What are Chatbots: How Do They Work, Types and Benefits.

Updated on February 2, 2023

Okay, so you are here to learn more about chatbots, but let me start with a a story.

Jake and Sam are 2 entrepreneurs, both bootstrapped, both with the same idea and similar financial resources.

The idea: Maids on Demand. You see, in the US alone, the domestic help market size is in the range of $30 Billion, according to t h is report. This is a pretty big pie that they are munching into.

Both of them have a good network of maids, and have done all the groundwork necessary to make their business a success.

The problem area: Customer support.

While Jake is managing customer support with the help of 3 dedicated call centre agents, Sam seems to be doing just fine with 1.

The agents salary is eating into the small profits that Jake makes, and sometimes, the agents fall sick or leave the company altogether, further driving up costs for hiring and training.

Jake seems to be at wits end as to keep the costs low and make sure he reaches all his customers at the same time.

Sam on the other hand? Well, Sam seems to be doing just fine. In fact, he is not even worried about his 1 dedicated tele support agent leaving.

Want to know Sam’ secret? We bet you do, and we won’t keep you waiting.

Its not multitasking or a secret Sam clone that does all the work or even magic (although, it would have been fun if it was Magic.. Like Dobbie the house elf).

Nope, the answer is plain and simple, visible on Sam’s website.

Chatbots.

While Jake put up a number on his website for customer support queries, all Sam did was implement a chatbot. Both were playing the same game, but used different strategies.

And we don’t have to tell you who won in the long run right? Sam’s chatbots answered FAQs, helped generate more leads, and were available 24 x 7 for his customers. Sam’s business bloomed, and the rest is history.

Fascinated to learn more about chatbots. Then read on:

CTA_chatbot — Learn more about Chatbot Builder

Table of Content:

What is a Chatbot?

“A chatbot is an application of natural language processing that permits primarily text-based but increasingly voice-based bidirectional dialogues between a user and the digital interface,” says Liz Miller, vice president, and lead analyst at Constellation Research.

So, what are chatbots, in simple terms?

Chatbot Definition:

A chatbot is “a computer program designed to simulate conversation with human users, especially over the internet.”

For example, let’s say you wish to buy some shoes from a local retailer’s website. However, you had some reservations when looking. If the business had an online chatbot, you could have gotten answers to all of your questions right away instead of sending long texts.

Interested in a deeper understanding of chatbots? We have written a complete guide for chatbot beginners, and this section covers what chatbots are.

According to Mordor Intelligence, you can expect the worldwide chatbot industry to increase at a compound annual growth rate of 35 percent from 2021 to 2028, reaching $102 billion. Chatbots have several advantages, including that, unlike apps, they do not need to be downloaded. You don’t need to update them, and they don’t take up any memory on the phone. Another advantage is that we may have many bots in the same conversation. This way, we wouldn’t have to go from one program to the next, depending on what we need.

How have chatbots evolved?

Alan Turing, an English mathematician, cryptanalyst, and computer scientist, released “Computer Machinery and Intelligence” in 1950, which marked the beginning of the evolution of chatbots. He also popularized the Turing test, which is still used to assess an intelligent program’s ability to pass for a human.

A group of ambitious scientists followed Turing’s lead in the next decade. In 1966, Joseph Weizenbaum developed ELIZA, one of the earliest chatbots.

Kenneth Colby built the PARRY chatbot six years later, in 1972. PARRY mimicked a paranoid human using a system of “emotional reactions” caused by variable weights assigned to linguistic inputs.

Rollo Carpenter invented the Jabberwacky chatbot in 1988. It used the artificial intelligence approach known as contextual pattern matching, which has led to increased utilization in academic research.

Creative Labs created a chatbot named Dr. Sbaitso MS-DOS in 1992. It was one of the earliest AI-enabled chatbots, with fully voice-operated chat software. Dr. Sbaitso was supposed to operate as a psychotherapist and ask people questions like, “Why do you feel that way?” or “What is the issue you are facing?” and more.

Richard Wallace founded A.L.I.C.E. in 1995. (Artificial Linguistic Internet Computer Entity). A.L.I.C.E. used heuristic pattern matching and was a global language chatbot. Wallace designed A.L.I.C.E. to mimic the experience of speaking with someone online.

