Cognitive bias refers to the topic of how your logical approach to a topic may be influenced by factors surrounding it. There are many manifestations of this phenomenon being explored by much smarter folk than myself, today I’d like to play with loyalty program devaluations and the bias of Anchoring.
Anchoring is the bias that means we focus too much of our decision making on the initial ‘anchor point’ being set, rather than using a broader evaluation. This classically occurs within an award program devaluation. Club Carlson is a fine example of this. We have just gone from a program that granted the last night free, to just not. What does that mean?
If we anchor our decision, it means that they gutted the program, and its devalued our points, and ruined all our hopes and dreams. Some of this is true but the critical point to consider is ‘does it really matter?’
Of course, a hoarder will pay the price here, but one hopes by now that they have already baked in devaluations to their ‘valuation’ when they elect to earn points over cash back (and cash back over something more rewarding). But does it really matter to the hoarder? Let’s say you have far too many Club Carlson points… a number of say, 1,000,000. You could previously have used them for 50K redemptions using BOGO awards creating 40 nights for ‘free’. The reality is that there are a lot more people that could own 1M points than can redeem them in Club Carlson properties in a year.
So if we ignore anchoring, you have 20 free nights, which is still pretty awesome. Its time to move on.
Do you earn more?
This is the question to ask. Should you, after a gutting devaluation, continue to earn these points? The answer should not be influenced by the devaluation other than using it to reprice opportunity. The trouble here is that you have a quite complex equation.
It starts off with: can you beat 2.2%?
That’s the easy baseline, if we are looking at future travel discounts, can we beat the trusty (until they devalue it) Arrival card? If focus on that 50K award night again, we have 50K vs $220 on $10K of spend. For me, I’d say I’d be hard pressed to spend more than $220 on a hotel, though the hotels that I stay in do often cost more than $220 per night. Let’s look at Aruba (which is where I happened to burn up 4 nights of club carlson awards). Anything remotely ‘decent’ in terms of a hotel is going to come in around $500 per night during my trip there. That’s a lot of Arrival points… in fact its too many.
And here’s when things get complicated..
I don’t travel all that much compared to some in the game, but even now I stretch my limits in terms of having hotels covered. The Arrival card is epic because it gives that tiny 10% kick back.. but its strength also lies in the flexibility. If you have a budget that includes ‘other travel’ such as the MTA in new york, or peripheral items, this is when the arrival can become great.
Using the Arrival on hotels is a waste, if it means you have to pay cash for your subway ticket. It is exactly the same as paying cash for your hotel!
So what to do? In my case, I need more hotel points. And 50K Club Carlson points is still better value at the right time than $220 in Arrival pesos.
Time waits for no man…
The other problem we all face is lack of time. Each of our schedules is different, but for me, I simply have very little time to create points, and when I do I can see that something else must give. So with that in mind, despite the value I place on Club Carlson points above, I wouldn’t waste my time on them, at least not at 5x.
The solution
Apply for new credit cards. Forget the devaluation. Think about what points you need, and what offers match that need. Diversification is important as your travel plans may include options where a certain brand is strong. This means that I would have to look at a list of cards and select based upon opportunity value.
Questions to ask:
- How many cards can I get per year?
- Will that cover my travel needs?
- Am I losing the chance to get transferable points by applying for a crappy hotel program?
- Is it worth manufacturing points beyond this?
- When is a point redemption less value than paying cash?
I’d still apply for the card, if I needed to.
The devaluation certainly changes the price value of a point, but if the redemption value is still greater than the cash alternative, it is still a win. With that in mind, the Club Carlson card is still worth applying for. The current signup bonus is 97500 points for spending $2500 (100K for $3000). That is an opportunity cost of $66 on the spend, and $75 on the fee. For $141 you get 2 nights at a hotel that might otherwise require you to spend $800-$1000.
The Math: Is $141 and a hard pull on your credit worth 2 nights in a hotel?
The real key here is to factor this into your actual travel plans. If you are going somewhere that is otherwise expensive, yet attainable on points, then you should start thinking about gaining them. It is a goal orientated approach.
I feel the same way about all hotel points. I only earn SPG because they have diversification to airlines. I don’t collect Hyatt points because I can collect Ultimate Rewards… but if i’m thinking to go to Paris, then I’d apply for the Hyatt card and Vendome that trip, keeping the URs for something else.
Conclusion
It’s important to have a duality at times. This means that you make calculated decisions internally, and yet present a different face to the outside world. I do wonder when I see people complaining about this gutting whether they really are upset, or if they are just faking it to keep pressure on the loyalty programs…. I think at the very least it is important to realize its still a deal, and not to be upset over it. Remember, if you get upset when the market tanks, it means your risk profile is off, and you have too much invested in one position. Duality can be a good strategy if you want to manipulate people, but it can also feel a little cheap.
