Ad Costs Soar as Inflation and AI Reshape Holiday Shopping

SAN FRANCISCO, CA – December 03, 2025 – Digital advertising costs are surging as a perfect storm of economic pressures, an unusually early holiday shopping season, and deepening consumer divides forces marketers into a fiercely competitive year-end battle for customer attention. A new report from AI-powered advertising platform AdRoll reveals that the cost for retargeting ads—those shown to users who have already visited a website—spiked 11% year-over-year, signaling a profound shift in market dynamics.

The Q4 2025 State of Digital Advertising Report, based on data from over 20,000 online businesses, paints a picture of a market grappling with unprecedented complexity. From September to November, the cost per mille (CPM), or the price for one thousand ad impressions, for display retargeting campaigns climbed sharply. Costs for prospecting campaigns, aimed at finding new customers, also crept up 2% above 2024 levels, indicating that brands are paying more across the entire marketing funnel to capture increasingly elusive consumer dollars.

This trend is not happening in a vacuum. Broader industry forecasts corroborate the rising tide of ad spend, with firms like WARC predicting the global ad market will surpass $1 trillion for the first time in 2025. However, the data from AdRoll provides a granular look at the intense pressures facing advertisers right now, particularly in the critical e-commerce and B2B sectors.

The Economic Crucible of Holiday Advertising

At the heart of the cost surge is a holiday shopping season that began not after Thanksgiving, but closer to Labor Day. Facing persistent inflation—which reportedly hit a 2025 high in September—and falling consumer sentiment amid a prolonged federal government shutdown, shoppers began their holiday buying earlier than ever to spread out costs and hunt for deals. Simultaneously, brands pulled their promotions forward, hedging against an uncertain economic fourth quarter.

This created a massive, premature concentration of advertising spend, compressing the typical holiday buying cycle and driving up competition for high-intent ad inventory. The result was a bidding war for the attention of consumers who were still actively making purchases.

Further amplifying the trend is the growing economic polarization often described as a "K-shaped" economy. With higher-income households accounting for a disproportionate share of resilient spending while lower-income families pull back, advertisers have been forced to narrow their focus. Budgets are being concentrated on smaller, more affluent audience segments, dramatically intensifying the fight for the limited premium ad inventory that reaches these consumers. This dynamic has been a key driver behind the steep CPM increases, particularly in high-value retargeting channels.

“Marketers are entering one of the most complex holiday seasons we’ve seen in years,” noted Vibhor Kapoor, chief business officer at AdRoll, in the company's press release. “When demand pulls forward and AI reshapes discovery paths, brands can no longer rely on last-minute spend or single-channel strategies. Success now depends on full-funnel visibility, experimentation, and tight orchestration across every team influencing the customer journey.”

Navigating a High-Stakes Market

The rising costs present a significant challenge for businesses of all sizes, but especially for the mid-market companies that form AdRoll's core clientele. These growth-minded businesses must now compete for ad space not only with direct competitors but also with global giants whose massive budgets can absorb the rising costs. AdRoll's positioning as a leader in the mid-market retargeting and cross-channel advertising space, as recognized by G2's Summer 2025 reports, highlights the critical need for sophisticated, AI-driven tools that can help smaller players advertise with greater efficiency and precision.

The volatility extends beyond e-commerce. The report also noted a significant rebound in account-based marketing (ABM) campaign costs. After falling 23% year-over-year in August, the decline in ABM CPMs narrowed to just 10% by November. This suggests that B2B marketers are also ramping up spending to engage high-value accounts before year-end, mirroring the urgency seen in the consumer space.

This environment demands a new level of strategic agility. The days of setting a Q4 budget and letting it run are over. Marketers must now monitor performance in real-time, ready to reallocate funds between channels, adjust creative, and experiment with new audiences on a weekly or even daily basis. The focus has shifted from mere performance to resilient, efficient, and intelligent growth.

Beyond the Search Bar: AI Agents as the New Discovery Engine

Perhaps the most significant long-term trend highlighted by AdRoll is the impending transformation of product discovery itself. The report points to a future, arriving as early as 2026, where AI agents will increasingly mediate how consumers find, compare, and purchase products. This shift represents a fundamental rewiring of e-commerce and digital marketing.

Industry experts overwhelmingly support this prediction. Analysts at SAP have declared that 2025 will be the "last year online shopping starts with a search bar, not a sentence," predicting that AI agents will soon deliver a level of relevance and immediacy that traditional search cannot match. Research from the Capgemini Research Institute found that generative AI platforms are already replacing search engines for product recommendations among younger generations.

This paradigm, sometimes called "agentic commerce," will require brands to optimize their digital presence not just for human eyeballs but for AI bots acting on a consumer's behalf. These agents will parse product descriptions, compare specifications, and evaluate reviews to make recommendations, fundamentally changing the nature of SEO and paid advertising. Brands that fail to make their information easily accessible and interpretable by these AI systems risk becoming invisible.

Looking ahead to 2026, the convergence of these forces—persistent economic uncertainty, the rise of AI-driven discovery, and the necessity of integrated, full-funnel marketing—creates a new strategic baseline. The spike in ad costs is not a temporary seasonal anomaly but a symptom of a deeper evolution in the digital marketplace. For businesses aiming to thrive, mastering data, embracing AI, and fostering cross-functional agility is no longer an advantage but a core requirement for survival.