There is no single right answer as to what points are worth. With most points, the value depends upon how the points are used. It’s often possible to get great value or very poor value from the same types of points. But in this podcast episode, we’ll talk about how a “reasonable redemption value” can help you assess the value of your miles and points.
What are points worth? Reasonable Redemption Values Explained
Watch here:
Or listen here (or click “Follow” on the player below to select your preferred podcast app instead):
(01:08) – How can you evaluate credit card welcome offers without an idea of what points are worth?
(02:02) – Reasonable Redemption Values (RRVs) are estimates of how much value you can reasonably expect to get from your points.
(03:12) – At Frequent Miler, we use RRVs to calculate…
(04:28) – Where do our RRVs come from?
(07:02) – Transferable points are a little different
(10:06) – The RRV Paradox
(13:44) – To see our RRVs, go to frequentmiler.com/rrv
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Music Credit – Beach Walk by Unicorn Heads
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That is actually not true at all. There is a single right answer to what points are worth, which is that loyalty points currencies have two distinct values: (1) a “nominal” or “face” value, and (2) a “redemption” value, and they are defined as follows:
1. The “nominal” or “face” value of a points currency is the value at which points become indistinguishable from cash, and it is assigned or set by each program. As such the “face” value of a point is the cost of that point when a program sells it with a 100% bonus. Therefore, the “nominal” or “face” value of a Hilton or IHG point is 0.50cpp because it is the cost of each of those points when Hilton or IHG sells them with a 100%. I spent $2,400 to purchase 240K Hilton points + a 100% bonus for a total of 480K points, yielding a cost of 0.5 cent/point. Therefore, 0.5cpp is the “face” value of a Hilton because (a) that is how much Hilton thinks each of their points is worth, and (b) at 0.5cpp a piece, the 480K points that I purchased and the $2,400 that I spent to purchase them are worth exactly the same. If Hyatt were ever to sell their points with a 100% bonus, the cost would be 1.52 cents each, making that that “face” value of Hyatt points because it is the value at which those points are indistinguishable from cash.
When defined as just explained, the “nominal” or “face” value of a points currency is objective, fixed and knowable. It is the value that most travel blogs, including this one, estimate and publish. The difference lies in the fact that bloggers’ estimates are based on a limited or finite sample size, and that some bloggers tend to make assumptions, like those made to derive this site’s RRVs, that can distort the “face” value of points. If one does an infinite number of dummy standard award bookings, computes the mean redemption value, it will be exactly the same as the “face” value of each points currency as I defined it here. Guaranteed.
2. The “redemption” value of a points currency is the value that one gets after redeeming the points for a standard award stay according to one’s preferences. Therefore, a redemption value of points is highly subjective because it is dependent on how each person redeems their points. It has a numerical value only after one does a redemption. It is this value that everyone tries to maximize when they redeem their points, by trying to ensure that a redemption yields a value exceeds the “face” value of a point by as much as possible.
In practice, everyone lumps together those two definitions or concepts of the “value” of points currencies, which explains the general misunderstanding and confusion, even among people who write about loyalty points for a living.
When a blogger writes, “With most points, the value depends upon how the points are used. It’s often possible to get great value or very poor value from the same types of points“, what they referring to are the “redemption” values of points currencies.
And, when a blogger writes, “But in this podcast episode, we’ll talk about how a “reasonable redemption value” can help you assess the value of your miles and point“, they are referring to the “face” value of points.
What I just described there is the “duality of the values of loyalty points currencies“, which escapes practically everyone.
G’day!
I’m pretty sure that when FM writes about reasonable redemption values, that they’re talking about redemption values, not face values. Maybe try listening to the podcast?
Like everyone else, you are confused, and I do not need to listen to the podcast to know what was said because it’s been repeated and amplified for years in the echo chamber that’s travel blogosphere, such that it’s virtually become established dogma.
The RRVs published by this site are not redemption values or it would make no sense at all to estimate and publish them since points currencies have no a redemption value until they are redeemed.
Based on how they are derived, RRVs are, at best, an approximation of the “nominal” or “face” values of points currencies.
We are all confused because some of your ideas are completely wrong. You don’t understand how these values are derived. I beg your to stick to your own failed blog and not waste our time here.
Checkmate, Brutus. Just claiming that my ideas are completely wrong without offering a shred of supporting evidence does not make it so. In fact, it is equivalent to waving a white flag and saying “no mas!”
With a Ph.D. in physical sciences, I do understand how the values are derived better than those who derive them, because it is all really quite trivial stuff.
When I have more time away from my professorial duties, I will power up my “failed” blog and do a complete write-up of the scientifically rigorous and incontrovertible modeling I’ve done that will forever demystify hotel loyalty points currencies.
Until then, I wish you well.
There are definitely multiple values to miles and points. The value to acquire and the value upon redemption. It is difficult to precisely pinpoint each, as there are so many variables. How do people who travel on other peoples’ money value their acquisition of points? They don’t because it is redemption value only for them. That is why most blogs use $.02/point as a guideline for getting a redemption value as a minimum.
I don’t follow “The “nominal” or “face” value of a points currency is the value at which points become indistinguishable from cash, and it is assigned or set by each program. As such the “face” value of a point is the cost of that point when a program sells it with a 100% bonus.” What is it about a 100% bonus on the sale of points that makes them “indistinguishable from cash”? Should it be “the highest bonus the program is willing to sell the points with” instead (in which case, the face value of Hyatt points will change)?
Here’s the short of it without getting into the math:
The face value of a loyalty point is attained when its issuer sells it with a 100% bonus because it is essentially a BOGO. You get double at half the cost, which allows you to exactly determine the unit cost of a point. It is not by coincidence that point values estimated and published by bloggers hover around the cost of points when they are sold with a 100% bonus. Statistically, the two are the same, except that there are “measurement errors” in the bloggers’ estimates.
The non-discounted retail value of a Hilton or IHG point of 1.0cpp is its intrinsic or market value. Hilton or IHG points purchased with a 100% bonus cost 0.5cpp, making that their face value. When Radisson Rewards used to sell their points with a 100% bonus, their cost was 0.36 cpp, which was also the face value of those points. At those values, points and cash are indistinguishable, allowing the value of the latter to serve as a “legal tender value for transactions“, hence the term “nominal” or “face” value.
All of the above can be modeled exactly mathematically, but that is for another time and place…
What’s the face value of a Membership Rewards point?
My interest to date has been mainly in modeling hotel points. Have to yet model bank/credit card points or airline miles, but the rule of thumb is that the face value of a loyalty point is inversely proportional to rate at which you earn points and directly proportional to how many cents you get back on each dollar you spend within a program (i.e.”rebate” or “reward payback”).
You’ll be the first to know when I do model credit cards points or airline miles..
Please spare me Your answer says all I need to know.
Which is that you know nothing, so I will, of course, spare you the mental gymnastics of trying to understand my comments.
We’re done here.