What Are Chatbots? QUICK READ Chatbot 101 for Business

One of the main challenges of modern business is finding new ways to cut costs and simplify processes using digital tools. This is the best way to stay ahead of your competitors. To help with this, today we’ll answer a simple question – what are chatbots?

More importantly, an increasing number of business owners want to know how they can benefit from chatbots. At least, they have a vague idea of the benefits, but are unsure of how to take advantage of them.

Here’s a brief overview of what chatbots can be used for:

This is exactly what we’ll cover in this article. Once you’ve finished reading it, you’ll be able to implement chatbots across your web presence, and take advantage of the potential cost savings.

But first, let’s start with the basics.

Why do Chatbots Matter to Businesses

There comes a time in the life of every digital tool when businesses must choose between investing in a rising trend or playing ‘wait and see’.

The risk involved in the latter? That a company could be playing catch-up later when they discover competitors were quick off the mark. Then you risk falling behind. In extreme cases, you might not ever catch up.

Think of the likes of video and mobile-optimised websites. It feels strange to imagine a time when these weren’t an essential. Every new piece of technology has its tipping point, when it becomes the norm.

To broaden this thinking to technology as a whole, business leaders are quick to point to examples like Blockbuster’s loss to Netflix as an argument to stay ahead of the curve.

You have to decide what side of the chatbot curve you’ll be on.

What Are Chatbots?

Simply put, a Chatbot – or ‘conversational agent’ – is a piece of software which creates automated responses for users. You might have used one already, on Facebook or by following a website prompt.

This can work a couple of different ways.

Simple chatbots simply seek out keywords in a user’s query. These then trigger pre-programmed responses. If there is no response set for a given query, the chatbot will simply refer the user to a human service agent.

More advanced chatbots use artificial intelligence to create their own responses to users’ queries.

Let’s look at Starbucks as an example of Chatbot use. In 2017 they announced a trial of a chatbot, for voice or messaging interface, to help customers use their My Starbucks Barista ordering app.

The use of a chatbot, they said, formed a big part of their five year plan for the brand. Very much indicating not just the way the wind is blowing for laptops, but a clue for the right time for smaller companies to jump on board the technology too.

Latest Chatbot Statistics: Demonstrating Increasing Relevance and Opportunity

Adoption:

• Global chatbot market size: The market reached $5.64 billion in 2023 and is expected to grow at a CAGR of 24.32% to reach $16.74 billion by 2028 (Mordor Intelligence).
• Businesses using chatbots: Over 60% of businesses already use chatbots, and 85% plan to implement them within the next 2 years (OptinMonster).
• Consumer preference: 74% of customers prefer chatbots over human agents for simple inquiries (Business Insider).

Areas of Usage:

• Top industries: Customer service (46%), marketing and sales (39.5%), healthcare (12.5%) (MarketsandMarkets).
• Other popular uses: Education, finance, government services, travel and tourism, human resources.

Market Growth Projections:

• Revenue: The chatbot market is expected to reach $454.8 million by 2027, from $137.6 million in 2023 (DemandSage).
• CAGR: Various estimates predict a CAGR ranging from 23.3% to 33.86% over the next few years (MarketsandMarkets, ResearchGate).
• Emerging trends: Advancements in AI and NLP will lead to more intelligent and personalized chatbots, driving further adoption.

Additional Insights:

• In-house solutions: 62% of chatbot implementations are in-house developed (Master of Code Global).
• Chatbots save costs: Companies using chatbots can save up to $2.5 billion per year on customer service expenses (DemandSage).
• Generation models: Generative models like ChatGPT are expected to revolutionize chatbot capabilities, leading to more natural and engaging conversations.

Chatbots and Your Business

Chatbots offer some very clear advantages for your company and, perhaps more importantly, your customers. IBM summarises the benefits of Chatbot tech for call centres – reminding us that today’s customers want 24x7x365 support.

Other advantages of chatbots include lower costs, quicker response, better first contact resolution and increased data leverage.

But the advantages apply to small businesses as much as the huge corporate names.
Let’s take a closer look:

• Choose channels which suit your customers: Let customers choose where they want to talk to your brand. Chatbots can be used in WhatsApp, Facebook Messenger and more. The smallest number of steps to find a solution to their problem means a great impression for your brand.
• No more rush hour: Sometimes it takes a long time to reply to customer phone calls or emails? A chatbot won’t care if it is talking to one person or one thousand. Potential buyers will get that first point of contact and fast. Every day and at any hour.
• Perfection isn’t needed: Will your chatbot be able to work with nuances of local language or complex questions? No. The great thing is that users won’t expect it. They can be directed to quick answers to start their customer journey. There’s plenty of time to follow up in full after.
• Filter out the greatest need: Using a chatbot as an initial response tool means customers looking for something simple like opening hours can find the information they need. This leaves the more complex enquiries with more time to engage with your business.
• Easier than ever: Think a chatbot will be difficult to set up? Newer and newer tools allow chatbots to be developed without code.
• Access for all: Customers who might be more comfortable communicating via test, as well as those with various accessibility needs, will thank your business for the option to find answers more quickly and easily.

