CBU I NT ERNATIONA L CONFERENCE ON INNOVATIONS IN SCIENCE AND EDUCATION MARCH 23-25, 2016, PRA GUE, CZECH REPUBLIC WWW.CBUNI. CZ, WWW.JOURNALS. CZ 199 CUSTOMER LOYALTY PROGRAM AS A TOOL OF CUSTOMER RETENTION: LITERATURE REVIEW Magdalena Hofman-Kohlmeyer 1 Abstract: Customer loyalty is a highly valuable asset. To gain loyalty of current customers and create attachments, the growing ranks of entrepreneurs decide on implementation of loyalty programs. This article aims at providing a theoretical outlook on various approaches on loyalty programs derived from literature review and identifing the factors which lead to success of a company. The literature review offers some directives for managers which are useful in the preparation of rewarding programs and are also a source of valuable customer information that helps in building future marketing strategies. We concluded that loyalty programs impact customers using financial and psychological factors to maintain long-term loyalty. Furthermore, loyalty programs should include financial as well as affective components as only financial incentives don’t guarantee a long-term relationship. JEL Classification Number: M31, DOI: http://dx.doi.org/10.12955/cbup.v4.762 Keywords: loyalty program, customer loyalty, customer retention. Introduction In the last couple of years, the role of customer loyalty in a company ’s performance has been widely acknowledged. It is known that there is a positive relationship between customer loyalty and profitability. Companies try to build long lasting relationships with customers as the feelings of attachment leads to generation of higher profits. Entrepreneurs are looking for progressive tools to maintain customer satisfaction and interest resulting in regular purchases. Successful loyalty programs can help convert satisfied customers to loyal customers which protects market shares over time. (Vinod, 2011). This article aims at providing an outlook on various approachs on customer loyalty programs as a tool for customer retention derived from literature review. Managers should identify important factors leading to a successful program. To achieve this goal, the first part of this analysis focuses on the definitions of customer loyalty. The second part refers to customer loyalty programs in literature review. The final part of the article offers conclusions based on the mentioned literature review and states some directives that could be valuable to managers. Customer loyalty According to Tabaku and Zerellari (2015), there are two approaches on customer loyalty: behavioral and attitudinal. The behavioral approach on customer loyalty refers to the customer consistently and continuously buying from the same provider. Whereas, attitudinal loyalty is a result of a psychological connection with the product or service, involving a preference and components like a positive attitude and commitment. Ludin & Cheng (2014) describe customer loyalty as a continuous relationship between the customer and the brand. It can be seen as resistance to switch brands inspite of any situation or problem encountered during the business process. Additionally, they describe customer loyalty as repeated purchases of a product from the same brand. Loyalty behaviors show an increase in number of purchases, an increase in number of customers and lower price sensitivity (Varela-Neira, Vazquez-Casielles & Iglesias, 2010). Loyal customers guarantee a reduction in marketing costs for long periods of time. (Mascarenhas, Kesavan & Bernacchi, 2006). Loyalty programs Loyalty programs have existed for 30 years. American Airlines was the first to launch a loyalty program and called it “Frequent Flyer Program”. This program was based on the fundamental statement that all customers are not created equal. Thereafter, loyalty programs have disseminated into 1 Magdalena Hofman-Kohlmeyer, Faculty of Management, University of Economics in Katowice, Katowice, Poland, magda- hofman@o2.pl