Smarterchild, the forerunner of Siri and other similar software, was not released until 2001. With Siri, Google Assistant, Alexa, and Cortana, chatbots began to take over between 2010 and 2015. These chatbot apps might execute web searches, reply to voice requests, and play music, among other things.

Types of Chatbots

There are three types of chatbots in today’s digital realm in broad terms. These are:

Rule-Based Chatbots

Decision-tree bots are another name for rule-based chatbots. As the name states, they follow a set of given rules. These guidelines serve as the foundation for the sorts of problems that the chatbot is familiar with and can solve.

Rule-based chatbots plot out talks like a flowchart. They already have a set of questions to ask the customers they are trained to answer. The customer can choose between those questions and keep moving ahead.

There are either simple or complex rules that are used in rule-based chatbots. However, they can’t answer any inquiries that aren’t in line with the established guidelines. Interactions do not teach these chatbots anything. Furthermore, they can only execute in specific circumstances for which they have been prepared.

While rule-based bots have a less flexible conversational flow, these safety nets are also beneficial. Chatbots that use machine learning are less predictable, so you can be more certain about the experience you’ll get from them.

A rule-based chatbot also has the following advantages:

Easier to train in general (less expensive).
It’s simple to integrate with legacy systems.
Streamline the transition from a computer to a human agent
Extremely dependable and safe.
Interactive components and media can be included.
Aren’t limited to text-based exchanges.

Intellectually-Independent Chatbots

These Chatbots use deep learning and machine learning to learn from their surroundings. These rely on giving thousands, if not millions, of instances of what the bot needs to comprehend to educate it to “think” by itself to a neural network. They improve with time and are primarily used for entertainment and scientific research. They respond to various inquiries saved in the Chatbot’s database, and these bots provide user-oriented responses.

Chatbots that use machine learning are meant to fully grasp the demands and inputs of customers (with some training in the beginning). By identifying similar phrases over time, these bots learn independently and become less reliant on training. Hence, they are known as “intellectually independent chatbots”.

Artificial Intelligence Chatbot

A chatbot driven by Natural Language Processing is an Artificial Intelligence chatbot. So, unlike a rule-based chatbot, it won’t respond with keywords, instead attempts to grasp the guest’s purpose or what the guest wants. The more it interacts with guests, the better it will develop at deciphering their intentions and responding to their demands.

This form of the bot is better suited to more sophisticated types of inquiries and a bigger number of them. Using an Artificial Intelligence chatbot has several benefits, including:

the ability to recognise typos and grammatical errors while still responding to the inquiry.
It will continue to improve without any additional help.
Speaking with an AI chatbot is far more natural and human-like than conversing with a person.

What Is An Open-Source Chatbot?

Open-source chatbots refer to chatbots where the software is readily available on the internet and can be modified without licensing issues.

Open-source software achieves better transparency, efficiency, and control levels through shared contributions. This helps developers to produce higher-quality software while also learning more about the software platforms.

Some of the best chatbot examples are Microsoft Bot framework, Botkit, Botpress, Rasa, and others. Which chatbot is ideal for you will be determined by the technology and code languages you presently employ and how other businesses have used chatbots.

How do chatbots work?

Converting text or speech into structured data is a process for chatbots, especially when programmed to process natural language. Regardless, it’s a process that has to be done to give users a proper response to their questions and concerns.

Here is how natural language processing may work with chatbots:

Some chatbots use tokenization to divide certain words into pieces – or, in this case, “tokens” – that can be pretty useful or significant for the application.
Named entity recognition looks for categories of words, like the name of a product, a user’s name, or an address, and the chatbot will know what those entities are when the user enters that information in the chatbox.
Normalization processes text so that it finds common spelling or typographical errors that could happen whenever a user creates a typo or doesn’t know how it spells a particular word.
Speech tagging allows the chatbot to identify parts of speech such as nouns, verbs, etc. This is so that the chatbot can understand complex sentence structures and how they impact meaning.
Dependency parsing helps chatbots look for subjects and objects in a given text, leading them to dependent phrases.
Sentiment analysis lets chatbots watch and learn if a user has a good experience or if they still need help, as compared to a human agent.

How To Create Your Own Chatbot?

