Model-based Constrained MDP for Budget Allocation in Sequential Incentive Marketing

Abstract

Sequential incentive marketing is an important approach for online businesses to acquire customers, increase loyalty and boost sales. How to effectively allocate the incentives so as to maximize the return (e.g., business objectives) under the budget constraint, however, is less studied in the literature. This problem is technically challenging due to the facts that 1) the allocation strategy has to be learned using historically logged data, which is counterfactual in nature, and 2) both the optimality and feasibility (i.e., that cost cannot exceed budget) needs to be assessed before being deployed to online systems. In this paper, we formulate the problem as a constrained Markov decision process (CMDP). To solve the CMDP problem with logged counterfactual data, we propose an efficient learning algorithm which combines bisection search and model-based planning. First, the CMDP is converted into its dual using Lagrangian relaxation, which is proved to be monotonic with respect to the dual variable. Furthermore, we show that the dual problem can be solved by policy learning, with the optimal dual variable being found efficiently via bisection search (i.e., by taking advantage of the monotonicity). Lastly, we show that model-based planing can be used to effectively accelerate the joint optimization process without retraining the policy for every dual variable. Empirical results on synthetic and real marketing datasets confirm the effectiveness of our methods.