Dmitry Mitrofanov | Searcharxiv

arXiv2025

Personalized Promotions in Practice: Dynamic Allocation and Reference Effects

Partnering with a large online retailer, we consider the problem of sending daily personalized promotions to a userbase of over 20 million customers. We propose an efficient policy for determining, every day, the promotion that each customer should receive (10%, 12%, 15%, 17%, or 20% off), while respecting global allocation constraints. This policy was successfully deployed to see a 4.5% revenue increase during an A/B test, by better targeting promotion-sensitive customers and also learning intertemporal patterns across customers. We also consider theoretically modeling the intertemporal state of the customer. The data suggests a simple new combinatorial model of pricing with reference effects, where the customer remembers the best promotion they saw over the past $\ell$ days as the "reference value", and is more likely to purchase if this value is poor. We tightly characterize the structure of optimal policies for maximizing long-run average revenue under this model -- they cycle between offering poor promotion values $\ell$ times and offering good values once.

cs.GT↗

arXiv2025

Consider or Choose? The Role and Power of Consideration Sets

Consideration sets play a crucial role in discrete choice modeling, where customers often form consideration sets in the first stage and then use a second-stage choice mechanism to select the product with the highest utility. While many recent studies aim to improve choice models by incorporating more sophisticated second-stage choice mechanisms, this paper takes a step back and goes into the opposite extreme. We simplify the second-stage choice mechanism to its most basic form and instead focus on modeling customer choice by emphasizing the role and power of the first-stage consideration set formation. To this end, we study a model that is parameterized solely by a distribution over consideration sets with a bounded rationality interpretation. Intriguingly, we show that this model is characterized by the axiom of symmetric demand cannibalization, enabling complete statistical identification. The latter finding highlights the critical role of consideration sets in the identifiability of two-stage choice models. We also examine the model's implications for assortment planning, proving that the optimal assortment is revenue-ordered within each partition block created by consideration sets. Despite this compelling structure, we establish that the assortment problem under this model is NP-hard even to approximate, highlighting how consideration sets contribute to nontractability, even under the simplest uniform second-stage choice mechanism. Finally, using real-world data, we show that the model achieves prediction performance comparable to other advanced choice models. Given the simplicity of the model's second-stage phase, this result showcases the enormous power of first-stage consideration set formation in capturing customers' decision-making processes.

econ.EM↗