Learning Optimal Bidding Strategy: Case Study in E-Commerce Advertising

Although the bandits framework is a classical and well-suited approach for optimal bidding strategies in sponsored search auctions, industrial attempts are rarely documented. This paper outlines the development process at Zalando, a leading fashion e-commerce company, and describes the promising outcomes of a bandits-based approach to increase profitability in sponsored search auctions. We discuss in detail the technical and theoretical challenges that were overcome during the implementation, as well as the mechanisms that led to increased profitability.