Chatbots, sometimes known as virtual assistants, aid in the automation of critical corporate operations such as sales, customer service, and marketing. Here are the six significant steps that will guide you through creating your own chatbot to provide conversational support to your clients.

Define the company’s goals – You must list all of the business functions that must be automated. What will your chatbot be able to do?
Select the most appropriate medium for client engagement – Identify the ways via which your consumers like to contact you, whether it’s through your website, mobile app, Facebook Messenger, Telegram, or other messaging services.
Teach your bot — Depending on your company objectives, you may use detailed FAQs to train your bot. This will make it easier for the bot to respond appropriately to your customers or visitors.
Give your bot a voice and personality — Give your bot a name and an image that compliments your business message to give it more personality.
Create a balanced approach — Most chatbots aren’t very effective, and consumers will eventually seek chat help. You may specify when your consumers will have the opportunity to speak with a live representative.
Test, launch, and iterate — Once your bot flow has been designed, you can test it to see if it appropriately satisfies the use case. After you’ve launched your bot, you’ll need to keep track of its performance and iterate as needed.

You may construct chatbots in one of two methods. The following are the details:

1. Use a chatbot platform – Chatbot platforms are a godsend for firms that want to construct a chatbot quickly and easily. A ready-to-use bot platform includes a pre-built template that makes it simple to customize your bot and distribute it across numerous channels. You can design a chatbot with zero code, requiring less effort and time and improving consumer interaction.

2. Build from scratch – If your company requirements are unique or highly complicated, it’s best to design a bot from the ground up. In such cases, the ready-to-use bot platforms are unlikely to be able to deliver the precise answer that your company requires.

Why Are Chatbots Essential?

Starting to use chatbots might inspire both excitement and apprehension in a marketer. That’s because modern marketers understand the logistics that need to be considered when launching a new marketing channel – and chatbots provide a whole new way for prospects and customers to connect with you!

Here are 5 reasons why you need a chatbot for your business:

1. Chatbots make your business available to customers round the clock:

Chatbots don’t rest. Chatbots don’t go to bathroom breaks. Or coffee breaks. Chatbots don’t fall sick. Chatbots don’t leave the office early on Fridays. And the best part? Chatbots don’t sleep!!

Implementing a chatbot on your website means your business is “open for business” 24 hours a day, 7 days a week. You don’t have to pay chatbots special allowances. And chatbots means your business responds to the customers in the least possible amount of time.

How fast? Well, according to this report, customers today expect a reply to an email within an hour or less. How do you ensure your customers are looked after around the clock? Chatbots.

2. Chatbots help personalization

Customer service today is in the era of personalization. No one wants to talk to a business that does not know their first name. Chatbots can bridge this gap by having a more personalized connect with each customers.

With more and more companies implementing AI chatbots that more or less learn on their own , chatbots are increasingly getting closer to the customer.

3. Chatbots help you reach a diverse audience

Most of the modern chatbots are multilingual. Multilingual bots help you reach a wider audience. If you intend to take your business international, then investing in a multilingual bot is not just a fancy add-on to your website, it is a necessity.

Multilingual chatbots enhance customer experience, especially in eCommerce websites where customers make a lot of purchase decisions based on personalization.

4. Chatbots help in process automation

Remember how we told you in the beginning about Sam’s chatbots that can help you answer FAQs? Well, chatbots can be used to do that and a lot more. Chatbots can be used to email customers about product updates or important company news, or even book appointments in a hospital.

Chatbots come into picture when any process that is repetitive and requires mundane human effort needs to be automated. By automation, we are not only saving the human agents precious time, we are also ensuring that customers get a response to their questions in the least amount of time.

5. Chatbots help in data collection and analysis:

Chatbot analytics play a crucial role in understanding how users are interacting with the bot, the kind of questions posed, and the average time it takes for a query to be resolved, etc.

Calculating metrics such as First Response Time, Average Resolution Time, etc helps boost the credibility of the chatbot, and also showcase the chatbot as a worthwhile investment. Higher engagement rates mean your chatbot is doing what you paid for it.

