Chatbots

What is a Chatbot and How Chatbots Are Changing Everything?

Chatbots are tools that simplify the interaction between humans and computers. What exactly are they and why do businesses find them beneficial?

What is a chatbot? What are chatbots good for? Why are they the future? How do chatbots work?

If you’re confused about chatbots, get in line. They’re in your home (think Amazon Alexa & Google Home), on your phone (Siri & Google Assistant), and used heavily in eCommerce. Big firms like American Express and Nike use them, but millions of small companies are adopting them for daily use.

“Get a chatbot or get left behind” is the new business mantra.

They’ve been called the #1 investment for most companies today. They save time for agents, slash cart abandonment, and grow sales, but what is a chatbot? How do they work? What are chatbots used for? And how do they help?  

What is a chatbot - an infographic with the explanation of what chatbots are

Simply put, chatbots are powerful business-support tools.

They’re software that can interact with customers and recognize speech or text. They can answer simple—or even complicated—questions, as well as performing complex actions like resetting a password or processing a refund

So—let’s clear the cobwebs about what a chatbot is (and isn’t) and what these handy tools can (and can’t) do.

  1. What is a chatbot?
  2. How do chatbots work?
  3. Use cases for chatbots
  4. What can chatbots do in eCommerce?
  5. Chatbot benefits
  6. How to use a chatbot
  7. Examples of chatbots

This chatbot guide will get you to expert-level fast. You’ll see what chatbots are and how they work. You’ll learn their benefits, how to use them, and get a few clear examples. Ready?

Can’t wait to actually start using your own chatbot? Build a chatbot in 10 minutes with ready-to-go chatbot templates.

What Is a Chatbot, Anyway?

A chatbotis a software tool that mimics a human agent. Some use sophisticated machine-learning, like Siri or Google assistant. Some are more basic—barely more than automated FAQ responses. They interact with consumers through text messages, pop-up text chat, voice chat, and more.

You’ve seen chatbots pop up in the lower right hand corner of eCommerce websites. Most of them today are used for customer support. Nobody likes digging through online menus to find answers. And calling customer support can be a time-waster.

That’s where chatbots come in. They answer minor questions and solve easy problems that can monopolize employee time.

The most advanced chatbots can understand full sentences and have real-feeling conversations. When they get stumped, they escalate tough problems to live staff.

inforgraphic showing how chatbots bridge the gap between businesses and customers

How Do Chatbots Work?

Chatbot technology takes incoming speech or text, then looks for words it knows. It uses programming to settle on the best response. Simple chatbots give answers from the company FAQ page. More advanced bots “go off script” with full AI interaction and/or machine learning tech.

Chatbots today aren’t so different from live agents. Think of it this way—human support specialists can choose from a limited range of options, dictated by company policies and procedures. Chatbots work under the same guidelines, escalating tougher queries up the chain to human agents.

How Chatbots Work Example

chat example showing how chatbots work

Here’s what the conversation looks like behind the scenes:

how chatbots work

Uses for Chatbots

The most forward-facing use of chatbots is to interact with customers. Shoppers get frustrated when they can’t find the answer to a simple problem. A chatbot zaps those issues fast without lengthy, costly phone calls. They can demo products, help build email lists, and roll out promotions.

Here’s a full list of what chatbots are used for:

  1. Customer support
  2. Answer questions
  3. Book tickets
  4. Check inventory
  5. Find products
  6. Recommend items
  7. Track shipping
  8. Collect customer feedback
  9. Assign customer questions/requests to support agents
  10. Generate leads
  11. Follow up on abandoned carts
  12. Build email lists
  13. Share current pricing and deals
  14. Handle promotions
  15. Upsell and cross-sell
  16. Provide quotes/estimates
  17. Process returns
  18. Handle customer orders
  19. Make product suggestions
  20. Look for flights
  21. Find nearby restaurants and other businesses

Still wondering about the advantages of chatbots? Scroll down for examples. Plus—see our full article on the uses for chatbots.

What Can Chatbots Do in Ecommerce?

“My IT company says I’ve got to have a chatbot. I don’t want to get left behind, but what will a chatbot do for me? Why do we need chatbots?”

According to Salesforce, twice as many high-performing organizations use AI chatbots. Why? Chatbots handle a whole host of resource-draining problems. In a nutshell, they extend the human workforce, filtering out chaff that clogs the system. Here’s the full lowdown on the business benefits of chatbots:

Chatbot Benefits

What are the top chatbot benefits? The main way chatbots help is by stopping the logjam of customer requests that push your support call costs to unmanageable levels. Chatbots can’t do everything, but they can take the pressure off your live agent expenses.

