How do you calculate value on a cash & points booking??

Discussion in 'General Discussion | Miles/Points' started by Wandering Aramean, Dec 29, 2014.  |  Print Topic

  1. Wandering Aramean
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    Wandering Aramean Gold Member

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    I'm sure there is no one correct answer here but I'm curious how folks do the math.

    Say a room is $100 or 10,000 points. It is east to say that's a penny/point (though it will be slightly higher due to taxes). But what if there's also an option at $40+3000 points.

    Are the points worth 2 cents each (3000 points makes up the $60 I'm not paying in cash for the room)?

    Or are the points worth 0.57 cents each (I spend $40 to "buy" 7000 points to complete the award)?

    Something else??
     
  2. edekba

    edekba Gold Member

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    That's how I see it.
     
  3. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Me, too.
     
  4. mattsteg
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    mattsteg Gold Member

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    Don't forget lost earnings in the calculation...and resort fees, taxes, etc. that different programs treat differently.

    As far as right or wrong...acquisition cost and redemption value are 2 different things.

    The redemption value is the 60 bucks you saved by redeeming 3k points.
    The .57 cent valuation is an acquisition cost.

    Assuming that the program has a "normal" award chart, what makes most sense to me is to look primarily at redemption valuation - whether 100% points, or points/cash. People have different balances of both and volumes of travel and can make their own judgements.

    If we then compare the redemption valuation to the acquisition cost (normally fixed per award-chart assuming a category-structure), we can get a general rule of thumb on how, absent scarcity of dollars or points, the average value of points compares to the cost to acquire via C&P (ie. how good of a deal is it to do cash and points in X program?) If the acquisition cost is way below the redemption value...then C&P makes good sense.

    You could calculate both, and the ratio could indicate relative goodness of the C&P redemption.
     
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  5. Wandering Aramean
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    Wandering Aramean Gold Member

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    Indeed. I'm just not sure I have a great way to render that compared to the abstract value of a points-only redemption. It gets very, very hard to coherently present all the data in manner which is quick and easy to review.

    I do appreciate the acquisition cost v redemption value argument you make. I'll probably stick with that.
     
  6. mattsteg
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    mattsteg Gold Member

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    The cost half would fit in more with where you calculate typical point values. I agree trying to present everything at once results in something that at best you can explain to yourself.

    Oh, and I consistently get fail kale searching for a hotel in TYO 3/29-3/30.
     
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  7. Wandering Aramean
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    Wandering Aramean Gold Member

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    And here I was thinking I'd use the other number (value) since it is consistent with the calculations I'm doing for the rest of the awards. :oops:
     
  8. Wandering Aramean
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    Wandering Aramean Gold Member

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    This should be working now. Issues with pushing the functional code from dev to production. :oops:
     
  9. WilliamQ

    WilliamQ Gold Member

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    Do you want to engage a system tester?
    Payment in hotel points or airline miles accepted. :)
    I am sure there will be lots of takers here in MP.
     
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  10. dayone
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    dayone Silver Member

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    My valuation method is to measure the cost I avoid.
     
  11. kwai
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    kwai Gold Member

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    I'll agree with this as well.

    As pointed out there's a potential loss for point acquisition but that loss would also be there for a pure points award.
     
  12. traveltoomuch

    traveltoomuch Silver Member

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    Both above points have merit. I think the right answer is to calculate both, and only use C&P if it makes the most sense when looking at both numbers.
     
  13. MSPeconomist
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    MSPeconomist Gold Member

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    Don't forget that some programs like Hyatt allow suite upgrades and points/nights/stay credit on cash and points bookings but not all points bookings. OTOH, paying with all points gets the fifth night free in some programs.
     
  14. HaveMilesWillTravel
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    HaveMilesWillTravel Gold Member

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    Or second night (Club Carlson, with CC credit card).
     
  15. Seacarl
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    Seacarl Gold Member

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    If the cash rate for the room is $120 with taxes, and you pay with 10,000 points, you are getting 1.2 cents per point.

    If instead you pay $48 (with taxes) and 3,000 points, then you are saving $72 for the 3,000 points and you are getting 2.4 cents in value per point for those 3,000 points. That is how I would look at it, that is the value you are redeeming the points for.

    If you are wondering how to value the other 7,000 points, you could say that you acquired (or saved) those 7,000 points in return for spending $48. So you "purchased" those 7000 points for 0.68 cents each. Unless you won't be using that company in the future, you are presumably hoping to redeem them for a value closer to 2.4 cpm (unless you are like the guy with the credit cards hanging around his neck he doesn't care how many points he redeems because he manufactures them faster than he can use them...)

    You surely hope that the cost to purchase points is always lower than the value you get when you redeem them...

    The above assumed a 20% tax rate, which is probably a little high.

    For SPG points somewhere around 2.4 in my minimum threshhold
     
  16. daninstl

    daninstl Gold Member

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    It also varies depending on the hotel or airline. For example I have about 160k in BA Avios and about the same in US Air DM's. So which are worth more. It depends. The Avios are worth way more than the DM's domestically but way less on International flights (mostly due to the YQ) in this case.

    On hotels I value the points differently. For example if I need 30k in points for a room in Chicago that is normally $300 is it a true $300 or a rack rate of $300. Also if I need the same 30k in points for a room in Louisville Kentucky that's normally $100 how do I compare? In these examples the Chicago room would be a better value and if I stay in more expensive rooms normally on points I would be better off just paying cash for the Kentucky cheaper room. Sort of like comparing domestic air redemption to international. I guess what I'm saying is even in a given program the points don't have a static value unless you use them for the same exact thing all the time.
     

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