I have booked on numerous occasions a Marriott-brand venue when across the street was a Hyatt, Hilton, or Starwood that was likely of the same quality of room/service yet less expensive. Having made this choice (a poor economic choice?), I invested extra dollars to stay at Marriott; my reward? Marriott points as I am a points-hoarder and driven too often to earn points versus rational monetary thinking. (Can other MRI readers say the same?)
Therefore, I postulate the following:
Loyalty points should be valued at acquisition cost rather than redemption cost.
Have some fun - play along with me and see if you come up with the same results ==> I logged on to TripAdvisor and investigated the following:
I found the hotel at which I will be staying in mid-March (a Hilton Garden Inn) which is rated 4.5 bullets, is #8 of 98, and is priced at $159 per night. Within a half-mile is a Courtyard/Residence Inn combo venue which are both rated 4.5 bullets, are #1 & #4 respectively of 98, and are priced at $159/$209 per night. Consequently, I have a choice between brands located at approximately the same part of town and rated by hundreds as essentially the same quality.
Currently, under both MR and HH programs for top-tiered members, over five nights, the following:
Hilton: 15,900 points and $795 pretax
Residence Inn: 9,938 points and $795 pretax
Courtyard: 20,900 points and $1045 pretax
How to value the points:
Hilton cost same as RI, so the 15,900 points cost zero cents when viewed against folio cost
Courtyard cost $250 more that Hilton, consequently the 20,900 points cost 1.196 cents each
Residence Inn: since CY:RI has a 20,900:9938 ratio (2.103), then the 9938 RI points cost 1.196 X 2.103 = 2.516 cents each
At the end of the stay, my Hilton points were freebies as for me to have earned CY points would have cost me $250 to do so; had the stay been at the RI where folio costs were the same, those points would have cost the most at over 2 1/2 cents each.
Finally (and hypothetically), Priceline may have found me "Stay Cheap Hotel" a 3-bullet hotel a few miles away (less convenient and not as highly rated and no points earned) at 5-nights for $350; consequently the points cost for all venues would have been:
Hilton cost $445 more than SCH, so the 15,900 points cost 2.799 cents each
Courtyard cost $695 more that SCH, consequently the 20,900 points cost 3.325 cents each
Residence Inn: $445 more than SCH,consequently the 9938 points cost 1.196 X 2.103 = 4.478 cents each
Next week Jethro Bodine's math class - the rule of naught;
Naught plus naught equals naught
Naught minus naught equals naught
Naught times naught equals naught
Naught divided by naught equals naught defined
You learn that grasshopper, and all of your headaches will subside
Sounds like some kind of system to measure speeds or a way to tie things together......either way I'll try KNOT to carry this any further!
My headaches have subsided as you say however; am getting on a UA plane later today so I'm sure they'll come back soon.
great analysis. If I were a coupon-cutting person, looking solely for the cheapest price, I would follow such analysis when I compared any product against another. However, I am in a consumer goods business and recognize that most purchases are made for a variety of reasons, cost being only one of those. I have found that any company who's goal is to be the cheapest will most certainly find success, but mainly within a sub group of bargain seekers. Think Walmart. I realize that your analysis is not looking for the cheapest cost, but compares similar product and simply offers the cost/value relationship between points. One question, does the above assume that all points are created equal? what about the relative value of a hilton point vs a marriott point? Isn't that a key ingredient in the equation?
Anyway, great stuff! stimulating for sure…..
shoeman1000 - My take on the analysis was more of "what did the points cost?" rather than what is the value of the points upon cashing-in. However, a quick comparison on points for a Nikon D5200 with 18-55 VR lens shows Hilton wants 568,000 points and Marriott 287,500; a $100 Best Buy gift card is 50,000 HH and 27,500 MR, so in both samples, the MR points are worth roughly twice HH on merchandise.
anadyr - Sorry - I AM a CPA!
My point was that if you pay more for a particular venue to earn their points, then those points have a cost to them. I made the assumption that the HGI and CY are essentially identical in quality and location, leaving only price being the significant difference. Under this assumption, the CY would have cost you $250 more to stay there for the same quality/location of room, and you would have earned their 20,900 MR points but at the cost of paying $250 more for the week and the "right to earn MR points" in lieu of a lower-priced HGI. Doing the math, $250 cost / 20,900 points = 1.196 cents per point "paid" to earn them.
I believe the financial term for my analysis is "Opportunity Cost."