They can do lots more though, including boosting sales revenue, working fast, providing 24/7 access, helping you scale up more quickly, and fighting the dreaded cart abandonment. You’ll find a list in the sections below, including:

  1. Increase sales
  2. 24/7 access for your customers
  3. Work faster than live agents
  4. Scale up fast
  5. Zap cart abandonment
  6. Free up support teams for complex queries
  7. Have qualifying conversations with customers
  8. Escalate to support agents
  9. Meet customer where they live
  10. Personalize your business
  11. Save money
  12. Increase your open rate

Get the full lowdown on each of those below:

1. Increase Sales

What are chatbots used for in sales? A market research survey of 1,000 business leaders and consumers found chatbots raise revenue by 67%. How does that work? By being there at the drop of the hat—not on the company’s terms, but on the customer’s.

Does the customer have a question? Boom. The chatbot has an answer. Is the customer interested in mauve today? Pow. The chatbot demos all the company’s products in that color.

Example?

A returning customer sees a popup welcoming her back. It’s got a 20% discount code.

Wow. She was just browsing, but now she’s hooked. The company just grabbed another sale.

Chatbot offering a discount to a returning visitor

2. Serve Customers 24/7

“Sorry, we’re closed.” Really? Then the customer will go elsewhere. That wasn’t true 10 years ago, but things have changed. Today’s shoppers want to buy now, not when it’s convenient for the business. A voicemail message about office hours is lost revenue. Chatbots nip that in the bud.

What is a chatbot’s #1 advantage? They work round-the-clock to answer questions and solve problems when employees can’t.

“Who’ll be speaking at this event? Where can I buy tickets? Do you have a list of nearby hotels? How big is an extra large? Can you process my return? I ordered this last week, where is it?” Chatbots can handle all those issues while the live support team is home in bed.

3. Work Faster Than Live Agents

“I’ve been on hold for half an hour.” Not a good look. Chatbots cut customer wait times by acting fast. That builds strong relationships with customers that lead to loyalty. That’s everything, since just a 7% boost in loyalty can raise profits-per-customer by 85%.

“You are the… NINTH… caller in queue” doesn’t value today’s customers. Also, even during a call or text chat, preprogrammed chatbots can give answers on the spot. There’s no “brief” hold to consult manuals or higher-ups when employees can’t remember the right answer.

4. Scale Up Fast

Most businesses can only grow as fast as staff allows. Once max capacity is reached, extra revenue will drift to other firms. Chatbots make an end-run around that. They snip off the bulk of the time-wasting, repetitive questions and problems, letting human workers tackle the tough stuff.

With chatbots in place, live agents have time to spare. The extra bandwidth lets companies scale up to serve more customers and roll out other offerings without the customary growing pains.

infographic showing how chatbots increase growth

5. Zap Cart Abandonment

Argh! Where’d they go? There’s nothing more frustrating to businesses than customers who ghost. Was it the price? The shipping cost? Something you said? Or did the pizza guy arrive? Most businesses don’t know, but it’s a massive problem. In fact, up to 80% of online shopping carts don’t lead to sales.

With chatbots, a company’s cart abandonment can freefall from 80% to 20% overnight. Chatbots can remind customers to buy. They can ask questions, provide solutions, rustle up a sense of urgency, or engage with customer emotions. They can also:

  • Offer assistance
  • Offer a discount
  • Send reminder emails
  • Answer product questions
  • Clear up confusion

The result? As much as a 60% drop in cart abandonment.Want more on how chatbots fight cart abandonment? See our article: Best Solutions to Reduce Abandoned Cart Rate with Chatbots

6. Free up Support Teams for Complex Queries

Live agents can solve the vast majority of issues easily. But they can get overwhelmed at peak times, and sit idle during slow times. That’s another place where chatbots can help. During a peak, the chatbot takes the pressure off the team by acting as a first line of defense.

That means the company can staff itself appropriately without having to “hire extra” just to handle a few crunch times. According to Salesforce’s State of Service Report, 68% of teams with chatbots enjoy significantly less call and email volume.

For instance? Say a customer wants to return a product.

chatbot example showing a conversation between the customer and chabot. The customer wants to return the product.
Chatbot assisting a customer with product return

7. Have Qualifying Conversations With Customers

“I know I need a chatbot, but what can chatbots do for me? Why use a chatbot in the sales process?”

The “sell me this pen” sales interview question? It checks if a sales pro knows how to have a qualifying conversation with a customer. That is, “Do you ever use pens? What kinds of pens do you like? How much do you usually pay for pens?” Without that conversation, there’s no sale.

Chatbots can ask these questions. Then they can point customers to the right offerings to serve them best. Example?

chatbot chat example. Chatbot assisting a customer who's looking for a specific product

8. Escalate to Support Agents

“I wouldn’t trust chatbots to handle my customer’s questions. They’re too basic.”

Chatbots have come a long way. They’re light years more robust today—and getting smarter fast. That said, there are some things they still can’t do. When they run into a tough problem, chatbots know to step aside. They smooth the process, scheduling a chat or call with a live agent.