Chatbots For Business

We hope our readers are clear about chatbots and some other crucial questions around them. Now let us explain to you what are chatbots used for. Why chatbots for businesses have become so ubiquitous ? Let’s discuss the reasons in detail:

Reduce response time

Chatbots are artificial intelligence-based bots that assist in response to client inquiries. They benefit a business in various ways, but we’ll focus on their influence on a company’s Customer Response Time CRT in this article.

These technological assistants are intended to take the role of live chat as the primary method of consumer contact. A chatbot has several advantages over live chat, including the ability to function 24 hours a day, seven days a week, and the ability to reduce the cost of labor necessary to run a live chat. The fact that a chatbot may be available at all times cuts response times dramatically.

This will allow your customer service representatives to focus on more critical concerns. A chatbot can almost automate the majority of your customer service. Customers are more inclined to trust your brand and support your business if you respond quickly. Chatbots are a great way to balance out your support team by removing repetitive tasks and allowing them to focus on more difficult client concerns.

Reduce operational cost

Chatbot benefits businesses by increasing operational efficiency and saving costs while providing convenience and extra services to internal staff and external clients. Chatbot makes a business capable of answering various client concerns while decreasing the need for human involvement.

A firm can expand, customize, and be proactive while using chatbots, a crucial differentiation. When a company relies only on human power, it can reach out to a certain number of people at any given time for its services. Human-powered firms are compelled to rely on standardized models to be cost-effective, and their proactive and personalized outreach skills are restricted.

Increase customer engagement

Chatbots enable companies to interact with an endless number of consumers personally, and they can be scaled up or down based on demand and business needs. Using chatbots, companies become capable of providing humanlike, tailored, proactive services to a wide range of customers in multiple locations at the same time.

According to consumer studies, messaging applications are becoming the preferred means of communicating with businesses for some transactions. Chatbots, delivered through messaging systems, offer a service and convenience that is often superior to what people can provide. Compared to traditional contact centers, bank chatbots save an average of four minutes for every query. Customers benefit from the same capabilities that help organizations achieve more efficiency and cost savings in a better customer experience. It’s a win-win scenario.

Chatbots Examples And Use Cases

When used across various company departments and sectors, chatbots operate as a catalyst for improved performance. Here are some common ways consumers make the most of conversational chatbots.

Customer service

According to Business Insider, 67 percent of consumers worldwide engaged a chatbot for customer service. Chatbots influence customer services significantly. Businesses may reduce customer support expenses and increase key productivity indicators that improve the customer care experience by using AI chatbots. The following are some major customer service use cases:

Customers today demand real-time responses from websites. Chatbot technology is being adopted by businesses to provide rapid consumer involvement.
Chatbots can assist your IT helpdesk in increasing the productivity and effectiveness of your personnel.
Having a bot answer frequently asked questions within an app increases user engagement. It allows firms to send alerts to customers to keep them informed of product and service updates.

For customer service, the HDFC Eva banking chatbot is a fantastic example. The banking business and chatbots work well together. It is beneficial to both the banks and their clients. Eva is India’s first talking banking chatbot powered by AI. Eva understands the user’s queries using the most up-to-date Natural Language Processing (NLP) technology and responds with appropriate information in real time.

Marketing

Bots may learn from user interaction and give helpful information about your company, goods, and services. In other words, it can up-sell and cross-sell in a customized, conversational, and engaging manner. According to 57 percent of organizations, customer service chatbots provide a high return on investment with little work.

The following are some marketing use cases for greater client engagement:

You may use bots to suggest items or package deals depending on the customer’s trip.
While the consumer is lost within the product catalog, the bot may start a proactive chat and correctly guide them to what they want.
You can learn more about your customers and engage in meaningful conversations by tailoring your notifications to the audience.

Spotify is an excellent example of a marketing chatbot. Spotify’s Facebook Messenger bot makes searching for, listening to, and sharing music simple for its users. You’ll get playlist recommendations depending on your mood, what you’re doing, or whatever type of music you choose once you’ve begun.

What Are The Challenges Of Using Chatbots?

1. Users’ way of texting

People type messages in different ways (short phrases, big sentences, an extremely long sentence in a conversation bubble, and several very small words in multiple chat bubbles) So, how do you deduce the user’s intent?

