What are AI chatbots, how do they work, and how have they impacted ecommerce?

“Hello, how can I help you today?” 

This has to be the most tired, but nevertheless tried-and-true, phrase in retail.

But this offer to kindly answer questions and help you out is increasingly not coming from Maggie in the department-store aisle you’re browsing or from Wesley on the end of the catalog-ordering phone line. With today’s ecommerce businesses, it’s coming increasingly — along with human language and cute animations — from an artificial-intelligence chatbot perched cheerfully on your laptop screen or nestled in a mobile app. 

AI-powered chatbots — intelligent virtual assistants — have emerged as a game changer for the ecommerce industry, with an estimated market share of $454.8 million by 2027. These new AI tools, descended from simpler rule-based chatbots, are changing the way businesses interact with visitors, streamlining processes and enhancing the shopping user experience, whether people are connecting through their social media feeds or browsing retailers’ websites. 

Yes, conversational AI, the AI technology that revolves around chatbots and other entities (like Apple’s Siri, Amazon Alexa, Google Assistant, ChatGPT), and conversational commerce, the practice of using chatbots and messaging platforms to facilitate commercial transactions and interactions between businesses and shoppers, are off to a high-powered start.  

How do the best ecommerce chatbots work their magic? And how is their ilk revolutionizing online retail?

AI chatbots deconstructed

Behind its friendly façade, an AI chatbot is a computer program that simulates human conversation through text or voice interaction. A chatbot uses artificial intelligence and machine-learning algorithms to “understand” and respond to shoppers’ queries in a natural conversational manner. 

These electronic entities are (literally) popping up on a variety of platforms, where different types of chatbots have been integrated with back-end systems and databases in order to help people achieve their objectives. For ecommerce, that’s getting successfully through checkout. In terms of integration, chatbot domains include: 

  • Messaging apps: To let businesses directly engage with online shoppers, AI chatbots work seamlessly with popular social-media messaging platforms such as Facebook Messenger, WhatsApp, Slack, and WeChat. 
  • Websites: AI chatbots are embedded in online businesses’ websites, either as chat widgets or pop-up windows. Shoppers can initiate a conversation with the chatbot while browsing a website or enlisting help from the search engine. The result: enhanced engagement, reduced bounce rates, and an improved overall customer experience in one fell swoop. 
  • Mobile applications: AI chatbots are being integrated with mobile applications to provide a conversational interface along the customer journey. Shoppers can access the chatbot within the app to ask questions, get recommendations from a virtual “pro”, and complete tasks. The chatbot leverages the app’s functionalities and data to provide personalized, context-aware responses.

How do chatbots work? 

Here’s the nitty-gritty on how AI chatbot technology operates: 

Natural language processing 

The “backbone” of AI chatbots, natural language processing (NLP) enables comprehension and interpretation of user input. It analyzes the structure and context of a conversation to identify the intent and extract relevant details. By applying techniques such as syntax analysis, semantic understanding, and language modeling, NLP enables chatbots to effectively respond to people’s queries.  

Intent recognition 

Through the use of machine-learning algorithms, AI chatbots are trained to recognize the underlying intent behind a user’s message. For example, they can identify whether someone is asking a question, requesting information, or wanting to make a purchase. This allows the chatbot to tailor its response accordingly. 

Entity extraction

Once intent is recognized, the chatbot must extract relevant entities and pieces of information from the person’s query — product names, dates, locations, and other details. By accurately extracting this material, the chatbot can provide more-personalized and precise responses.  

Dialog management 

To ensure a smooth and natural conversational flow, AI chatbots employ dialog-management techniques. They keep track of previous messages and customer interactions to generate appropriate replies. By maintaining context and knowing the shopper’s history, they can thereby provide more coherent and relevant responses, making the conversation feel more humanlike. 

Machine learning 

AI chatbots continuously learn and improve through application of machine-learning techniques. They’re trained on large datasets of conversations and user interactions to better understand input and improve their responses. By leveraging this learning process, chatbots can adapt to different scenarios, handle complex queries, and provide more pertinent information over time. 

