Yesterday One Mile at a Time decided to throw down with me over my comparison of the value of Starwood and Hilton HHonors points.
Roughly speaking, as summarized by Ben, he thinks that a Starwood point is worth a little less than 3 Hilton points, I think a Starwood point is worth about four Hilton points.
That doesn’t seem like a huge difference but it actually is. It’s the difference between the Starwood Preferred Guest American Express (which earns 1 Starpoint per dollar) being a better card for everyday, un-bonused spend than the Citi Hilton Reserve Visa (which earns 3 Hilton points per dollar), or vice versa.
Plus, it’s a blogfight. So it really matters(tm).
But let’s put it another way. I think a Hilton point is worth between 0.5 and 0.6 cents, he thinks it’s worth at least 1/3rd more:
I think Gary is spot on in his valuation of Starpoints. I just believe that he’s substantially undervaluing Hilton points, and that my valuation of 0.8 cents per point is a conservative one.
Here’s Ben’s argument. He takes the very best discounted Hilton award redemptions, and the most expensive properties, that are effectively underpriced by Hilton HHonors. And he says you can get really great value out of your Hilton HHonors points that way. I agree.
One of the things that I really like about Hilton is that their best properties which are not part of the Waldorf=Astoria brand are 50,000 points per night. I get aspirational hotels for the same points price as the Doubletree in Manhattan.
His first example is the Conrad Koh Samui in Thailand, a property where the base level room is a standalone ocean villa with its own pool. And that is exactly how I love to be able to redeem my own points. In fact, I did redeem my own points there for a fantastic stay in November. I even managed to get a two-bedroom villa, one of the best rooms I’ve ever had. Anywhere.
But this completely misses the point. You do not value a point based on the published price of the best possible redemption you can get.
I may be able to get 1.6 cents of ‘value’ for a Hilton point at the Conrad Koh Samui. But unless I was actually going to spend $800 per night to stay there, I haven’t ‘saved’ myself $800 and therefore my Hilton points spent on the room weren’t really ‘worth’ $800 (or 1.6 cents a point).
Instead, the value of a loyalty program point, expressed in dollars (cents), is the amount at which you are indifferent between holding points and holding cash.
When Hilton HHonors points were on sale as part of the Discover America Daily Getaways at half a cent apiece I said to give it a miss. Basically the points were on sale at half a cent, I valued them at half a cent, not a bargain, why switch out your cash for points?
On Wednesday, April 25 you can buy Hilton HHonors points for about $0.005 apiece. On the whole, that’s what they’re worth, it’s a pretty standard redemption value, I usually shoot for about a penny apiece and have gotten as much as about 3-4 cents apiece on top end redemptions. But those only come from booking Hilton’s most expensive properties on points. So unless you’re looking for something like the Conrad Koh Samui, on a mult-night stay as an elite (which conveys a redemption discount) then I’d probably give this one a miss. On the other hand, it’s unlikely you’ll do worse than half a cent a point in redemption value, unless you try really hard, so you won’t take it on the chin if you do it
In other words, half a cent is basically my indifference point. I know I can get half a cent of value out of my Hilton points, so at that point it’s as good as holding cash. Since I can replace cash on pretty much any given Hilton stay and each point will be worth about half a cent when I do so.
It isn’t that I can’t do better. I can and I do. The reason I spend 5 nights at the Conrad Koh Samui paying 200,000 points is because I calculated my stay ‘cost me’ $1000 or $200 per night. I was willing to spend $200 a night to stay there, I wasn’t going to spend $800 to do so.
But comparing to the priciest redemptions you can find makes no sense. And remember that cash can be used to cover almost any obligation. Points can only be used for travel (or at a huge discount, merchandise, etc. etc. but it’s a limited set of options).
Cash earns a rate of return, while points only get less valuable over time. And your redemptions are in the future, there’s both time and risk, a given property may change hotel brands by the time you want to redeem your points down the road.
The relevant metric is, when putting a value on points, at what price would you buy points? If you did a consulting project, at what price (leaving aside tax issues) would you not care whether the client paid you in cash or points?
Here’s a question for Lucky:
- How much have you spent this year on the Starwood American Express and how much have you spent on a Hilton credit card? That’s called revealed preference.
And of course what we’re interested in is what actual behavior says about how much you value each point. So I want to know how much you’ve spent in un-bonused charges. (And don’t tell me you’ve put $40,000 on a Hilton Surpass American Express to earn Diamond status — that’s about the value of an elite level, not about how much the HHonors points you earned are worth.)
Pretty much every day of the week you’ll find the average Hilton property redeemable at about half a cent per point. So you can unload your Hilton points and get that much value back. Shoot for more, to be sure. But don’t delude yourself into thinking that if you have a million Hilton points in the bank that it’s the same thing as having $10,000 in real money. It’s more like half that.
Who’s right here, me or Lucky? And more importantly, is there a prize?