Jan252010

What is the Value of Hotel Points?

It seems bloggers all over are calculating the value of hotel points and airline miles with regard to Haiti donations – P.Ling in Uptake Blog, Gary Leff in View from the Wing, and Nicholas Kralev in the Washington Times.  

I am not going to debate the issue of cash or points for Haiti except to offer one hotel loyalty member consideration for the points v. cash debate. Saving points for a hotel stay and donating cash, with the exception of HHonors or Choice who give award stay elite qualification credit, disregards the traveler who struggles to reach sufficient hotel stays for elite status during the calendar year.  

For example, 4,000 Starpoints gives $100 to Red Cross ($50 from member donation and $50 from Starwood matching donation). $100 donated to Red Cross and using the 4,000 points for a hotel stay earns fewer or no points, no Starwood promotion credit, and no elite credit. The tax deduction for a cash donation might be a relevant consideration for some members.

 

$100 spent for a hotel stay gives the member elite credit for a paid stay and the opportunity to earn a substantial portion of those hotel points back through the paid stay.

 

Determining the Value of Hotel Points

I want to discuss the value of hotel points. There are so many variables to consider and many assumptions to make when trying to place a dollar value on hotel points. My interest is analyzing the value of hotel rooms a member can get for hotel points.

P. Ling in the Uptake.com travel industry blog cited several hotel points valuation analyses in this statement “If you think it’s too simplistic to peg each Hilton HHonors point at $0.0025 just because a donation of 10,000 Hilton HHonors points results in a $25 cash donation, I agree. So read this and this. The study for Starwood is here and the one for Marriott is here.”

 

The analyses cited by P.Ling for Hilton, Starwood, and Marriott reference articles by a website PlasticIQ that published hotel loyalty point value articles in September 2009. PlasticIQ employed more mathematical variables than I do in my analyses, but I do not think the PlasticIQ analysis adequately reflects real travel patterns for the vast majority of travelers and makes the calculations unncessarily complex.

 

Plastic IQ assigned the following hotel points value when redeemed for hotel stays:

Starwood Preferred Guest = $21.50/1,000 points

Marriott Rewards = $8.30/1,000 points

Hilton HHonors = $4.30/1,000 points

 

Hearts of the Gods blog gave a value for HHonors = $3.77/1,000 points

 

PlasticIQ created the hotel loyalty program analyses to assist credit card holders with choosing a card. Here are areas I find faulty in the PlasticIQ assumptions for hotel stay redemption used as a basis for determining the value of hotel points.

 

Plastic IQ assumptions for SPG

 

a.       20% of hotel stays will be 5 nights

b.      Most hotel stays will be 3 nights

c.       Hotel stays will be spread out among different category levels (Category 1 = 0% [due to few hotels in this category]; 15% hotel stays at Category 2; 25% at category 3; 25% at category 4, 25% at category 5; 5% at category 6, and 5% at category 7 hotels.)

 

These are major assumptions that will probably not correlate to the hotel points redemption pattern for 99%+ of travelers in my opinion.

 

The PlasticIQ analysis when applied to an individual SPG member requires a minimum 20 stays on points to complete this traveler profile. Since 20% of stays are five nights and others are average of 3 nights, the PlasticIQ scenario is based on a Starwood Preferred Guest member with over 700,000 points for free hotel night redemptions. That is a highly exclusive group of hotel loyalty program members.

 

The average Starwood Preferred Guest credit card member probably earns well shy of 50,000 Starpoints per year. Perhaps the SPG member earns another 50,000 points from hotel stays if the member is Platinum level elite with 30+ hotel stays per year and fulfills multiple promotion offers. 

 

Loyalty Traveler typically looks at one hotel stay redemption at a time. I write my blog for the traveler who is trying to place value on their points for that next vacation.

 

In the PlasticIQ HHonors analysis the value of hotel loyalty points is reduced 25% by the Priceline factor. The fact that a Priceline room might be available for less in the city I am staying is no relevance to me as a loyalty traveler. I am focused on hotel loyalty elite credit, promotion bonuses, and complimentary upgrades at hotels. Priceline tosses out all those considerations.

