he value of a loyalty program point, expressed in dollars (cents), is the amount at which you are indifferent between holding points and holding cash.”  I agree with this statement.  In simpler terms, points are worth the minimum amount you’d be willing to pay for them.  I know that’s not exactly what Gary said, but I’d argue that it’s close enough for this debate.  So, if we go back to the coupon analogy, you surely wouldn’t be willing to pay more than \$1 for this coupon since it is readily available for a \$1.  However, depending on what the coupon is for, you may not even be willing to pay that much.  How much is this fictional coupon worth?  It’s worth the amount you’re willing to pay: somewhere between zero and \$1.

Ben gave us a way of estimating the value of points for specific redemptions, but said nothing about the acquisition value of points.  Ben’s definition actually is helpful when trying to decide whether a specific redemption is a good idea, but its not terribly helpful when trying to decide whether to acquire points in the first place.  Gary defined the value of points as (loosely) the amount you’d be willing to pay for them.  That’s great and I agree with it, but it doesn’t help!  If you know how much you’d be willing to pay for points, then you already know their value.  For people looking to bloggers for help, this doesn’t help.

### Another solution

Instead of looking at how much you’d be willing to pay for points, how about looking at how much people already pay for points, all the time?  I’m not talking about the price that loyalty programs charge for buying their points – that’s almost always an over-inflated price.  Instead, I mean that when people use reward credit cards for earning points, they are actually paying for those points and we can estimate how much!

Huh?  Aren’t points free when they come from credit card spend?

No!  When you use a point-earning credit card to make purchases, you are giving up the opportunity to use a cash-back credit card instead.  Arguably, the best cash-back credit cards give 2% cash back on all purchases.  So, by using a point-earning credit card, you are giving up 2% cash back and implicitly buying points.  For more explanation about this, please see “The Cost of Credit Card Points”.  I’m not saying that it is a bad value to use a point earning credit card.  Not at all!  I’m simply saying that there is a price to using one (the loss of 2% cash) and we can use that information to estimate the value of points.

### Estimating Value

In my original post on this topic, “Fair Trading Prices for Points and Miles,” I explained these concepts, and I used some of the best points-earning credit cards available as a basis for estimating point values (American Express SPG, Chase Sapphire Preferred, American Express Premier Rewards Gold, and Hilton Honors Surpass).  This approach worked well to estimate the value of airline miles, but fell short for estimating hotel points.  I revised the hotel estimates in the post “Fairer hotel trading prices”.  You can always find my latest estimates in the “Fair Trading Prices” page which can be found in the Resources menu at the top of every Frequent Miler post.

Many people find the Fair Trading Prices charts confusing.  Why does the table value United miles at only 1.31 cents if we can easily get 2 cents or more value from the points?  The reason is that these charts ignore redemption value.  They are based entirely on an estimate of how much it usually costs to acquire the points.  Still confused?  Please read “Fair trading prices explained.”

### Back to Hilton (or “Gary is right again”)

Gary estimates the value of Hilton points at half a cent each.  My Fair Trading Prices chart estimates the value at .48 cents – almost exactly the same as Gary’s estimate.  Gary’s estimate came from his experience with using Hilton points: he is sure he can always get half a cent or more value from the points.  My value comes from estimating the points that would be earned using the Hilton Honors Surpass card for daily spend instead of a 2% cash back card.  It’s really just a cool coincidence that our numbers match.

### Sorry Ben and Gary

Despite the title of this post, Ben and Gary have terrific and very helpful blogs.  If you don’t already read them, I highly recommend you do!

### Related Posts and Pages

#### About Greg The Frequent Miler

Greg is the owner, founder, and primary author of the Frequent Miler. He earns millions of points and miles each year, mostly without flying, and dedicates this blog to teaching others how to do the same.

More articles by Greg The Frequent Miler »

### Pingbacks

1. […] value of a mile started when Gary and Ben disagreed about the value of a Hilton Point. Yesterday, Frequent Miler weighed […]

1. “Gary defined the value of points as (loosely) the amount you’d be willing to pay for them. That’s great and I agree with it, but it doesn’t help! If you know how much you’d be willing to pay for points, then you already know their value.”

Except that I did explain how much it’s worth paying for an HHonors point (up to half a cent apiece) as you observe.

I didn’t give a chart currency-by-currency. But that wasn’t the point. Start with HHonors points, which is what Ben picked a blogfight with me over, explain the value of those at half a cent apiece, and then offer a framework as to why that’s the case.