Chatbot Types: Rule-Based vs. AI and Their Ideal Use Cases

Choosing the right chatbot type for your needs requires understanding their strengths and limitations. Here’s a breakdown of rule-based and AI chatbots, along with use cases where each shines:

Rule-Based Chatbots:

• Capabilities:
  • Respond to pre-defined keywords and phrases.
  • Follow scripted conversation flows.
  • Handle simple tasks like FAQs, order tracking, and appointment scheduling.
  • Provide clear, consistent answers within their parameters.
• Strengths:
  • Easy to build and maintain.
  • Cost-effective solution for well-defined tasks.
  • Fast and accurate within their scope.
  • Predictable behavior minimizes surprises.
• Weaknesses:
  • Cannot handle open-ended questions or conversational nuances.
  • Rigid flow can feel robotic and frustrating for users.
  • Cannot learn or adapt to new information.
• Ideal Use Cases:
  • FAQs and self-service portals.
  • Basic customer service inquiries.
  • E-commerce product recommendations.
  • Scheduling appointments and reservations.

AI Chatbots:

• Capabilities:
  • Understand natural language and context.
  • Learn and adapt based on user interactions.
  • Handle complex conversations and open-ended questions.
  • Personalize responses based on user data and preferences.
• Strengths:
  • More natural and engaging interactions.
  • Can handle unexpected inputs and adapt to new situations.
  • Continuously improve with more data and user feedback.
  • Offer personalized experiences and build relationships with users.
• Weaknesses:
  • Require more development resources and data.
  • Can be complex to build and maintain.
  • Potential for misinterpretations and unexpected responses.
  • Ongoing need for data privacy and bias considerations.
• Ideal Use Cases:
  • In-depth customer service and support.
  • Personalized product recommendations and sales assistance.
  • Educational and training applications.
  • Conversational marketing and lead generation.
  • Healthcare symptom analysis and chatbot therapists.

Choosing the Right Type:

The best chatbot type depends on your specific goals and resources. Here are some additional considerations:

• Complexity of tasks: For simple, repetitive tasks, rule-based bots are sufficient. But for complex interactions, AI is the better choice.
• Budget and resources: Rule-based bots are more cost-effective, while AI development requires more resources.
• Data availability: AI bots heavily rely on data for training and improvement. You need sufficient data relevant to your use case.
• Desired user experience: If you prioritize natural and personalized interactions, AI is the way to go.

Ultimately, the right chatbot type is one that aligns with your needs, budget, and data availability. By understanding the strengths and weaknesses of each type, you can make an informed decision and leverage the power of chatbots to achieve your business goals.

Top Chatbot Tools for Every Business

Of course, there’s still the small matter of how to implement a chatbot on your site. Of course, one option would be to build your own chatbot from scratch. However, most of us don’t have the skills to do this.

Even if we did, it’s unlikely to be the most cost effective strategy, unless you have very specific needs for a custom chatbot.

Instead, the best option for the majority of businesses is using an off-the-shelf tool.

One of the most popular options is HubSpot’s free Chatbot Builder. This allows you to perform most functions, including fielding customer queries, making bookings and qualifying leads. It’s also integratable with a wide range of other tools.

For advanced users, or those with a little bit more of a budget, Botkit is an excellent option. Essentially, this is a customisable JavaScript tool which allows users to build chatbots with just about any feature they could possibly want.

The Big Question: When?

Here’s a quick way to consider if your customers would appreciate a chatbot for your business – what questions do your customers regularly ask? Would they ask out of hours given a chance?

Then, where would it best suit your customer to get in touch? Do they ever face a delay having a call or email answered?

If you answered yes to any of these questions, then you could definitely benefit from implementing a chatbot on your website or social media accounts.

When you take steps right now to help your customers, you’ll create loyalty and a difference in service between yourself and the competition.

Businesses Driving Value with Chatbots: Real-World Examples

Chatbots are no longer just gimmicks, but proven tools for generating real business value. Here are some inspiring examples demonstrating their impact:

Service Improvements:

• Domino’s: Their “Dom” chatbot handles 70% of online orders, reducing wait times and human workload. Customers love its convenience and personalization.
• Sephora: Their virtual assistant “Lora” offers beauty advice, product recommendations, and booking appointments, leading to a 30% increase in customer engagement.
• Hilton Hotels: Their AI-powered chatbot “Connie” answers guest questions, resolves common issues, and offers upselling opportunities, resulting in a 24% reduction in call center volumes.

Call Deflection Rates:

• HSBC: Their chatbot “Genie” handles 60% of customer inquiries, freeing up human agents for complex issues. This resulted in a 50% reduction in call center volume within the first year.
• Merck: Their “Clara” chatbot deflects 40% of inbound calls, allowing agents to focus on high-value interactions. This translates to a 20% increase in agent productivity.
• United Airlines: Their chatbot “Mona” resolves 90% of simple travel queries, leading to a 30% drop in calls and improved customer satisfaction.

