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What is Conversational AI and Why your Business needs it?

By August 25, 2022April 26th, 2023Artificial Intelligence, Conversational AI, Technology8 mins read
Why your business needs CAI


Artificial Intelligence is everywhere today. From little kids calling out for “Alexa” to play their favorite rhymes and the facial recognition we use to open our phones to cab drivers relying on Google maps to take us to our workplace every morning, AI is everywhere and it has made a huge impact on our everyday lives. So much so that the Conversational AI market size is forecasted to reach USD 41.39 billion by the end of 2030.

What is Conversational AI?

It is difficult for businesses to provide a hyper-personalized customer experience to a huge number of people simultaneously. And Conversational AI enables this. Conversational AI is an Artificial Intelligence tool that allows computers to conversate like humans through text/speech with their users. Conversational AI combines technology components like Natural Language Processing (NLP) and Machine Learning (ML) with traditional software like a chatbot and helps it function more effectively in serving its users like understanding keyword triggers and making recommendations. The goal of Conversational AI is to provide its users with an experience as similar to humans as possible and thereby automate end-to-end user experiences.

Customer Experience (CX)

Customer Experience or CX is how your consumers perceive your business treats them. CX is related to how customers feel at every stage of the buying process from the awareness stage to the end sale. The long-term success of any business today depends on how remarkable its customer experience is.

According to research done by Khoros, 65% of customers said they have left the brands they loved and moved to their competitors because of poor CX experiences. This solidifies the importance of CX for any business today.

However, what most businesses often overlook is that a business cannot build loyalty just by delighting its customers, Harvard Business Review says. HBR highlights that instead of merely entertaining the consumers, businesses must help their clients reduce their effort in solving a problem that they have. This alone would improve customer experience, reduces customer service costs, and reduces churn. Conversational AI addresses this issue precisely.

Conversational AI for an enhanced CX

report says that 65% of users seem to not trust traditional chatbots and feel that they don’t fully understand their issues. That is where Conversational AI is transforming Customer Engagement and Experience in numerous ways. The advantages are many such as:

1. A More Personalized Interaction

Businesses can offer their clients a more individualized experience by using conversational AI. This is accomplished by utilizing the data gathered by the chatbot to comprehend the client’s preferences and requirements.

2. Around-the-clock Customer Service

Businesses can provide faster and more efficient customer service as chatbots can handle numerous requests at the same time. Additionally, they can direct customers to appropriate agents and cut down on wait times. They are also available around the clock every day of the year, which is a significant benefit for businesses.

3. Eliminates Language Barriers

AI chatbots can be combined with language translation software allowing interpreting and generating responses in any language efficiently. This makes businesses feel more welcoming and opens them up to a wider range of customers.

4. Helps make Purchase Decisions

AI chatbots can learn to make recommendations based on what is in their cart and the items they have viewed, with the help of Machine Learning (ML), and create a personalized experience for the customers. Thus creating and modifying sales as well.

5. Omni-channel Presence

Conversational AI-powered chatbots are truly omnipresent, can be programmed to offer services, and be made available across multiple platforms, channels, and devices. This way businesses can benefit from a consistent brand presence.

Are Chatbots and Conversational AI the same?

No, they are not. These two terms are often used interchangeably and the line between the both can start to blur. A chatbot is a computer application that offers basic answers and responses to automate simple interactions between businesses and customers. These are also called FAQ bots. Primarily, chatbots follow a rule-based approach where they can address simple queries and fail to manage complex ones. When customers don’t type the exact predetermined keywords, the flow breaks, and the bot gets stuck in a loop.

Meanwhile, Conversational AI is more intuitive and can manage complex dialogues. This technology follows a self-learning approach, learning from past interactions and customizing responses according to specific users.

It aims at providing human-like interactions by deciphering speech and text, recognizing intent, translating different languages, and responding in a way that mimics human interactions. This is achieved by bringing together several technologies like Natural Language Processing, Machine Learning, Automated Speech Recognition (ASR), Contextual Awareness, Dialog Management, etc.

For instance, say a customer is looking to buy shirts on an online retail platform. The customer asks the chatbot to help find a ‘red shirt’ and add it to the cart. Using the keywords ‘red shirt’, and ‘add to cart’ the chatbot helps the customer with the query.

