So, I killed my party today

Hey, I´m a relatively "fresh" DM, and today was the first time that my players´ characters lost a fight. They were all knocked out during the final combat.
Here is the thing: I don´t know how I feel about it. It feels strange, and not in a good way.

The situation was this: We are playing Rime of the Frostmaiden, it was the "Lost Spire of Netheril" part. We have four characters: a fighter, a paladin, a rogue and a sorcerer, all at lvl 4.
So far, most combat encounters felt a bit too easy and the players got a little "cocky" and arrogant. I felt like they needed to lose at some point to get them back to the ground...
So for this session I planned to ramp it up a bit, I made most fights a bit tougher than they are in the module. But, most of the fights are optional. My plan was to kind of teach them a lesson that they don´t have to fight everything and there are other options. 
So at the entrance I made them fight a pair of Basilisks. They could have tried to sneak past, but didn´t. They attacked. Later they encountered Dzaan and his bodyguard, a wight. I guessed correct that the group´s paladin wouldn´t let him live. They underestimated the wight though and split the party, they had the paladin and the rogue fight it, and almost lost.
Later, in the chamber that creates real objects out of illusions they got greedy and started to make illusions of gems and jewels and stuff like that. Until they rolled bad and had to fight a black pudding. That also caused a decent amount of damage and the characters had to retreat.

Finally, at the end, there´s the encounter with 6 bugbears. I upgraded two of those to be bugbear stalkers insted of the weaker warriors, because I really wanted this encounter to be hard. I hoped the players would realize that they used up many of their resources and that they are outnumbered. But they still felt superior and attacked, although the bugbears started with talks and negotiation. Now that was one of the most intense fights we had so far. The stalkers hit hard and I have to say that I rolled three critical hits for them during that fight.
The players fell one after another, first the paladin, then the rogue, then the sorcerer and finally the fighter.
We ended that fight at a really epic moment, as the paladin already failed two of his death saving throws and he would have had to make his last attempt right after the fighter went down.
Instead, I ended the session at this point.

Now, I also planned for this outcome. And I thought about using this as a transition to the Goliath camps, like having a scout of the Goliath tribe having tracked and followed the bugbear group and when he saw them leave the spire, he went in to check and find the characters unconcious. So he took them up to his sled and get them back to his tribe.
And start the next session with the characters opening their eyes again in the Goliath camp. Or to be more precise, I plan to start with the paladin having a little encounter with Bahamut in a nice cozy grove and Bahamut telling him to wake up.

So, how do you guys handle something like that ? Does it take away the stakes in the future ? Like does it give the players the impression that "He´s not gonna kill us anyway" if I go that route ?
I thought about taking away some of their stuff. I mean the bugbears were after food, gold and other valuables. So I thought about taking away their money and possibly their weapons (but not their magic items, though it would be weird if they took away the rogues rapier but not his magic dagger...). But I think that this could be quite a controversial decision and some of the players might not take it well (for example, the paladin gave his weapon a name). Is that too harsh ?

I have to add that none of the players got angry at losing that fight and in fact, we all agreed that this was one of the best sessions we had so far.

It is ok for them to die.

It would also be ok to have them be captives of the bugbears - though players HATE this scenario. Plus if you're going to take their stuff take ALL of their stuff. 

It would be ok for somebody to happen by and rescue them, but this plan is pretty weak.

It is also ok to have them have a conversation with an entity asking whether they want to live or not. Then ask what they are willing to sacrifice in order to live. 

Quote from Wysperra >>

It would also be ok to have them be captives of the bugbears - though players HATE this scenario. Plus if you're going to take their stuff take ALL of their stuff. 

If they get taken captive, you can also take away their stuff but then give them an opportunity to retrieve all of their stuff as part of their escape

Quote from AntonSirius >>

Quote from Wysperra >>

It would also be ok to have them be captives of the bugbears - though players HATE this scenario. Plus if you're going to take their stuff take ALL of their stuff. 

 

If they get taken captive, you can also take away their stuff but then give them an opportunity to retrieve all of their stuff as part of their escape

 Well of course!

Them waking up in a Goliath Camp out of gold and/or weapons would be better than a TPK. And if the party wish to get them back, perhaps the Goliath could bring them back on their trail and the party would track the Bugbears up to their lair. 

The issue you are having is quite common, especially with 5e, because nothing in the DM Guide really guides DM's away from this very inevitable and campaign-breaking problem. 

Essentially, the challenge is that you set a precedent over several sessions about the "style" of game you're running, then abruptly changed the formula, resulting in PC's getting killed.  The game you're running is a game without stakes.  Meaning the players are conscious of the fact that you are using encounters designed for them to win and while there might be setbacks there is no real danger.  They expect to win all fights; if they set off a trap, worst-case scenario, someone takes some damage etc.. the actual tactical combat and situation resolution is just entertainment.  Which is a perfectly legitimate way to have fun playing D&D, though I would argue quite boring.

