The discount drought arrives

The holiday script is being rewritten. Shoppers are preparing to tighten their budgets, but retailers are dialing back the one tactic that always drove traffic: aggressive discounting.

Average discount depth is down 18% from last year, even though 74% of shoppers say discounts influence what they buy. That gap shows that bigger discounts no longer guarantee more sales. Last year, retailers tried raising discount levels, but it didn’t increase the number of items sold.

When every store advertises the same “30% off,” discounts lose their power. Shoppers don’t feel urgency and often wait for the next sale. At the same time, stores give away more margin without selling more products. Over time, frequent discounts train customers to only buy when prices are lowered, turning promotions into a cost rather than a tool to drive sales. After years of escalating promotions, the strategy has finally reached its limit.

Margin erosion meets consumer fatigue

The old model carried a long-term cost. Constant promotions trained shoppers to wait. Full price became a tax for the impatient. Brand loyalty weakened, and categories flattened into interchangeable percentages.

This year brings even more pressure. Holiday spending is expected to dip 5%, the first real pullback since 2020. Gen Z is planning to cut deepest, chopping an average of 23% from their budgets. Add tariff anxiety and rising prices, and 76% of shoppers are preparing to adjust their behavior, with 41% hunting for deals just to offset inflation.

Demanding discounts at a moment retailers can least afford them creates a dangerous gap. That’s why retailers are rethinking how they create value.

The alternative value playbook emerges

Smart retailers are finding ways to offer value without slashing margins. Half of holiday shoppers plan to use buy now, pay later (BNPL) this season. Availability has jumped 53% compared to last year, and the impact is huge.

Adobe reports that BNPL users spend about $150 more per purchase than non-users, while PayPal finds enterprise merchants see a 91% lift in average order value when they offer it. Nearly half of shoppers abandon carts if BNPL isn’t available. BNPL has become a central driver of holiday sales, shaping how and when shoppers complete their purchases

Personalization provides the other half of the equation. Almost 60% of shoppers prefer promotions tailored to their interests, and the results speak for themselves. Personalized offers convert 32% better while using only 6% of the discount depth of generic deals. That turns promotional spend from a cost into a precise growth tool.

Research from international development and finance organizations shows that 65% of consumers are influenced by targeted promotions when making purchases.

One North American retailer built a model to predict who would respond to promotions, adjusted discount levels across customer segments, and maintained both sales volume and margins. They focused on precision, offering discounts strategically instead of simply making them bigger.

What this holiday season will decide

Holiday 2025 will show if consumers embrace new forms of value or wait for old discounts. Shoppers still plan to spend around $1,552, but retailers have very little room for mistakes—any misstep could cost sales or margins.

Winners will make BNPL seamless, personalize offers, and deliver loyalty programs that truly influence behavior. With 45% ready to switch brands and 38% ready to switch retailers, a better deal now means relevance, timing, and flexibility.

Rwazi helps retailers navigate this change by providing real-time consumer insights, tracking behavior across channels, and identifying which strategies actually drive conversions, giving brands the data they need to execute before the season’s momentum locks in.