The framework can then be applied to other points currencies as well.

I can pretty much always turn HHonors points back into cash at at least half a cent apiece by spending points instead of money for a hotel stay. So for folks that stay in hotels, they’ll be able to get their money back at a minimum whenever they wish or need to, but have the ability to profit by generating a higher rate of return.

2. And thanks for the recommend — as you can see, I read you too!

3. LR says:

I Totally agree with you. I posted on Gary’s blog, that his valuation was spot on, but that wasn’t the point. The way to value a “commodity” like points, is to view the “opportunity cost”. In economics, opportunity cost means the next best option.

You define this opportunity cost as 2% cash back. This is reasonable, since nearly everyone has access to this “next best option”. HH points have to be the most overrated points in the FFlyer world. I value them at .5 cents as well

4. Gary: My point was that your framework isn’t helpful since readers can’t apply it without a great amount of experience. However, I agree 100% that it’s a good framework for you to use to develop a chart. If you do so and find valuations higher than mine, then those are great candidates for earning points through credit card spend or through hotel stays because it means that the redemption value is safely higher than the acquisition cost.

5. LR: thanks! Yes, opportunity cost is exactly what I’m talking about!

6. MDDCFlyer says:

Without flaming the discussion even further (I hate calling it a blogflight – such a negative connotation to use to describe healthy disagreements), I think in a sense, both Gary and Ben are correct.

Gary is correct with his definition – but it is what I would call the “floor definition”. Points cannot worth less than what the indifferent point with cash facing the choice of getting points or getting cash. That is the minimum value on points. This is the indifferent point at the time of earning.

Ben is correct with his definition – when you actually use points the value you can get from them should be greater than the minimum value. This is another indifferent point, just at the time of spending. Now, of course, the problem here, as you well pointed out, is that this value is highly subjective. The utilization of point instead of cash depends on many factors, but should never be below the minimum value of points. The savvy user can drive value much higher than the minimum value.

You have to look at both side of the equation – earning and utilizing. If you think about, if both sides are equal – there is not much use for points (assuming the majority of them do not come from actual travel/hotel stays but otherwise “bought” (i.e., credit card expenditure)). If the valuation of earning and utilization are the same, you will be indifferent for paying in cash all the times – and we know that this not the case.

7. I love all you guys and think this is great. Blog-fight is a fine terms as this is more a pillow-fight (ok not a picture I want in my head sorry) between 3 GREAT friends who want to make us think. Is that not the point for all 3 of you? We have these valuable “things” called points and how to use them best is what you all want us to do. So, Ben, Gary, Greg – a BIG DELTA POINTS THANK YOU ALL! – René

8. Much2do says:

I have read their postings, and personally, I cant say that I have made up my mind on who makes more sense, or how much those points are really worth to me. However, these discussions and debates are (at least for me) super helpful. I can see it from different angles and thats a positive thing. This is exactly the reason why I visit these sites, to get new perspectives and ideas. am I the only one? who cares. Thanks for all the pstings anyway.

9. G says:

This may be one area in which we infrequent travelers have and advantage. Small timers often operate on shorter-term goals. Assuming I know that I want to stay at Hotel X, and I know awards are available, all I have to do is figure out how much it costs to buy the points, and how much value I will get in return. If you know the value is higher than the cost, you are free to ask yourself a subjective question that is very close to Gary’s line of reasoning: Would I enjoy the experience of staying in Hotel X more than having the money I paid for the points.
Frequent travelers amass so many points, they must be thinking several redemptions into the future, which, I would think, could make these simple decisions more complicated.

10. sil says:

I used 35k Priority Club points to book for the Crown Plaza Amsterdam City centre which cost \$434 U.S per night for June 20, 2013. Is this a good redemption? Is PC points worth more or less than Hilton Points?

11. boilers says:

If the value of the point/mile were the same as what you would be we would all have cash back cards. That is the issue. To me it is flawed logic and thus does’t hold during the argument.

12. Greg says:

Great article. It made the debate crystal clear now.

13. sil: To me, yes, that is an excellent redemption. According to my Fair Trading Price chart, Priority Club points have a trading price of .56 cents each. You got 1.24 cents redemption value from your points which is excellent. To Ben’s point, though, you might want to compare to the amount you would have realistically paid for a hotel night (rather than comparing to the Crown Plaza’s usual rate). Let’s say you would have been willing to pay \$300. In that case, you can say you got .85 cents value per point which is still better than the Fair Trading Price so that is good too.