 

When in Amsterdam, I know the points value if I redeem 48,000 Starpoints for 5 nights at the Starwood’s Luxury Collection Hotel Pulitzer. I simply take the paid cost for five nights and divide that cost by 48,000 points to come up with a value for Starpoints.

 

I have bid my way to a cheaper stay at the Golden Tulip Amsterdam Art hotel in the past. Priceline can get me a room for $100 per night. But the Golden Tulip is not a hotel in the same league or location as the Pulitzer Hotel. So is there any reason to even factor in Priceline in a hotel points valuation? A traveler who devalues their points by comparing Priceline rates to hotel loyalty program redemption rates should probably not even bother with hotel loyalty programs.

In all fairness, I certainly turn to Priceline when the cost for my hotel loyalty is too high to pay for a hotel room and the points value is too low to justify spending my points. Given the choice between spending $100 per night through Priceline or 12,000 Starpoints per night depends on my travel purpose (business, transit, or leisure) and the necessity of being in a specific location. Priceline is an entirely separate transaction from the value I place on my hotel points. I don’t reduce the value of my points based on the option that I can get a different hotel in the same city for less money.

PlasticIQ uses an allocation of HHonors stays between VIP awards, Pointstretcher stays, Priceline deductions, cash value deductions, and estimated hotel rates. This is far too many variables with unnecessary complexity in reaching a points value. I am not saying the final result is inaccurate, but the hotel loyalty program member can’t replicate the PlasticIQ hotel points value analysis at home.

Loyalty Traveler has shown a simple way to calculate hotel points value for your next vacation and a qualitative chart to give you an idea of what you can realistically be looking for when trying to get the most value for hotel stays from your hotel points balance. Depending on where you travel, the chart numbers may need adjustment, but the overall process is a simple way to determine the value of your points.

My Loyalty Traveler analyses of hotel points valuation is subjective and the math is simple. Here are the valuations I have placed on hotel loyalty points in articles from the past few months.

 

Hilton $6-9/1,000 points
Hyatt $15-$20/1,000 points
IHG Priority Club $7-$10/1,000 points
Marriott Rewards $7-10/1,000 points
Starwood Preferred Guest $35-$50/1,000 points

 

Related Loyalty Traveler posts with qualitative tables for points redemption value:

Excellent value with SPG Cash & Points awards

Value of a Point for Starwood Free Nights

Hilton HHonors Redemption Guide 2010

 

 

Last October I created HHonors qualitative charts for hotel points value based on HHonors 7 category system now in place. In my analysis I gave a redemption value of $7.00 per 1,000 points as excellent. Based on recent analyses for San Francisco and New York I may have to lower this range. I will wait until I complete a couple of international city comparisons to see if Hilton HHonors members can realistically find redemption values of $9/1,000 points these days.

 

Loyalty program members have the choice when and where to use points. Anyone settling for redemption values under $5.00 per 1,000 HHonors points is not being selective about when and where to use points for free nights.

 

In my hotel points valuations for Loyalty Traveler I try to focus on what is potentially the high end of points redemption value. There is no requirement to spend your points for poor value hotel stays. My goal with Loyalty Traveler is to show what kind of value can be achieved with hotel points. The objective for the traveler collecting hotel points should be to earn points by spending low and redeem points for high value. When it comes to donating points to Haiti I tossed out consideration of this objective.

 

New York City and San Francisco are two cities where I did comparative redemption value across hotel chains. I picked a stay date and compared the actual hotel rates for different chains to the cost for a free night using points and came up with the following values available. The range shows the low value for one particular hotel stay redemption up to the high value for another specific hotel redemption choice.

 

Value of 1,000 points redeemed for a hotel

 

NYC:

Hyatt Gold Passport $19.21 to 20.83

Starwood Preferred Guest $14.40 to $34.92

Marriott Rewards $5.97 to $8.63

Hilton HHonors $4.30-$8.78

IHG Priority Club $7.00 to $17.00

 

San Francisco:

Marriott $3.17 to $13.90

Hilton HHonors $1.86 to $6.30

 

Just because a hotel has a high redemption value does not necessarily make it an excellent overall value. The hotel could be way overpriced for a paid stay. But when it comes down to any specific hotel where you want to stay, the simple choice becomes pay cash or pay with points.

