However, looking at the case from the CEO point of view below are few things to consider and check the facts before making any recommendations .

1.Do not give discount and prove with facts that the Financial crisis has not reduced the manufacturing costs.
2.If we have to give discounts then how will the revenue be effected and what measures can be taken to optimise the revenue?
3. Change of good will.
a)If discount is given how will it improve the goodwill and the future loyalty ( increase in sales)?
b) If the discount is not given what are the adverse effects in long term?
4.Are competetors under the same pressure and how are the competetors reacting?

Apart from drilling down the components of revenue and costs there is a also need to understand the changes in industry, sales, type and spending power of customers.

When customer is asking for price reduction, they are referring to the cost of revenue, i.e. 50% of sales.

The production costs mainly comprise of raw materials, DL, MOH.

DL may be a tiny part of the cost of revenue, but it’s worth to mention that there’s minimum wages in Nike’s major production facilities, e.g. China, which min wages won’t be lowered by Asian crisis, also, DL cost is variable cost, hence unit cost cannot be reduced, total costs will not drop unless productivity improved.

Finally, raw materials may be majority of cost of revenue, but DL and MOH will not be 5% of cost of revenue in most industries, except EMS.

Besides, the answers should explain that the raw materials are mainly fabric and plastics, and plastics are made by petrochemical products which are affected by commodity price, and reference made to the oil prices change in 1997. Most “raw” materials like petrochemical materials are imported outside Asia, but most semi-finished parts are produced in Asia.

Correct me if I’m wrong. Thanks.

Most likely what really happens is that, Nike’s manufacturing costs have indeed been reduced by the crisis, but Nike’s CEO is so smart that he brings in management consultants, and tells the buyers: look, these Harvard MBAs say our costs have not really dropped, so stop begging for a lower price!