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Utilizing Marginal Net Utility for Recommendation in

E-commerce Jian Wang & Yi Zhang

Informa(on  Retrieval  and  Knowledge  Management  Lab  University of California, Santa Cruz

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• Will  you  like  it?  •  Tradi(onal  recommender  systems  recommend  item  with  the  highest  predicted  ra(ng  

2 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Recommenda(on  based  on  Predicted  Ra(ng  is  Not  Good  for  Consumers  

• Will  you  purchase  it?  •  Diminishing  of  return  

•  A  ra(onal  user  will  purchase  the  product  with  the  highest  marginal  net  u(lity  

Total Utility, Marginal Utility

3 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Total  U(lity  

Marginal  U(lity  

Purchase  Quan(ty  

Total Utility, Marginal Utility

4 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Total  U(lity  

Marginal  U(lity  

Purchase  Quan(ty  

Total Utility, Marginal Utility

5 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Total  U(lity  

Marginal  U(lity  

Purchase  Quan(ty  

Total Utility, Marginal Utility

6 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Total  U(lity  

Marginal  U(lity  

Purchase  Quan(ty  

Marginal Net Utility

7 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Marginal Net Utility

= Marginal Utility - Price

1.  Model  the  consumer  behavior  based  on  marginal  net  u6lity  

2.  Make  recommenda6ons  to  maximize  the  marginal  net  u6lity  for  each  user  

8 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Making Consumers Happier

Outline  

• Mo(va(on  •  Algorithm  

–  Basic  economics:  two  exis(ng  u(lity  func(ons  studied  by  economists  

–  Problem  seOng    

–  Propose  a  new  u(lity  func(on  tailored  for  recommender  systems  

•  Experimental  Results  

•  Conclusion  9 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Basic Economics: Linear Utility Function

•  does not capture diminishing of return characteristic •  most existing algorithms are implicitly based on this utility function

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•  Total utility •  purchase history •  product ’s basic utility •  purchase quantity of product in •  marginal utility for the addition purchase of

Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Basic Economics: Cobb-Douglas Utility

•  diminishing of return rate is fixed •  basic utility is not personalized

11 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

•  Total utility •  purchase history •  product ’s basic utility •  purchase quantity of product in •  marginal utility for the addition purchase of

Making Consumers Happier: Recommendation based on Marginal Net Utility

12 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Design  • Design  the  u6lity  func6onal  form  

Learn  • Learn  the  u6lity  func6on  parameters  from  user  history  

Predict  • Predict  the  marginal  net  u6lity  of  a  product  for  a  user  using  the  func6on  learned  and  user  history  

Rank  • Rank  products  based  on  predicted  marginal  net  u6lity  

Problem  SeOng  

13 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

day  1   day  3   day  7   day  10  

Time t

Design  the  U(lity  Func(onal  Form  

14 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

•  Total utility •  purchase history •  product ’s basic utility •  purchase quantity of product in •  marginal utility for the addition purchase of

Cobb-Douglas

New

15 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Design  the  U(lity  Func(onal  Form  

•  only same product will influence the marginal utility

New  framework  to  revamp  exis6ng  recommenda6on  algorithms  

Revamp  Exis(ng  Algorithms  

Marginal net utility

16 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Take Singular Value Decomposition (SVD) as an example

Learn  the  U(lity  Func(on  Parameters    

Maximum A Posteriori Estimation

17 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Joint Likelihood

Purchase Likelihood Conditional on the marginal net utility

Outline  

• Mo(va(on  •  Algorithm  

•  Experimental  Results  

•  Conclusion  

18 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Experiment  Dataset  

•  More than 5-years purchase history from –  2004-01-01 to 2009-03-08

•  10,399 users, 65,551 products, and 102,915 unique (user, product) pairs

•  80% training, 10% validation, and 10% testing  

19 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Experiment  Design  

•  Methods to compare -  -  -  same product -  similar product  

•  Evaluation Metric

20 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

General  Analysis  

21 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

0  

0.02  

0.04  

0.06  

0.08  

0.1  

0.12  

0.14  

0.16  

1   2   3   4   5  

Conversion

 Rate  

K  

conversion  rate@K  

87.39%  

Further  Analysis  

•  Consider  all  products  –  13.79%  repurchase  –  90.64%  new  purchase  

•  Evaluate  orders  with  the  specific  purchase  type  (repurchase  or  new  purchase)  

22 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Further  Analysis  

•   The  new  u(lity  func(on  achieves  significantly  beber  performance  in  both  tasks  

•   Examples  of  Repurchases  –   diaper,  pet  food,  etc.  –   Tend  to  be  consumable  products  

•   Examples  of  New  purchases  –   computer,  cell  phone,  bed  frame,  etc  –   Tend  to  be  durable  product  –   law  of  diminishing  marginal  u(lity  

23 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

Outline  

• Mo(va(on  •  Algorithm  

•  Experimental  Results  

•  Conclusion  

24 Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

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Conclusion

Jian Wang & Yi Zhang Utilizing Marginal Net Utility for Recommendation in E-commerce

•  Introduce a new framework for recommender system in e-commerce sites

•  Recommend products with the highest marginal net utility

•  Take SVD as an example to revamp

•  Achieve significant improvement in the conversion rate

Utilizing Marginal Net Utility for Recommendation in

E-commerce Jian Wang & Yi Zhang

Informa(on  Retrieval  and  Knowledge  Management  Lab  University of California, Santa Cruz

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Ques(ons?