Conversational Commerce: What is it and How is it Revolutionizing Customer Experience?

Updated on November 15, 2024

In 2016, Chris Messina noticed a pattern in high-growth Silicon Valley companies. Most companies were investing heavily in groups of messaging apps. Meta had just bought WhatsApp, and Google and Amazon launched personal assistants. 

He named this trend as “Conversational Commerce” and described it as:

Conversational commerce is about delivering convenience, personalization, and decision support while people are on the go, with only partial attention to spare.”

Since then, the trend has only continued to grow. Current research predicts that the conversational commerce market will grow at a rate of 16.34% from 2024 to 2034. This is not surprising, given that:

• Conversational commerce can increase your Average Order Value (AOV) by 10%.
• Conversational commerce can reduce customer service costs by 30%.

This article will provide a detailed drill-down on conversational commerce, its benefits, and how to set it up for your business. We’re going to cover:

1. What is Conversational Commerce?

2. How has Generative AI Changed Conversational Commerce?

3. Why do Businesses Use Conversational Commerce to Improve Customer Experience?

4. How are Businesses Using Conversational Commerce to Shape Customer Experiences?

5. How to Get Started with Conversational Commerce in Your Business?

6. What are the best Conversational Commerce Chatbots?

7. Take Away

What is Conversational Commerce?

Conversational commerce occurs when a business uses conversational tools (messaging apps, AI chatbots, and voice assistants) to support its customers and market and sell its products and services. While the term was coined in 2016, the trend has been evolving for quite some time due to the rapid adoption of smartphones and digital commerce.

To understand the topic in-depth, let’s examine how conversational commerce has evolved over the past two decades.

How did it Evolve?

The history of conversational commerce is directly linked with the rise of smartphones and AI.

• 2007, the iPhone was launched, providing smartphone access to a global audience.
• Soon after, Whatsapp was launched in 2009, followed by WeChat and LINE in 2011.
• Seeing the craze, Meta launched their popular Messenger app in 2011
• In 2014, Amazon launched the Alexa, sparking a craze for voice assistants
• Popular apps like Domino’s and Taco Bell had established SMS and chatbot-based ordering apps by 2016.
• In 2016, Google entered the voice assistant market with their Allo messaging app (This assistant has since been integrated into Google Search and their Home devices)
• Chris Messina coined the term Conversational Commerce to denote the trend of using messages and calls to market and sell products and services in 2016.
• In 2017, the landmark paper “Attention is All You Need” was published by Google. 
• In 2019, Open AI launched the GPT 2, a conversational AI that could chat in natural language. 
• In 2022, Open AI launched ChatGPT 3.5 to the public, sparking a new craze in conversational AI. 
• In 2024, with the rapid development of AI technologies, most businesses are adopting conversational commerce at an accelerated pace. 

While the iPhone launch and messaging apps had opened the avenue for conversational commerce way back in 2007, it was the development of NLP and conversational AI technologies throughout the 2010s finally changed the market. Since companies can directly connect a generative AI chatbot to different message apps and start scaling conversational commerce in minutes, it has experienced a rapid boom. 

Seeing this timeline, you might think that conversational commerce is the same as social commerce (sales, support, and marketing through social media), but there are some core differences. Let’s understand them. 

Conversational Commerce v/s Social Commerce

Question	Conversational Commerce	Social Commerce
What is it?	Any support, sales, or marketing efforts that take place through real-time interactions on a platform.	Marketing and sales through social media platforms by providing a native shopping experience.
How do Customers Interact with the Business?	Customers interact with AI chatbots or human beings through voice, text, and rich-text messages.	Customers interact with the visuals and UI of the social media app itself.
How is the Customer Journey Affected?	Customers get a personal shopper experience with personalized recommendations and support from the business.	Customers share experiences and gain awareness about the business before making transactions.
Where does this take place?	Any platform with chat functionality, such as WhatsApp and Instagram Business Chat.	Any social media app like Facebook or Instagram
What is an example of this?	The HDFC bank chatbot provides essential support over Instagram Business Chat.	Any eCommerce shop on Instagram

The above table should help you understand conversational commerce. 

