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

37

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!