14. cjpat44 says:

Why can’t they both be right? In most cases, isn’t the minimum amount of cash you would pay for a point going to be equal to what you would otherwise pay for the redemption product?

And by anchoring the value of points to a 2% cash back card, aren’t you ignoring the fact that (at least from an “everyman” standpoint) most points are accrued through sign-up bonuses, rather than everyday spend. In other words, \$5,000 right now can either get you 30,000 SPG points OR can get you roughly 240,000 Hhonors points through the Virgin and two Hawaiian cards OR can get you a couple hundred dollars through a Discover card sign-up.

15. boilers: That’s true. You buy a coupon only if you think you’ll save a lot more money than the cost of the coupon. Same with points. You acquire points only if you think the redemption value will be higher than the acquisition value. I think Hilton points are worth .48 cents each in the same way that my hypothetical coupon is worth \$1: in both cases, that is the usual price for acquisition. And, in both cases, you can hopefully get much more value from those things when you redeem them.

16. cjpat44: I don’t think the minimum you’d be willing to pay for a point is equal to the redemption value. There is no reason to buy points unless you’ll get more in return. Regarding the “everyman” standpoint: I’d contend that the vast majority of people (outside of those who read this blog!) get their points through credit card spend. So, I do think that my estimates are close to the “usual going rate” for points. Those that get points through sign-up bonuses are getting points at a much lower rate which is fantastic.

17. Pat O says:

What about for those of us who only get Hilton cards for the signup bonus and then stop using it?

I would also agrue the opportunity cost to be 5x Sapphire points using the Ink Bold at OD (which we all some what agree are worth \$.02/point or 10% back in a “travel” savings account…much higher than 2% in cash).

Definitely a great read all 3 of you!

18. I think this was well said! I think Gary started to touch this point when he asked about revealed preference (how much spending was actually put on each card, but didn’t carry it through to other possibilities). Also, Gary’s definition of value is also opportunity cost…it’s just the opportunity cost of having cash vs having 2% back. You can’t really argue which is better, but I do agree that weighing it against 2% back is more useful to most people.

Weighing it against 2% back might be somewhat flawed as well, because the earning 2% that situation earning points for spending I generally was doing anyway (just a matter of deciding which CC to put things on) vs. spending money directly for the points. My personal methodology is basically to generally look at my lowest value redemptions (since i’m usually picky about what I would redeem points for), and value the points maybe 25% below that lowest value redemption. however, I honestly don’t have much experience with redeeming Hilton.

19. cjpat44 says:

FM: oh, I think I mispoke.

I meant, that the minimum you’d be willing to pay for a given amount of points is prima facie equal to what you would otherwise pay for the end redemption product. If it were not this way, you wouldn’t acquire in the first place, and would not redeem in the second.

Gary is right in that the value of a point is the amount at which you are indifferent between holding points and holding cash, otherwise you would never acquire. But that amount is also equal to the personal (not retail) value you receive on a redemption, otherwise you would never redeem! The whole point of the thing is that YOU DO NOT HAVE THE OPTION OF PAYING YOUR PERSONAL VALUE FOR AN AWARD REDEMPTION IN CASH, OR ELSE YOU WOULD DO SO AND WOULD NOT BOTHER TO EVER ACQUIRE THE POINTS.

And, haha, yes, I meant the “everyman” reading your blog, not the everyman on the street. I think that most of us in this informed minority do not spend much beyond sign-up bonuses. But your point is taken.

20. Big Skinny says:

I recently booked 12 nights at the Hilton Northolme in the Seychelles. Normally \$900 per night, for 450,000 points. By my calculation that’s 2.4 cents per point. I agree that most Hiltons have crummy redemption value. But at the high end, the points are extremely valuable. I’ve also stayed at the Conrad Tokyo (\$650/night), which is another great value. Stick to the highest end on Hilton points and you’ll be happy. Use SPG for middle-tier hotels. For cheap ones, use Priceline. That’s my conclusion after being in this game a little over a year.