Next, let’s take a look at the modern version of this trend, powered by the best generative AI tools available.

How has Generative AI Changed Conversational Commerce?

While some form of automated chat technology has been available since the 1960s, it wasn’t perfect. The first ordering chatbots from Domino’s and Taco Bell worked only through buttons and frequently needed help.

The launch of GPT-2, GPT-3, and GPT-3.5 changed the equation by introducing the following features into conversational commerce:

1. Human Language Understanding – Modern LLMs from Google, Anthropic, and Open AI can understand human language and have conversations with humans, providing scale to conversational commerce.
2. Topic Handling – Besides understanding human language, the latest crop of Generative AI can handle different topics by using these documents as a training source through RAG. 
3. Problem Solving – Modern technology allows businesses to hand over many repetitive tasks to AI, allowing them to innovate and solve problems.

Innovations in NLP, NLU, and computing architecture have made the current era of conversational commerce possible. It has also opened up a world of benefits and opportunities for businesses.

Why do Businesses Use Conversational Commerce to Improve Customer Experience?

As we pointed out, most businesses use conversational commerce to automate tasks and improve customer experience. There are multiple benefits to this, and the notable ones are:

1. 24/7 Availability

It used to be costly to maintain 24/7 availability, but the latest AI chatbots make it a cheap and sustainable option. They can provide round-the-clock availability and handle almost 70% of the incoming repetitive queries, allowing you to serve customers promptly, even during festive periods like Black Friday. 

2. Faster Resolutions and Responses

It can be challenging to maintain a consistent pace in replies when you get a lot of messages. Conversational AI reduces this effort, automating many of these repetitive messages. 

It provides customers consistent and fast replies and resolutions when they ask questions, improving overall satisfaction and experience.

3. Improved Understanding of Customer Intent

The latest conversational commerce chatbots can understand the customer better and even map out customer intent. By combining this sentiment analysis capability with quicker resolutions, these chatbots improve the customer experience and boost retention rates. 

4. Better Recommendations

People are more comfortable over conversations and provide more insights into their shopping patterns. If you add the data from their previous purchases to your chatbot, you will improve the product recommendations that you give to your customers. 

This also increases the things you can cross-sell and upsell. Recent research from Forrester says incorporating these chatbots can increase your store’s Average Order Value (AOV) by 10%.

5. Purchasing Help

According to SalesCycle, nearly 80% of shoppers abandon an eCommerce cart before completing a purchase. To combat this, many businesses use automated emails and text messages.

AI chatbots perform the same actions, but beyond texts and emails, they also reach out to customers through different messaging apps and help them with information so that they can make the purchase.

6. Increased Innovations

Maintaining a global service team is expensive. AI can cut costs by automating a significant portion of the repetitive messages a business receives. 

This helps businesses operate on a global scale and in multiple languages without increasing their operational costs. 

Since operational costs are lower, businesses can spend more time-solving core problems and innovating their products for a better customer experience.

7. Better Data

The most underappreciated use of conversational commerce is the amount of data you get from instituting a chatbot. Chatbots can also understand sentiments and store logs of previous conversations. 

With all this data, you can analyze customer behavior, emotions, and actions to improve your marketing efforts, products, support styles, and services.

While there are multiple benefits to conversational commerce, they are the key features that improve the customer experience.

Many businesses worldwide have figured out novel strategies to maximize these benefits. Let’s discuss these use cases next. 

How do Businesses Use Conversational Commerce?

Some of the innovative ways in which businesses use conversational commerce are:

1. Customer Service

The most popular use-case of conversational commerce is customer service. With some automation, conversational commerce allows businesses to support their customers at scale. They are available 24/7 and truly omnichannel, making it easier for customers to speak to them whenever they need help.

2. Product Onboarding 

Many businesses use AI chatbots to help people as they onboard on their websites or products. These businesses use the conversations to help customers on their journey, prompting them with crucial information and guides that help them take the next step.

3. Virtual Shopping Assistant

Sephora is a primary makeup and skincare retailer that uses a virtual shopping assistant on their Instagram Business Chat page. They used to provide recommendations and showcase new products to anyone who messages them. 