If the customer changes his mind in the middle of the buying journey and asks the chatbot to add a ‘blue shirt’ instead of the red one, the chatbot’s linear flow breaks down. It repeats the same message over and over again until it receives the keyword that it is looking for, frustrating the user.

Meanwhile, a Conversational AI can intuitively understand what the customer wants with the help of Intent Recognition and seamlessly attend to complex customer queries.

How does Conversational AI work?

The more data input, the better that AI works. As data input grows, AI can identify patterns more quickly. With a combination of several technologies, a Conversational AI generally functions by following a five-step process

1. Listening

First, the application receives information input from a user in the form of voice or text. With the help of Natural Language Understanding and Automatic Speech Recognition (in the case of a speech input), the application translates the input into a computer-readable format.

2. Comprehending

The machine then uses technology elements like NLU and/or Intent Recognition to extract meaning out of the given input to understand the query.

3. Forming a response

With the help of Dialog Management, the application forms a response to the query based on its comprehension.

4. Offering the response

Dialog Management composes responses and uses Natural Language Generation (NLG) to convert the responses into human-comprehensible formats. The machine then delivers the response in text or converts the response to a speech by using speech Synthesis.

5. Learning

The application learns from its experiences and collects information from its interactions and uses it upon itself to deliver better responses in future interactions.

How can businesses benefit from Conversational AI?

The use of conversational AI in customer experience has numerous advantages. Increased customer satisfaction and loyalty, higher engagement and conversion rates, and saving on resources are some of the most significant advantages. Here’s a deeper look at some of the Advantages

1. Sell Anytime

Conversational AI makes it easy for customers to find information about businesses and buy from them anytime, anywhere. This also reduces response time to customer queries.

2. Cost Reduction

Conversational AI can help businesses to boost productivity and cut costs. According to a study, 62% of consumers prefer using a customer service bot rather than waiting for human agents to answer their queries. This way, Conversational AI enables businesses to manage more queries at a lower cost and still offer excellent customer support while allowing employees to engage in more high-value and meaningful work to boost ROI.

3. Increase Revenue per Customer

AI handles simple, routine client interactions. The analysis of the data collected from these interactions can help businesses to create customized offers, promotions, and products and respond to customer preferences and pain points.

4. Reduce Customer Churn Rate

According to a report by PwC, 32% of customers will leave a brand after just one bad experience. This shows that customer experience is the holy grail of client retention. One of the sure-fire ways to reduce churn is by showing customers that their feedback, input, and time are valued greatly.

Implementing Conversational AI does exactly that. It makes use of customer data and creates a seamless customer experience and offers them what they want intuitively thus retaining their existing customers.

5. Increase conversions

While it can be challenging for customer service representatives to chase customers to use coupons and digital vouchers, an AI chatbot is quite efficient at this. These chatbots can routinely inform and remind clients about discount codes and other promotional offers. Apart from this, Conversational AI helps with lead generation. It offers 24/7 live support to the prospects and makes a consistent effort to convert the generated leads.

6. Better customer knowledge

The majority of businesses store a staggering amount of consumer data, including details of past contacts, transactions, and even phone and chat transcripts.

Conversational AI has the capability to mine these unstructured data and produce insights about consumer behaviors. It can easily accomplish this by using intent recognition and keyword analysis and predicting what the customer wants. It compares this current data with other information such as past interactions with the same user, how other users have responded in similar situations, and with other data stored in the databases. This enables it to foresee ways to maximize customer satisfaction.

Closing Notes

As a result of the pandemic, many businesses saw a major rise in consumer demands while seeing a decline in the number of employees. Businesses have rapidly embraced new technologies in the last two years, such as chatbots that are AI-powered, in order to meet client expectations for prompt responses to inquiries and problem resolution.

Conversational AI is a promising technology that is being rapidly adopted by every industry to optimize its Customer Experience and transform into more customer-centric and data-driven organizations. To begin your Conversational AI journey, start by finding the areas where chatbots can be most beneficial for your business. Next, select the type of chatbot you wish to use. Envision the experience you want to deliver to your customers and make sure your AI choice can support that vision.

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