2. User language

When chatting with a person, you’re talking to a unique individual. Their grasp of the language, use of slang, love of specific words, and tendency to misspell certain words will differ with every customer. We also have to deal with such context diversity when we want a chatbot to talk like a person similarly. Natural language processing alone becomes partially ineffective, and a higher level of comprehension is required to sustain a conversation.

3. Limitations of NLP

Processing isn’t quite advanced enough to deal with everything in the state of natural language today. Synonyms and entity extraction have been taken care of, but what about the blending of the local language, the terms and slang introduced to the lexicon? Though it is engaging, and you can always change the current level, it takes time. It’s a process that will continue to evolve as the need arises. Can we use it for chatbots? Great tools leverage it for search, tagging, sentiment analysis, and recommendations.

4. Randomness of being a human

Human are emotional beings. User behavior is largely influenced by the emotions they are feeling at the time. You have different feelings at different times, which are not permanent, and you may quickly shift your mood with the different stimuli. As a result, you will need to adapt to the changing emotional needs of the user and match user intent

Mood plays a significant role. Your user may want to instruct the bot what to do one instant and then recommend the next. Understanding a customer’s train of thought and possible mood shifts will help carry out more meaningful conversations.

5. Need for more

Your customers are constantly looking for the finest experience possible. They want your chatbot to be average if it’s below average, and if it’s average, they want it to be better. Better isn’t good enough; they want the best. On par with a human’s intelligence level. To be honest, if I want to talk to someone, I want to talk to someone smarter than me, which is what people anticipate from chatbots. People want to employ chatbots that can assist them and are intelligent enough to rely on. That may fail, but they should do whatever they do well and with panache .

6. Limited attention span

Because consumers’ attention spans are limited and frequently diverted, it’s not enough to understand them. Conversational UI comes into play here. It’s more about figuring out how to entice them. So how you reply to a user message is where you get the user’s attention. The more efficiently you perform, the more likely you will be called upon again. As a result, responding to consumer inquiries should be considered seriously.

The Future of Chatbots

Here are a few ways we predict chatbots will evolve into 2023 and beyond:

1. Virtual assistants powered by Conversational AI

Conversational AI is already making the communication between a bot and a human more seamless, and virtual agents powered by Conversational AI. Speaking to these virtual assistants becomes seamless, which will lead to overall positive customer experience.

2. Chatbots for payments:

Payments that are end-to-end driven by chatbots will see a major uptick in 2023 and beyond. Chatbots are already solving the problem of cart abandonment, and the ability to make a purchase through chatbots will re-define what chatbots are.

3. Continued advancements in Natural Language Processing

NLP technology will further evolve in 2023, giving the chatbots the ability to hold more “nuanced conversations.” Chatbots will become better and better at understanding human language, with context, and this will further boost customer experience.

Which Chatbot Platform Is The Best For Your Business?

Kommunicate is a chatbot technology platform that provides real-time, proactive, and tailored support to growing businesses. Customer discussions and assistance are broken, redundant, and wasteful of both time and money. It is the goal of Kommunicate to fix this. This platform’s chatbots are simple to connect with programs like Whatsapp, WordPress, Squarespace, and Facebook. It’s simple to use because it’s code-free and has simple chatbot integration techniques. It also offers a simple and user-friendly dashboard.

Conclusion

For many applications that people will use today, a chatbot can assist when needed. Of course, a database sustains the chatbot, allowing it to provide the correct answers and responses to every user.

The most crucial part is that without natural language processing, the chatbot won’t know what to say or how to respond to words and phrases.

Therefore, with:

Natural language processing
Interactive interface
The right programming

Chatbots can help businesses better engage with their customers, regardless of scale or industry.

Ultimately, there are 3 ways to develop and perfect your company’s chatbot.

1. Depending on your company,

2. What your customers want, and

3. How you address customer pain points.

To get the best results, try experimenting with the different types of chatbots and choose the best one.

Also, take comfort in the idea that chatbots, like other up-and-coming AI devices and machine-learning gadgets, may make life easier for everyone, especially in retail and customer service.

At Kommunicate, we envision a world-beating customer support solution to empower the new era of customer support. We would love to have you on board to have a first-hand experience with Kommunicate. You can signup here and start delighting your customers right away.

What are Chatbots and How do They Work?

What is a Chatbot?

How have chatbots evolved?