As a follow up from yesterday, I gave your method some thoughts last night and felt that a replacement cost based method where you value each HH Point at $0.01 USD would probably end up overstating the intrinsic value of such Points & Money award. What I mean is if you do a comparison of these awards vs. VIP 4 nights+ and AXON awards, then the question is which one is a better option? We know AXON sometimes is a better value than VIP awards but what about on a per night basis? If someone were to book 4 nights+ for a stay, would it still make sense for the member to use Points & Money assuming availability is not an issue? Essentially the question comes to down the cash cost you have to pay on the P&M award vs. the difference in per night cost in points of the VIP/AXON. For example, Category 5 for 5 nights under VIP = 28,000 points per night. P&M asks for 17,500 pts per night + $60. The savings in points = 10,500 points at a cost of $60 USD + taxes. The tax rate is equal to the hotel's local tax rate, usually between 10~20%, so this roughly equals an actual cash cost around $70 on average. Then the question becomes, do you rather save 10,500 points or save $70?

If you value 10,500 pts at $0.01, you are going to answer $105 > $70, so you will go for the P&M award, which isn't necessarily a wrong answer. Though, as a reminder the cost of $0.01 point per HH point is a last resort rate that most people usually do when they are short on points - because it is a rather expensive way of acquiring HH points. The actual value of each HH point in 2011, is closer to $0.0055 USD on average in my own modeling or roughly half of its direct purchase cost.

There are different ways to quantify the value of HH points, it depends on how you acquire most of these points - through credit cards or through stays or both. In any event, the intrinsic value of 10,500 points in this example will be far lower than the $105 savings, and most likely below the expected actual cash outlay of $70 ($60 + X tax rate). Under such modeling, it would suggest P&M award is less desirable to a comparable VIP award. The assumptions is that the member will have no shortage of HH points in the near future and could generate enough HH points on a yearly basis, consistently, to make such valuation true. If this assumption doesn't hold and the member is short on points but less concerned about cash outlays, then the valuation will not hold and the savings under P&M will be real.