Sentiment analysis 

How do you feel? An AI chatbot might know the answer before you do. They’re equipped with sentiment analysis capabilities, meaning they can analyze tone and determine feelings, be it positive, negative, or neutral. By understanding someone’s emotions, chatbots can sharpen their response skills, ensuring more personalized and empathetic interaction. 

Continuous improvement 

AI chatbots are monitored and made better over time with help from user feedback and performance analysis. Input helps identify areas for improvement and allows chatbot developers to address shortcomings. Additionally, performance analysis provides insight on a chatbot’s effectiveness, facilitating  optimization.  

The impact of AI chatbots on ecommerce 

It’s safe to say that the army of AI chatbots descending on the ecommerce industry is the revolutionary type. Chatbot presence is proving helpful in producing results like these:

Enhanced customer engagement 

Ecommerce bots let online retailers engage with shoppers in real time, providing instant responses to their queries and offering personalized recommendations. As you’d expect, this level of responsiveness improves shopper satisfaction and loyalty. One example: the chatbot on assists people in finding the right beauty products for their preferences and skin type by asking questions and providing tailored recommendations, creating immersive personalized shopping. 

24×7 customer support 

One of the advantages of AI chatbots for customer service is that they don’t sleep; they’re ready to provide support at any time of the day or night without the need for human intervention. For instance, eBay’s chatbot enables round-the-clock order tracking, resolution of common issues, and even the initiation of returns and refunds. 

Freed-up customer-support executives 

By handling basic customer-support interactions and helping with FAQ, AI chatbots eliminate wait times and free customer-service representatives to focus on issues that require the human touch of a live agent. This improves efficiency and better assistance for complex customer queries. For example, Target’s chatbot handles frequently asked questions, leaving the customer-support team available to handle unique situations and resolve issues. 

Efficient order management 

AI chatbots streamline order management workflows by enabling shoppers to track orders, make changes, and request returns and refunds through simple conversation. This automation reduces shopper effort and improves operational efficiency for businesses. For instance, Walmart’s chatbot allows shoppers to place and modify orders, plus track delivery. 

Data collection and analysis 

During interaction, AI chatbots can collect valuable shopper data such as preferences, purchase history, and feedback. These informational nuggets can be analyzed to gain insight on shopper behavior, identify trends, and make informed business decisions. For example, Amazon’s chatbot keeps track of user preferences and purchase history in order to provide personalized product recommendations. 

Improved conversion rates 

The upshot: by offering personalized recommendations and assisting shoppers throughout their retail journeys, AI chat with a bot can help companies boost their conversion rates. The Macy’s chatbot is a good example of success in this area; it helps shoppers find outfits by asking about their style preferences and occasions; this activity has been found to lead to higher conversion. 

Chatbots of the future 

Imagine a world in which AI-powered chatbots have evolved. They offer even more sophisticated and seamless experiences. You can chat with Milo — the equivalent of Siri’s smart nephew — an advanced AI chatbot who’s your dedicated virtual companion and personal assistant. 

As you wake up, Milo greets you and asks about your plans. Through NLP and sentiment analysis, he detects your mood and tailors his responses. He suggests activities based on your interests, such as taking a hike on a nearby trail. When you need ideas on what to buy, he makes product suggestions and gives you pricing. He also seamlessly integrates with your smart home devices, allowing you to control the lights and temperature, plus order groceries using voice commands. Throughout the day, this high-quality chatbot engages you, making suggestions and even cracking jokes. 

That’s one future use case for the best AI chatbots. There are many more fun-to-imagine scenarios, but let’s get back to how they can enhance ecommerce sites right now.

Chat with our bot

Thinking of enlisting an AI chatbot to improve your online store and increase sales?

You can give your hard-working new virtual employee a leg up with Algolia’s site-search API that uses advanced machine-learning techniques to enhance natural language understanding (NLU) on enterprise websites. One result: a “smarter” chatbot that can expertly make sense of user intent and provide the relevant responses shoppers need.

Wouldn’t it be great to give your ecommerce store a competitive edge, say, by drastically reducing your cart abandonment rate?

We’d love to help you increase your conversions and drive sales. Want to get started? Chat with our bot, connect with our real people, or request a demo today.

About the authorCatherine Dee

Catherine Dee

Search and Discovery writer

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