4. Convenient Checkouts

Many people use WhatsApp chatbots to provide customers with buttons to make direct purchases. Some platforms like WhatsApp also offer native payment integrations that handle end-to-end purchases.

5. Click-to-Message Advertising

Several platforms like LinkedIn and Instagram provide advertising options for directly interacting with customers. Customers can use these messages and click on products to purchase directly or review the services offered.

So, now that you know how and why businesses use conversational commerce, let’s talk about how you can implement it for your business. 

How Can You Add Conversational Commerce to Your Business?

There are some basic practices that you should follow when implementing conversational commerce for your business:

1. Identify Customer Needs

Learn about the places and channels where your customers make the most purchases and prioritize those spaces for conversational commerce. One of the significant opportunities that you can capitalize on is the prevalence of platforms like Instagram and Whatsapp, where customers spend most of their time and are thus more likely to make purchases,

2. Use AI

Many people use messaging apps and social media platforms to connect with businesses (Almost 60% of Instagram users in the U.S. will use the platform to interact with a company!). Given this volume, using a conversational AI chatbot to pilot your conversational commerce programs makes sense. 

This will help you maintain consistency while providing faster customer communications and recommendations.

3. Choose Pilot Market

Determine a small market where you can concentrate your efforts at first. Given their rising social media usage, most businesses use conversational marketing to connect with Gen Z or millennial audiences. 

Once you’ve identified the market most likely to welcome your new efforts, focus on that and start the launch. 

4. Expand and Iterate

Analyze the results from the pilot market, and if you get a good ROI on live chat and chatbots, expand your efforts. Keep iterating and make minor improvements until you succeed. 

This basic business plan has been successful throughout our broad base of clients. To help you further, we’ve also created a short list of the conversational commerce chatbots you can use for these efforts.

What are the Best Conversational Commerce Chatbots for Businesses?

As a part of our research efforts, we try out multiple chatbot vendors to determine product direction. Here are the best conversational commerce chatbots we’ve encountered:

1. Kommunicate

Kommunicate has quickly become a go-to solution in the conversational commerce space. Known for its no-code AI trainer and plug-and-play integrations, this platform is ideal for businesses looking to implement chatbots without technical expertise. Kommunicate also stands out for its transparent pricing and extensive customization options, making it adaptable to various workflow needs.

2. Kore.AI

Kore.AI is a fast-rising player in conversational AI, offering a customizable dashboard for tracking analytics and customer queries. This platform is designed to give businesses valuable insights into customer behavior, helping improve personalization and service quality in every interaction. Kore.AI’s flexibility and data-driven features make it a popular choice for data-intensive industries like commerce and finance.

3. Haptik

Haptik provides a comprehensive, feature-rich chatbot platform with an impressive analytics suite. Known for its extensive customer support team, Haptik offers 24/7 assistance to ensure smooth operations and quick resolution of any technical issues. It is ideal for fast-paced retail and eCommerce environments needing reliable backend support.

4. Fin by Intercom

Intercom is a well-established name in the chatbot industry, providing a best-in-class integration ecosystem and a powerful conversational chatbot, Fin. Intercom’s capabilities suit businesses looking to enhance customer engagement across platforms. However, users should be aware of potential overages if customer interactions exceed anticipated limits.

5. Freshchat by Freshworks

Freshchat, developed by Freshworks, focuses on solving core customer service challenges. With its omnichannel integrations, Freshchat allows businesses to engage customers on their preferred platforms, creating a seamless experience. It is feature-rich, enabling enterprises to manage multiple customer interactions while maintaining high personalization and support.

Summary

While the conversational commerce boom started with the launch of the iPhone, the market has only begun to mature over the past 2-3 years. The launch of various AI technologies and chatbots has fueled the rise of conversational commerce. 

AI has also vastly improved these mediums’ overall experience over the past decade. So, if you’re heading into a new festive season or trying to maximize the revenue you get from your audience, there’s no better time to adopt these technologies and methods. 

If you’re intrigued by the wide range of benefits and use cases, please try out any of our listed providers. 

And if you’re looking for a chatbot provider that makes conversational commerce effortless, talk to Kommunicate!