Here’s an example:

chat pre-screening the customer to refer them to the right live agent

9. Meet Your Customers Where They Live

“How can chatbots help me interact with customers?”

If you want to do business, you have to go where the customers are. “Online” isn’t a complete answer anymore. According to research, 71% of consumers would rather text with businesses than talk by phone. And 92% of shoppers suspect they’ll wait on hold for 5 minutes or more if they call in. But—

Texting with a chatbot is instantaneous. The customer knows she’ll get a response fast, in a medium she prefers. Customers are busy, don’t like to wait, and often have quick questions. They don’t want to verify their identity or have a conversation. Yet 39% of businesses still don’t chat with them by text.

10. Personalize Your Business

No matter how engaging we try to make our websites, they’re still just words and pictures on a digital page. But there’s nothing more engaging than a quick chat. Text chats take company’s from an ivory tower to a personal connection. To customers, that feels fun and alive.

Chatbots also create a sense that there’s a live agent right around the corner. And according to Forbes, today’s more robust chatbots offer a hyper-personalized experience. They can remember important customer facts and become the customer’s personal assistant and ally within a company.

an infograpgic presenting key chatbot benefits

11. Save Money

Live agents are expensive. Assume a business outsources its calls and skip the brick-and-mortar costs. Even so, a single support call can cost $10 to $25. There’s nothing wrong with that—if the calls are worth the money. Spending $10 to close a sale or open an account is fine. But—

What about questions about products you don’t sell? What about information clearly listed on your website? Here’s a shocker:

In 2019, chatbots saved an average of $300,000 for every company they’re used by. But it’s not hard to see where the savings comes from. Chatbots are cheap and easy to set up, maintain, and customize. They can gather customer data, streamline the sales process, and speed up customer interaction.

12. Increase Open Rate

The average email open rate is less than 25%, with a 4% click-through rate. But chatbots turn that equation on its head. They enjoy a 70–80% open rate, with a 15–60% click-through rate. Why? Because chatbots don’t feel like spam. They engage with customers while they’re shopping, rather than intruding in the day-to-day.

With chatbots, the user is already interested. Far from a random message in your inbox, it’s a live chat based on your needs. Chat is fast, hard to dismiss, and doesn’t just “talk at” the reader. It lets the customer do the talking. That fits the golden rule of sales—most people would rather talk than listen.

How to Use a Chatbot

Chatbot implementation is simple. Unless you’re writing the bot yourself, you’ll rely on a chatbot platform to set up all the ins and outs. It’s as easy as defining what the chatbot will do, choosing where to use it (website, app, or text), and customizing what it’ll say in different situations.

To build a chatbot:

1. Add a chat plugin like Tidio.

2. Create custom chatbot options and answers to frequent questions.

3. Track customer interactions with the bot, and modify the bots reactions based on what you see.

Interested? Make your first chatbot here:

Try Chatbots For Free

🚀 Read: How to Make a Chatbot Without Coding in Less Than 15 Minutes (Free)

Examples of Chatbots

“Yes, but are chatbots effective? What is the purpose of chatbots in my industry? What can chatbots do for me?”

Still fuzzy on chatbots? The examples below will clear things up:

  • Sephora chatbot. This multiple-choice-based chatbot lets customers find store locations, make appointments, or share an image to get color-matched products.
  • Domino’s chatbot. “Large pepperoni, please.” This one lets you build your perfect pizza order or just repeat your favorite order.
  • Levi’s chatbot. This bot acts like an in-store salesperson. It asks what type of jeans you like, smooths out purchases, and lets you step up to  a live agent.
  • Buoy Health chatbot. Want to talk with a doc without the cost? This chatbot simulates that, using a database of thousands of clinical records to answer healthcare questions.
  • Snap Travel chatbot. If you need to find the best hotel or B&B, this bot can do the legwork. Just give it your criteria and let it hunt.

Want more chatbot examples? See our article: The Best Innovative Chatbot Examples by Industry

Step 1: Add a chat plugin to your website to connect with your visitors.

Step 2: Create custom chatbots that answer questions or collect feedback.

Step 3: Close more sales and track how chatbots help your business.

Try it out

Key Takeaways

What is a chatbot? It’s an exciting, constantly-evolving AI business tool. Chatbots give consumers personal assistants on the inside of a business. They let customers get answers to simple questions fast, saving time spent on hold or searching through websites.

Used properly, chatbots can:

  • Fight cart abandonment
  • Cut company costs
  • Answer questions
  • Find products
  • Collect feedback
  • Suggest products
  • Generate leads
  • Increase sales

Still have questions about what a chatbot is? Not sure how to use a chatbot in your business? Want to learn how to set up a chatbot now? We’d love to help!

Try Chatbots For Free

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