Earn valuable points, or expensive points?

I've been messing around with shopping portals for the past few days, which is always a good opportunity to reflect on deeper questions about the miles and points lifestyle.

Manufactured spend gives one vision of cost

As a manufactured spend enthusiast, I spend a lot of time comparing different credit cards, merchants, and earning rates to make sure I'm getting the most value for each of my manufactured dollars in spend. Using that perspective, every mile or point I manufacture costs precisely the dollar value of the cash rewards I would otherwise earn on the same spend. That's my opportunity cost: the value I need from a non-cash currency to justify earning it instead of cash.

Portal spend can turn things sideways

What I started thinking about while mucking about on shopping portals was this question: should you earn the most valuable points (usually the points you'll actually redeem), or the most expensive points when clicking through a shopping portal?

Here's a simple example: according to Cashback Monitor, you can earn 5% cash back when clicking through the Discover Deals portal to purchase Apple merchandise. Alternatively, you can earn 1 United MileagePlus mile per dollar spent at the Apple store.

Paying 5 cents per MileagePlus mile is a preposterously bad deal, since United miles can be purchased for 3.76 cents each any day of the week directly from United.

Now take a look at a merchant like eBay, where we can earn either 1.3% cash back or 0.5 United miles per dollar spent. At 2.6 cents each that's a little below the retail price of United miles, so you might consider using the United portal instead of earning cash back.

How opportunity cost differs from price and value

At this point you should be asking yourself, "why would I pay 2.6 cents per Mileage Plus mile when I can pay 1 cent per mile by transferring flexible Ultimate Rewards points into my United account?"

And that's exactly right — if you would, in fact, redeem your Ultimate Rewards points for cash, then the price you would pay for United miles would be 1 cent. But if you would otherwise redeem your Ultimate Rewards points by transferring them to another travel partner, like Southwest or Hyatt, then your opportunity cost isn't 1 cent — it's one Rapid Rewards point or one Hyatt Gold Passport point.

This matters because you may get more value from a Rapid Rewards point (for example, if you have a Southwest Companion Pass) or a Hyatt Gold Passport point (by redeeming at expensive properties or taking advantage of Points + Cash redemptions) than you do from a United Mileage Plus mile. Using the example above, the opportunity cost (2.6 cents) of earning United miles rather than cash back may be lower than the opportunity cost (1 Rapid Rewards point or 1 Hyatt Gold Passport point) of transferring Ultimate Rewards points to United.

United miles aren't valuable, but they are expensive

I don't like United Airlines. I find them consistently rude and unreliable, so I don't fly them if I can help it. But even I admit that their miles can be useful for redemptions on their Star Alliance partners, like my upcoming Turkish Airlines flight to Europe. The problem is that United miles transferred from Ultimate Rewards are expensive, because I place a lot of value on the ability to transfer Ultimate Rewards points to Hyatt Gold Passport, and each point I transfer to Mileage Plus is one I can't transfer to Hyatt.

This creates the kind of situation I've described, where it may be worthwhile to pay a high price for each United mile, since doing so preserves the ability to transfer Ultimate Rewards points to Hyatt, where I'll get more value, instead.

For the sake of completeness (and to silence quibblers), I do want to mention that Hyatt also sells points (up to 55,000 per year before bonuses are added) for 2.4 cents each. So it's not strictly speaking worthwhile to pay 2.6 cents per United mile just to "save" your Ultimate Rewards points since your total cost will be lower simply earning cash back, transferring Ultimate Rewards points to United, and using the cash to buy Hyatt Gold Passport points. Using other merchants and portal payout levels, and accounting for bonuses on purchased miles and points, the numbers will naturally be different.