How Incumbency Works in Business and Politics

An incumbent is a person or organization that currently holds a position of power or authority. The term is usually used to describe another party (an up-and-coming competitor or political candidate) that is trying to replace the incumbent. The word comes from the Latin incumbere, meaning “to lie down on,” and originally referred to people who occupied paid church positions called benefices.

Statistically, incumbents are much more likely to retain their position of power than they are to lose their power to a new competitor—this is called “incumbency advantage” or “incumbent advantage.” This advantage occurs because incumbents have:

• Name recognition: When people—whether they’re acting as consumers or voters—recognize the name of a person or organization, they’re much more likely to put their trust in them.
• Experience: Incumbents by definition have extensive experience in their field, which means that competitors trying to outseat them will have to compete with the incumbents’ business or electoral advantage, including their established channels, contacts, and supporters.
• Familiarity: People are often more likely to place their support behind someone that they know rather than choose someone unknown. This familiarity gives incumbents a major advantage over newcomers since the public already knows the incumbent’s strengths and weaknesses.

In business, the term “incumbent” most often describes a company that holds the largest market share of a particular industry or that has been around a long time. Since the incumbent company has already established themselves—for instance, by doing the market research and honing their profit margins—the incumbent firm can usually operate at lower costs in comparison to new companies. This makes it challenging for new competitors to win over customers, since they have a higher barrier to entry to start earning profits.

The term “incumbent” sometimes refers to a sitting CEO or other position of power in a company.

A clear incumbent vendor in business is Amazon, which owns close to 40% of the market share for e-commerce. As a result, newcomers to the e-commerce industry will have a difficult time competing with Amazon’s advantages of incumbency—its brand recognition, experience, and familiarity.

In political science, an incumbent is a sitting officeholder—whether that’s a mayor, a congressional election, or the president of the United States. Incoming candidates who want to unseat the current holder of an office will have to work hard to overcome the incumbent’s advantage—name recognition, proven experience, and familiarity with their base.

The 2012 US general election for president was a race between an incumbent and a challenger—incumbent Democratic President Barack Obama, who had served as the US president since 2008, and Republican challenger Mitt Romney, who had not previously served as US president. Incumbent Barack Obama won reelection to the White House.

The power of incumbency during an election is measurable; reelection rates are much higher than voting upsets. For example, since 1900, 19 US presidents have sought reelection as incumbents. Of those 19, 14 incumbent presidents won reelection, and only five lost the incumbency to a new candidate. Jimmy Carter and George H.W. Bush are a couple examples of incumbent presidents who did not win reelection.

Get the MasterClass Annual Membership for exclusive access to video lessons taught by masters, including Paul Krugman, David Axelrod, Karl Grove, Robin Roberts, Bob Iger, and more.