Market Segmentation Trees

As more commerce and media consumption are being conducted online, a wealth of new opportunities are emerging for personalized advertising. We propose a general methodology, Model Trees for Personalization (MTP), for tackling a broad class of personalized decision-making problems including personalized advertising. The MTPs learn an interpretable market segmentation driven by differences in user behavior. Using this methodology, we design two new algorithms for fundamental problems in personalized advertising – Choice Model Trees (CMTs) for the user ad-response prediction problem, and Isotonic Regression Model Trees (IRMTs) for the bid landscape forecasting problem. We provide a customizable, computationally-efficient, and open-source code base for training MTPs in Python. We train our IRMT algorithm on historical bidding data from three different ad exchanges and show that the IRMT achieves 5-29% improvement in bid landscape forecasting accuracy over the model that a leading demand-side platform (DSP) provider currently uses in production.