Egypt’s economy faces a complex mix of inflation, high global interest rates, and a relatively stable exchange rate. Multinational and local companies alike are under pressure to adapt pricing strategies to safeguard margins and compete effectively, both locally and globally.

Rising inflation pushes up costs for materials, labour, and energy, leaving companies with difficult choices: absorb these costs or pass them on to consumers. However, frequent price hikes can risk dampening consumer demand, as price-sensitive customers might seek more affordable alternatives or reduce spending.

Multinational companies in Egypt face additional challenges related to the exchange rate. While the exchange rate has stabilised, recent depreciations have forced businesses to adjust prices frequently to sustain margins in local currency.

For example, the increased cost of imports, driven by a weaker pound, has necessitated price hikes. Although costs may be stable in foreign markets, local prices often rise due to changes in the value of the pound.

Meanwhile, local companies must manage the effects of inflation on both domestic and imported inputs. Businesses relying heavily on imported materials encounter higher costs, while local inflation affects wages, utilities, and other operational expenses.

In response, companies employ market-based pricing strategies, adjusting prices based on competition and product positioning, a form of marketing that presents the benefits of a product to a defined target audience. Some also opt to set higher prices in anticipation of future inflation.

These pricing approaches, while essential for profitability, can risk overpricing. This is particularly challenging in a price-sensitive market like Egypt, where overpricing can alienate consumers and open doors for competitors with lower cost structures to gain market share.

Many businesses increase prices to hedge against future uncertainties, such as currency fluctuations or supply chain disruptions. However, as inflation shows signs of slowing and with global interest rates trending downwards, Egyptian businesses may need to shift from defensive pricing towards strategies that enhance long-term competitiveness.

To navigate these economic challenges, businesses can adopt several key pricing tactics. Dynamic pricing, for instance, allows companies to use real-time data to adjust prices based on input costs, demand, and competitor pricing. This flexibility enables firms to respond swiftly to cost changes and evolving customer preferences without unnecessary price hikes.

Cost control and operational efficiency are also critical strategies. Practices like lean management and supply chain optimisation help businesses keep prices competitive while preserving margins. For example, localising supply chains can reduce reliance on costly imports and help mitigate currency fluctuations’ impact.

Currency risk management is another essential approach for businesses. Tools like forward contracts enable companies to hedge against currency risks, locking in favourable exchange rates and ensuring more stable pricing.

Price segmentation is also a strategic tool. By tailoring prices for different consumer segments, companies can appeal to various customer groups based on their price sensitivity. This approach allows for premium pricing for less price-sensitive customers while offering lower-cost options for budget-conscious consumers, protecting market share without eroding profitability.

The successful execution of these strategies relies on channel optimisation. Distributors, wholesalers, and retailers play a vital role in setting consumer prices. Supporting channel partners through financial assistance or improved working capital can help align their goals with a company’s pricing strategy, ensuring consistent implementation across markets.

Competitor and market analysis is another vital element. By understanding competitors’ pricing strategies and cost structures, businesses can identify opportunities for differentiation and refine their pricing models.

The government also plays a pivotal role in supporting competitive pricing. For exporters, targeted subsidies, tax incentives, and improved credit access could help offset rising costs, enabling more competitive global pricing. For importers, reducing tariffs on essential raw materials could allow more competitive pricing for local consumers.

Preventing unjustified price increases is essential for consumer protection, particularly during economic uncertainty. Regulatory bodies should be empowered to monitor pricing practices, ensuring businesses do not exploit inflationary conditions to impose excessive prices.

Strengthening the enforcement of anti-price-gouging regulations, especially for essential goods, can also help maintain consumer trust.

The writer is an economic advisor at the UK-based IBIS Consultancy.

* A version of this article appears in print in the 14 November, 2024 edition of Al-Ahram Weekly