 

The range of hotel points redemption values shown here indicates a need to be selective when redeeming points. Points have no value until they are redeemed for something tangible. Choosing an acceptable value to receive when spending your hotel points is a personal choice.

About Ric Garrido

Ric Garrido of Monterey, California started Loyalty Traveler in 2006 for traveler education on hotel and air travel, primarily using frequent flyer and frequent guest loyalty programs for bargain travel. Loyalty Traveler joined BoardingArea.com in 2008.

More articles by Ric Garrido »

Pingbacks

Comments

  1. value of points won’t be exactly an accurate measure of the value of the program as all program has different earn rate

    based on the redemption value:
    Hilton $6-9/1,000 points
    Hyatt $15-$20/1,000 points
    IHG Priority Club $7-$10/1,000 points
    Marriott Rewards $7-10/1,000 points
    Starwood Preferred Guest $35-$50/1,000 points

    Hyatt and SPG has higher value of points, but actually these two program has different earn rate:
    Hilton/IHG/Marriott offers 10 Points for each 1 USD spend

    but Hyatt is 5 Points for 1 USD
    and SPG is 2 Points for 1 USD

    so if we adjust the earning ability. all 5 programs have very similar redemption value of 7-10 USD / 1000 points based on 10 Points per USD spend eql.

  2. True enough that each program has similar value when adjusted for base points earning. I should have probably stated that somewhere in this piece. That is an assumption I used when creating redemption value estimates and I have explained that in other posts.

    The purpose of these estimates is to set up a scale that can be compared across hotel chains. Marriott members earn 10 points/$1 in hotel spend. SPG members earn 2 points/$1. The redemption scale is set so $7-$10 redemption value with Marriott is comparable to $35 to $50 redemption value with SPG.

    The redemption value estimates are not meant to imply that Hyatt at $15-$20/1,000 points is a better value than Marriott at $7-$10/1,000 points. They are different scales due to the different base points earned for hotel stays.

    My purpose in creating redemption value estimates is meant to allow a person in Hyatt to evaluate if their Hyatt free night using points gives a value in the $15-$20 range. If more than $20, then great redemption value. If less than $15/1,000 points, then not so good a value.

    The Marriott member redeeming points is getting great value when the free night using points saves more than $10 per 1,000 points. The value is not so good when using points and getting less than $7 per 1,000 points.

    Based on these tables when I look at New York City I see that Starwood is not a good redemption value. Starpoints will be better spent some other place where you will get $35 to $50+ value out of 1,000 points.

    Priority Club has an incredible value at $17 per 1,000 points spent at one NY hotel (Candlewood Suites).

    Hyatt offers good value for their NY hotels.

    Marriott and Hilton have hotels falling below the $7 per 1,000 points value, yet there were some hotels in the $8 per 1,000 points redemption value. There are some decent redemption values with Hilton and Marriott in NYC, but be selective.

    Given that redemption value is similar for the five programs, although Hilton has fallen with their recent category changes, the primary differences between programs is the ability to earn points and benefits received with hotel stays.

    Hyatt, SPG, and Priority Club are the promotion leaders with enhanced ability to earn points through hotel stays.

    Hilton, Marriott, and SPG are better for the credit card spenders.

  3. Ric, thanks for your careful examination and analysis of the points valuation analyses on the PIQ website. I’d like the opportunity to reply to some of the comments you made about my analyses.

    To start, I’d like to point out a couple of things. Firstly, PIQ is focused on assessing and ranking individual credit cards against each other, and (currently) doesn’t attempt to estimate the value of loyalty programs. Secondly, PIQ is writing for the “average” or mainstream credit card user, not the hard-core point maximizers that spend many hours per week on this topic.

    So, on to the specifics. When I assume that 20% of stays will be 5 nights or more, and the remainder will be 3 nights, on average, this isn’t implying that an individual would conduct all of this travel in a 1 year period. It’s basically just a statement about behavior–that over a given period of time (say 3 years, or 5 years), that an individual’s travel profile will look like this. Of course, this is just a blanket assumption, and everyone’s profile will look different. But as in all of these exercises, we must make *some* sort of assumptions to be able to do the analysis. Call it a starting point. Also, I did come across published data that indicates the average length of hotel stays is around 3 nights. Now I do agree that savvy loyalty program members will try to plan their trips such that they are spending 5 nights or more (to get the free night), so I’d agree that my estimate could be on the low-end of the range from that perspective. In the future I am going to provide users the ability to specify their own specific travel behaviors, and thus calculate a more customized estimate.

