What is an Incumbent?

An incumbent is like a status quo...

The status quo describes a situation as it currently is. If someone wants to change the status quo, they have to take steps to change things. They can’t rely on it changing on its own. In the same way, incumbent describes the current situation, whether it be the incumbent business in an industry or the incumbent in a political office. Anyone who wants to change the incumbent has to take action to do so.

Incumbent is a word that can have multiple meanings based on the context. In the world of politics, incumbent refers to the current holder of an office, especially during an election. For example, in 2020, Donald Trump was the incumbent president seeking reelection, while the Democratic canidate Joe Biden was a challenger to the incumbent.

In the world of business and finance, incumbent usually refers to a company that occupies a dominant position in a market. There can be other firms in the industry, but they are smaller than the incumbent and fighting them for market share.

Incumbent can also be used to describe a responsibility or an obligation. For example, one could argue that it is incumbent upon the wealthy to help the less fortunate through charitable giving. Meaning, the wealthy should feel an obligation toward philanthropy.

An example of an incumbent in business, though one that might be losing its position, is Amazon. In 2018, Amazon controlled 47% of ecommerce in the United States, making it the dominant player in the space. Other businesses have succeeded in challenging its incumbency, and Amazon’s share has dropped to 37.7%.

Another example of an incumbent business is Ford. While Ford doesn’t control the massive market share in the car market that Amazon controls in ecommerce, the corporation has a long history in the automobile market. That gives it significant experience in the market and has let it build an incumbency advantage over newer competitors.

In 2021, Nancy Pelosi is the incumbent Speaker of the House. She currently holds the position and exercises its rights and responsibilities. If the Democratic Party loses control of the House of Representatives, the Republican Party will most likely replace her in the position. Whoever becomes the new Speaker of the House will be the new incumbent in the post.

Even positions that don’t go up for election have incumbents. For example, as of January 2021, the incumbent Chief Justice of the Supreme Court is John Roberts. He’ll continue to hold that position until he resigns, is removed from the job, or passes away.

In politics, the person who currently occupies a position is the incumbent in that role. For example, the two sitting senators for a state are the incumbents. Anyone seeking to defeat them in an election is challenging their incumbency. Incumbents often win reelection against challengers. In the previous twelve presidential elections with incumbent candidates, the incumbent has won eight times. The only incumbents to lose reelection are Gerald Ford, Jimmy Carter, George H. W. Bush, and Donald Trump.

Incumbent politicians gain a significant advantage over their challengers.

One of the primary benefits of incumbency is name recognition. Serving politicians often appear in the news, on television, or on the radio. Anyone who consumes media will become at least somewhat familiar with their name and who they are. Another benefit for incumbents is that their name recognition means they usually have better fundraising ability than challengers.

Incumbent candidates also have campaigning experience. They’ve gone through the process of debates, canvassing, and talking to potential voters. They also have the infrastructure and experienced volunteer force that they can leverage in a reelection campaign. Many challengers have to gain experience for the first time and build brand new campaign infrastructures.

Finally, many voters tend to be risk-averse. It’s much easier to vote for the person who has done the job before and who you can predict than to vote for an unknown entity.

In the world of business, an incumbent is a business with significant control of the market. Beyond the fact that controlling a considerable market share offers potentially large profits, incumbency provides several advantages against competitors.

Businesses derive an incumbent’s advantage from multiple sources.

For one, the incumbent business has experience in the market and has more knowledge of consumer needs than competitors. The competition needs to both identify customer needs and build an infrastructure to meet those needs.

Discovering consumer needs involves market research, which can be expensive. Incumbent firms can gain that knowledge for lower cost and already have much of the infrastructure to serve those needs in place.

Another source of the incumbent’s advantage is that existing companies understand how to turn customers into profit most effectively. Even if an upstart company finds a consumer need and works to meet that need, it may find that those customers don’t produce long-term profits. Incumbent firms have more knowledge of the profit margins that different products and types of customers provide, letting them focus on the highest-margin opportunities.

Finally, incumbent firms have brand recognition and loyalty, forcing competitors to work harder to take away market share.

An incumbent firm is a company that is already established in an industry, especially one that has a significant market share. It already produces products and sells them to consumers. If another business wants to enter that market, it must challenge the incumbent firm, taking a portion of its market share.

Incumbent firms tend to have a competitive advantage against challengers, particularly in industries where goods aren’t homogenous. If the quality of a product, such as clothing, can vary from one firm to another, incumbents have an advantage in terms of customer loyalty and brand reputation. Challengers need to work to overcome those advantages to enter the market and become incumbents themselves.

An incumbent vendor is a supplier that a business currently works with to buy the raw materials that it needs. For example, if a hospital buys medicine from company XYZ, XYZ is that hospital’s incumbent vendor.

Incumbent vendors often have contracts with the businesses they supply, naming them as the exclusive supplier for the company.

Incumbent vendors tend to have an advantage over other suppliers who want to supply a business. Exclusivity contracts are one source of that advantage. Another source is inertia. Purchasing managers build relationships with suppliers and are generally more likely to renew a deal than they are to look for a new one.

Incumbent vendors also know their current customers’ needs more intimately than competitors do, making it easier for them to propose contract terms successfully.

In politics, the incumbent is the person who currently occupies a position. Candidates are the people who are running for election to the post. Incumbents are frequently, but not always, candidates in the election for the seat they currently occupy.

For example, in the 2016 presidential election, Barack Obama was the incumbent president. But because he had reached the two-term limit for serving as the president, he could not run for reelection. Instead, Donald Trump and Hilary Clinton were the two candidates running for the role. No incumbent candidate was running for reelection.

In some situations, there may be no incumbent in a position. If a seat becomes vacant due to resignation or death, it must be filled. In this scenario, there will only be candidates in the election and no incumbent.