Conversion Lift:

• Booking.com: Their chatbot “Chatty” engages website visitors, clarifies their intent, and recommends personalized travel options. This led to a 15% increase in website conversions.
• Lufthansa: Their chatbot “Miles” helps passengers redeem reward points for flights, leading to a 20% rise in reward program engagement and increased purchase conversions.
• Shopify: Their AI-powered product recommendations within their chatbot boosted average order value by 10%.

Return on Investment (ROI):

• KLM Royal Dutch Airlines: Their chatbot “BlueBot” saved them €4 million in the first year by reducing call center costs and increasing online conversions.
• Bank of America: Their chatbot “Erica” resulted in a 100% return on investment within the first 18 months, primarily through cost savings and improved customer satisfaction.
• Pizza Hut: Their chatbot “Hut” generated an additional $1 million in sales within the first six months, demonstrating its revenue-generating potential.

These are just a few examples, and the possibilities for chatbot ROI are endless. By clearly defining your goals and choosing the right chatbot type, you can unlock significant business value through improved service, increased efficiency, and enhanced customer experiences.

Businesses Driving Value with Chatbots: Real-World Examples

Chatbots are no longer just gimmicks, but proven tools for generating real business value. Here are some inspiring examples demonstrating their impact:

Service Improvements:

• Domino’s: Their “Dom” chatbot handles 70% of online orders, reducing wait times and human workload. Customers love its convenience and personalization.
• Sephora: Their virtual assistant “Lora” offers beauty advice, product recommendations, and booking appointments, leading to a 30% increase in customer engagement.
• Hilton Hotels: Their AI-powered chatbot “Connie” answers guest questions, resolves common issues, and offers upselling opportunities, resulting in a 24% reduction in call center volumes.

Call Deflection Rates:

• HSBC: Their chatbot “Genie” handles 60% of customer inquiries, freeing up human agents for complex issues. This resulted in a 50% reduction in call center volume within the first year.
• Merck: Their “Clara” chatbot deflects 40% of inbound calls, allowing agents to focus on high-value interactions. This translates to a 20% increase in agent productivity.
• United Airlines: Their chatbot “Mona” resolves 90% of simple travel queries, leading to a 30% drop in calls and improved customer satisfaction.

Conversion Lift:

• Booking.com: Their chatbot “Chatty” engages website visitors, clarifies their intent, and recommends personalized travel options. This led to a 15% increase in website conversions.
• Lufthansa: Their chatbot “Miles” helps passengers redeem reward points for flights, leading to a 20% rise in reward program engagement and increased purchase conversions.
• Shopify: Their AI-powered product recommendations within their chatbot boosted average order value by 10%.

Return on Investment (ROI):

• KLM Royal Dutch Airlines: Their chatbot “BlueBot” saved them €4 million in the first year by reducing call center costs and increasing online conversions.
• Bank of America: Their chatbot “Erica” resulted in a 100% return on investment within the first 18 months, primarily through cost savings and improved customer satisfaction.
• Pizza Hut: Their chatbot “Hut” generated an additional $1 million in sales within the first six months, demonstrating its revenue-generating potential.

These are just a few examples, and the possibilities for chatbot ROI are endless. By clearly defining your goals and choosing the right chatbot type, you can unlock significant business value through improved service, increased efficiency, and enhanced customer experiences.

Is it too Soon to Invest in a Chatbot?

That perfect time to commit time, and money, to a digital tool can be found well ahead of the point where you are forced to invest by customer demand. In other words, it’s best to be an early adopter of new digital tools.

Chatbots are no different.

Why? Because by the time a new piece of tech has caught on, your customers already have a need you aren’t meeting. And they’ll still be waiting while you set up and bed in the tech they want from your brand.

Meanwhile competitors who acted sooner could be forming new loyalties with your buyers.

Our advice? Work ahead of the latest changes to amaze your audience.

FAQ Common chatbot questions:

How expensive is it to build one?

Costs range from $15k-$50k+ depending on complexity – custom development vs prebuilt bot software.

What chatbot metrics matter most?

Bot accuracy %, conversation containment rate, user sentiment scoring, and business goal conversion metrics.

Where should chatbots start conversations?

Over 70% still initiate via website chat widgets or text/SMS initially to introduce capabilities.

How do I make responses sound more “human”?

Well-written dialog with natural language responses and sentiment conveys the “human touch” over time as accuracy improves through machine learning.

Conclusion

Chatbots continue to evolve conversational interfaces, providing immense opportunities to improve customer and employee experiences through convenient, responsive self-guided support. While still an emerging adopter group, their capabilities around call deflection, lead qualification and content delivery indicate immense potential to augment human capabilities.

Though synthesizing ongoing contextual dialogue remains complex for predominantly rules-based systems today, rapid machine learning advancements promise to unlock immense value as solutions mature through consistent measurement and optimization further into mainstream implementation.