    In terms of the estimates around % of stays at various category levels of hotels, I’m not sure if you thought that was inaccurate as well. If you have some sort of published data that provides more concrete info, I’d be happy to go with those #s.

    In terms of the priceline adjustment, again I do understand your point and it’s certainly valid if the reader is a loyalty program-focused individual. At this stage, my analysis is really focused less on the hard-core loyalty program folks, and more on the transaction-oriented individual, looking to minimize their cash outlays. (and again, per my opening point above, I dont actually factor in the value of loyalty programs on the PIQ site–it’s all about just the credit cards.)

    You also note my analysis is far too complex (too many variables) (though you do concede it isnt necessarily inaccurate), and note that users at home won’t be able to replicate it.

    Firstly, I probably do over-complicate things:) (guess its my nature). But the intent is to actually enable individuals to *not* have to do these calculations at home–I’ve taken on that burden. The PIQ site is not a tool for evaluating individual trips or hotel stays. Rather, it is a tool designed to help a user choose the best credit card for him/her based on his/her unique monthly spending (and to some degree, behavioral) profile. If you haven’t used the PIQ Ranking Engine yet (found right off the home page), give it a shot. The results of that engine are really the purpose of the whole site, and the blog posts just provide some of the underlying analytics that are used to power the ranking engine. It’s all about ranking credit cards.

    Anyway, again I do appreciate the time you took in providing intelligent commentary to my posts. I hope some of my “rebuttals” made sense too.

    Cheers,
    Marc and the rest of the PIQ team (that’d be me).

  4. Marc – I appreciate the work you did and the thought you put into your analysis of the value of hotel loyalty points.

    The value of hotel points is one of the most common questions asked by frequent guests and credit card members.

    As you said, it all comes down to your hotel travel stay pattern.

    And of course your ability to earn additional points from promotions and/or credit cards.

    I have been focused this past year on trying to develop easy ways to compare loyalty programs and the value of points.

    I typically value points higher than most since I tend to focus on loyalty program promotions as a major variable for earning more points with the same $ spend at hotels.

    Often I make hotel stays based on the assumption that bonuses I earn from promotions will have a high rebate value.

    I have not developed an analysis yet that I am satisfied with for determining the value of hotel loyalty points.

    For the majority of travelers the HHonors $4.30 value per 1,000 points is probably more accurate than my $6 to $9 value cited in this post. I actually think I overvalued HHonors based on three case studies I have made in the past few months.

    You nailed it when you said assumptions are necessary for making an analysis. Your assumptions are adequate for your purposes of a credit card holder who is likely a multi-year cardmember and hotel loyalty program person with periodic stays for leisure.

    My objective is to focus more on what is possible with hotel points which is why I went with the $6 to $9 per 1,000 points redemption value with HHonors. Although I am thinking that for HHonors this is becoming a less likely possibility.

    We are writing for two different audiences which makes our objectives a bit different.

    If I earn 225,000 HHonors points through credit card spend, then I will likely be satisfied with a $1,000 hotel stay for six nights at a Category 7 hotel.

    But if I worked HHonors hard with hotel stays and $10,000 in hotel spending, then I want more than a 10% rebate and I will look for that $2,000+ value for my 225,000 points.

    Bottom line is the PlasticIQ is certainly a valid analysis and reasonable valuation for the value of the hotel loyalty points given:

    SPG = $21.50/1,000 points
    Marriott = $8.30/1,000 points
    Hilton = $4.30/1,000 points

    In my opinion, frequent guests can get better value and should look for higher value when spending hotel points.

    Travelers have their preferences and needs.

    Plenty of travelers just don’t place as much value into hotel loyalty points and don’t mind spending 35,000 HHonors points to save $150 on a room, whereas I want to get $300 value for my 35,000 points.

    Thanks for you rebuttal points. Keep up the good work.

Comments are closed.