The challenge with this approach is that your players, predictably, become overconfident and work on the assumption that if there is a fight presented, it was designed for them to win.  The thought of running away, using some strategy, diplomacy or tactics beyond those offered by the mechanics, probably never crossed their minds.  It's a very predictable cause and effect.

The issue with suddenly changing that precedent is that, as a DM, you have set a meta trap for the players, then punished their characters for triggering it.  You established that fights are designed for them to win, and then suddenly changed the formula.  You didn't like the effect, but you didn't address the cause with the players, and that is the crux of the problem.

The challenge for your campaign now is actually much worse in this case than it would be in a more typical TPK situation.  Because now you are in a position to set the next precedent.  Do your PC's have plot armor?  You don't have any stakes in your game that has been well established, now the question is, do you have any consequences? 

This is quite consequential (pun intended) to the longevity of your campaign.  A D&D campaign without stakes or consequences is also absent of drama and conflict, as these things cannot exist without the aforementioned stakes and consequences.  How can anything ever be dramatic in a story or how can any conflict matter or have any meaning when "no matter what we do, we always win, even when we lose"?

Stakes and consequences are sometimes confused, but think of it this way.  Stakes are how players make decisions, and consequences are what happens when they make poor ones.

It's kind of a crappy situation to be in, but the reality is that if you save these characters now, even though their death is actually mostly your fault, the campaign is dead.  Your players will not only learn nothing from the lesson you were trying to teach them, which really should have been established at session 0 (aka this game has stakes), but if you save them now, effectively, you have reinforced the idea that when their characters die, it's a DM mistake.  That you will correct the situation, which will only result in them being even more "cocky", because if the DM is not willing to let their characters die, then they are, in fact, unkillable.  Why wouldn't they be cocky?

Somewhere in here, I feel I should offer some advice, but the truth is that it's a real pickle.  It's a bit like trying to fix an egg that fell on the floor.  You might still be able to make an omelet here, but you have to do it in a way so that no one knows you scooped it off the floor, else no one will want to eat it.

I would say, save the characters, throw them into some sort of prison situation, and make it impossible for them to ever get any of their gear or gold back.  Make that the consequence, maybe even doc them each a couple of constitution points permanently.  Make it a fate almost worst then death.  

I don't think it's a good "lesson", in fact, I don't believe in the idea that the DM should be "teaching lessons" by punishing the players, so I think your going to have to have a talk with them about stakes, consequences and the dangers of the game, the cause and effect of what you want to achieve in your campaign, because I think its pretty narly to set a precedent for 4 levels of a campaign and then abruptly changed the rules on them.  That is really harsh. I can understand they might be shocked, but sparing their characters and not their gear, gets them back in the game, establishes the new precedent, and it might allow you to salvage the campaign.

Its going to be an uphill battle regardless of what you decide.

It sounds like the DM and PC's were not on the same page with regards to expectations. Did you tell the players that sometimes fights are too hard and you should run, or did you keep that to yourself and just surprise them with fights much harder than they were expecting? Because if it was the latter, that's a reason why they died.

To be fair, it's not always easy to get that right, or to send the wrong message. Even Matt Mercer and his PC's sometimes aren't on the same page with expectations on Critical Role. See Campaign 3, Episode 93, where the party got into a big tough fight which required drastic measures to win.

 It's easy to see how all of that combined gave Matt's PC's the impression that running was not an option, only fighting. I certainly would have come to that conclusion myself. If it ever seems clear to a DM that PC's don't realize the stakes or their options, a DM can point out options including retreat.

I agree with ALL of the above responses, but fear not, D&D is about crafting a story - and this can make for a good story. Regardless of whether the PCs awake as prisoners of the Bugbears (to possibly be sold off as slaves), or awake at the Goliath camp, or however else you wish to handle it... all of these can make for a good story.

In any case, there does need to be a consequence. If captured by the Bugbears, they might be able to find most of their gear during their escape. If rescued by the Goliaths, perhaps the Goliaths claimed portions of their belongings as their reward (after all, the stuff actually belonged to the Bugbears at that point, and the Goliaths defeated them). They may even owe the Goliaths some HUGE favors to repay them.

No matter how you decide to handle this, I would not allow them to get back everything - they need to lose something. Choices have consequences. They chose to push farther than their resources allowed, now they must pay the consequence.

Perhaps they don't get back all their gear or money. Perhaps they also have scars from the fight since magical healing might not have been applied timely. Perhaps they are all now branded in some way (by the Bugbears). In any event, do not simply have them wake up and proceed as if nothing happened. Build this into the story, and help them (and you) learn from this experience so all can become better players/DMs.