21. Egor says:

I have 2 points:
1. I do not consider points earned from spent on credit card as readily available. That would be true if you can by something and resell it at under 2% undercut easily. That’s not the case
2. FTP is probably ok when when deciding if you want to buy points during some promotion (althrough see 1), but it is not value of the point per se. Suppose we have 2 loyality programs (A and B), each offers same redemption, A for 20k points, B for 30k points. Also A offers 2 points per \$ spent on credit card while B offers 1 point. Hence FTP of A is 1 cent and FTP of B is 2 cents. But if through some promotion you can choose between 20k A points (worth \$200 through) and 20k B points (worth \$400) you should still select A points. Here Gary’s way to evaluate points differs from yours and I think Gary’s is right (through I still think he values Hilton points incorrectly and Ben’s price closer to real value)

22. Truthiness says:

Under your analysis of the 2% cashback theory, what’s an SPG point worth?

23. Egor: sorry if I’m being dense, but I don’t understand how Gary and I would reach different conclusions in your example. Can you explain?

24. Arlington Traveler says:

I am a little confused. I understnad the part about the opportunity costs of earning miles/points is giving up the 2 percent you could get with a cash back credit card. Where I lose you is on how you calculate the opportunity costs. I have the no annual fee Hilton Amex card. It earns 6x points on some purchases (gasoline, groceries, drug stores, cable/wireless,telephone bills, HHonors properties) and 3x points on everythign else. So my question, is how to you build the assumption on valuing the HHonors points when the number of HHonors points earned per dollar of spendin is something between 3 and 6? Your valuation implies it is something less than 4 points per dollar. However, for me it is close to 6x points because I try only to use my Hilton Amex on categories where I earn 6x points.

• Arlington Traveler: I have a spreadsheet in which I make assumptions about the % of spend people will make in various categories (groceries, gas, etc.) and I use that to estimate the opportunity cost. I know it’s not perfect, but I feel its better than nothing! I understand that it is a better strategy to use different cards for different types of spend, but then you can’t really compare to a 2% cash back card: instead you should compare to a 6% cash back card for groceries + 5% cash back for certain other categories, etc. It’s much simpler to assume that people use one card for all spend and calculate the opportunity cost that way.

25. Egor says:

Well, let’s say that redemption (20k points in A, 30k points in B) is actually \$600. Then Gary’s value of A point would be a little bit less than 3 cents and value of B point a little less than 2 cents (as this is indifference to holding a cash point). While your valuation ignores redemption cost compeletely if I understand it correctly

26. FM, you could not be more right about one thing: there is an opportunity cost to earning miles. You are not earning the 2% cash back. This is crucial and oft-overlooked, so I’m glad you add it to the discussion.

That said, there are a lot of ways to value. I lean more toward redemption value than acquisition value for miles/points. Miles are worth what I get from them. Just because miles are worth that, doesn’t mean I would buy them for their value. Your fair trading prices show that they can be bought much more cheaply, and I am rational, so I would buy them at their lower price.

But I also cap the value of my redemptions at the cost of the cash equivalent. For instance, if I were flying somewhere to propose to the love of my life, I might value the ticket at \$10k. If it’s being sold for \$200, though, I value the award at the lesser of my value and the cash price. In this case, \$200.

27. Christian says:

The reason that Ben’s valuation of 0.8 cents per point is wrong is that it fails to discount the risk involved with holding points vs. holding cash. Most points are not transferable (without paying a premium) and can expire (unlike cash). Both cash and points face the possibility of devaluation however, points face a greater risk in this regard.

Secondly, Ben and Gary need to distinguish what kind of value they are attempting attach to the points. As an appraiser of real estate, I sense that Ben is more accurately trying to determine the typical investment value of a point while Gary’s definition has more in common with the typical market value.

28. Christian says:

I’m assuming the only way to truly know the average redemption value of a Hilton point is to have someone at Hilton add up the total dollar amount that all of Hilton’s properties were paid over a given time from Hilton for accepting award redemptions and divide this by the total number of Hilton points used for the redemptions. After determining the average redemption value, you would discount this value to make the Hilton point a “cash equivalent” as a market value.

29. tony says:

I think as long as you’re happy with your redemptions, you win. I spent 270k hhonors points on a 8 day trip to London & Edinburgh. Since I like city center hotels the room cost was high. With the exchange rate my cost would have been around \$3000. There is no way I could have afforded to pay that. I wouldn’t have been able to go on my trip there at all without the points. They were accumulated mostly from spend over about 3 years. I’ve now diversified and divide my spend between hhonors and chase UR points. I couldn’t really say what the exact value is of a hilton or UR point but I do know that without spend bonuses, my paltry spend wouldn’t accomplish much.

That’s what makes a dollar spent on those cards worth more to me than an spg point. I max out the bonuses, 6 hh or 5 UR whenever possible. I look at where I want to go, figure how much I would have to spend to make it work and go from there. Figuring out the exact cents per point would take a lot of the fun out of things.

30. discrep says:

FM: I think your coupon analogy is a bit off because in most of our cases, if we did not have the coupon (points), we would not be buying the product we could redeem them for (expensive flights/hotels).

It also illustrates a greater point that hotel value is incredibly hard to quantify for a broad audience as the range of perceived value goes from \$0 to an absurd number. Airfare is much easier to value because the floor is set by the lowest available price in the lowest class of service available. Because you must get from point A to B, you are willing to part with a reasonable sum of money, or in the event that price-to-points ratio works in your favor, a reasonable sum of points. Because the floor never reaches absurd levels, the value can be determined to be some median between the worst redemption ratio and the best.

The value of a stay, however, can vary wildly. My personal value of a hotel room is generally no greater than \$100. When planning vacations, I will look for the best value near that price point. Couchsurfers would value hotels at near \$0.

If I were in front of the Conrad Hong Kong and you asked me if I’d rather have 145,000 hilton points or \$725, I’d take the money and go find a cheaper hotel and have spending cash. At \$500, I might waver, so I guess they’re worth 0.35 cents each to me. Both Ben and Gary mentioned this in their arguments. Ben is willing to pay \$300 per night for a top end hotel while it was no more than \$200 for Gary, thus their differences in valuation.

Here’s a question: If the Ink Bold/Plus didn’t exist, and you didn’t have any minimum spends to meet, which card would you put your 1x spend on?

• Would the coupon analogy be better if it were a coupon for three nights at any hotel in the world? Let’s say the coupon freely trades for \$1000. I’d argue that the coupon is worth \$1000. Now, you can get much more perceived value from the coupon when you redeem it (or you can get less), but that doesn’t change the fact that it is worth exactly \$1000. That being said, you may value the coupon at more than it is worth (that’s why you would buy it, after all). The coupon may have more than \$1000 value to you because you know you can redeem it for three incredible nights at a \$5000/night hotel and you value that experience at more than \$1000 (but maybe not as much as \$5000). So, back to points… Points have some market worth that I’ve tried to estimate via Fair Trading Prices. The value of the points to you depends upon how you will redeem them and how much you value those redemptions. The best points are those that you acquire cheaply and redeem for the highest possible perceived value.

31. matt says:

I’d say Ben and Gary are both right, and your analysis is related, but different.

Ben and Gary discuss what points are worth to them, and that value is related to what they can be exchanged for and how liquid they are. That’s how you come up with a valuation for points – on the redemption side, with some accounting for the lost flexibility vs. cash. Ben’s thinking is what ultimately arrived at Gary’s number, with Gary valuing the flexibility of cash more highly than Ben.

You address solely the acquisition cost (and in a way I consider somewhat meaningless as most people can’t put arbitrary spend on credit cards) – important, but more in a “is this a program that I can leverage” kind of way.

Your so-called “fair trading” prices are fine for evaluating the earn side of credit cards. I don’t think it’s appropriate to extend them into point valuation, as they’re the wrong tool for the job. Absent easy, straightforward points purchasing like you can get at Priority club for .7 cents all day long, the opportunity cost for acquisition is not a good proxy for point value imo.

Cost and value are different.

32. Eric says:

There is also the factor of points that one acquires completely free (from work trips), and how much of the balance comes from those. Some years I accrue tons of hotel points through work travel.

All in all, I don’t worry about affixing numbers in “aveage fixed” rate sense that is being debated. It can be so situation dependent, both with the destination, what is available in that area with which hotel chain, how much I have to budget on lodging during that particular trip, etc. Availability – both in location and in award nights – is a factor, too – and personally Hilton has been fairly poor in my experience the past couple years. YMMV of course!

33. Zeppox on flyertalk says:

You’re all wrong.
If one is using points/miles well, they are PRICELESS.
I have taken my family on fabulous vacations and long weekends two to four times per year for 20 years using points and/or miles. Vacations that we could not afford to pay for. Hawaii, Disney World, beaches, big cities, Grand Canyon, etc.
Sometimes the money value per point/mile has been ridiculously low, by standards expressed in this thread.
But my calculation is like this: the value to me is priceless, so the value per point is infinity.
You don’t believe, me? Ask my daughter or my wife.
Bottom line: get what you want and forget the math.