Chatbot vs. Conversational AI: What’s the Difference?

You've likely encountered both chatbots and conversational AI when navigating the digital world. While both act as digital assistants to enhance user experience, they differ significantly in complexity and functionality. Chatbots are automated and respond to specific commands or questions with predefined answers, making them ideal for straightforward tasks. On the other hand, conversational AI uses advanced artificial intelligence (AI) technologies to process, understand, and respond to human language in a more personal and context-aware way. Understanding these differences is important to help you decide which solution will work best for your business.

What is a chatbot?

A chatbot is a computer program that simulates a human-to-human conversation to answer customers’ questions or resolve their problems. It is similar to a customer care call line where callers choose the option they need help with, but instead of being connected to a human, a computer interacts with the caller. While some chatbots offer simple menu options for users to choose from, many are now equipped with AI capabilities, using natural language processing (NLP) to better understand users’ inquiries.

This integration helps the chatbots respond more efficiently and effectively. Customers can also more easily utilize chatbots by using speech and text inputs. Chatbots’ primary use is to improve customers’ experiences by giving them prompt customer support in a way that costs your business less money to provide than traditional methods.

What are chatbots used for?

Chatbots help your customers respond quickly to their requests or questions without having to do their own research or engage in human interaction. They save time for your customers because they can handle multiple inquiries simultaneously, reducing wait times in a queue. Chatbots can also save time and effort for your business because their programming makes them work quickly and efficiently when completing routine tasks, freeing up your employees for more complex tasks.

Because of their quick responses, cost-effectiveness, and customer satisfaction, many industries incorporate chatbots into their businesses, including retail and e-commerce, banking and finance, travel and tourism, and health care.

Advantages of chatbots

In addition to helping your company grow more efficiently and reduce operating costs, chatbots have many advantages to help improve your customers’ experiences and your business, including:

• Resolving issues faster: Chatbots reduce wait times for customers during initial inquiries. They can also store each customer’s information so your employees can reduce the time it takes to resolve any future issues with that customer.

• Personalizing customer services: Chatbots can send your customers personalized messages, recommend new products, and suggest useful next steps after a purchase. They can also help you learn about your customers’ needs so you can predict what questions or challenges they will have or challenges they will need to solve. These metrics can assist you in discovering general patterns from your customers, helping you provide individualized customer support.

• Offering convenience: Chatbots are available to help your customers with their needs at any time of day or night and every day of the year. They also allow you to use omnichannel marketing to contact customers via their preferred methods, such as mobile or messaging apps and SMS. You can also provide your customers with enterprise-grade chatbots to allow them to communicate in their own language, eliminating language barriers to ensure a smooth and fast customer service experience for your customers.

• Identifying business leads: You can use chatbots to reach potential customers by sending follow-up messages and drip emails, helping customers connect with your business at every step of the sales process. As the chatbots communicate with your potential customers through the initial support phase, they can recognize keywords and phrases from the interactions that may indicate a lead. 

Disadvantages of chatbots

While chatbots offer plenty of advantages for your customers, like many forms of technology, they may not always meet users’ expectations. Chatbots still have challenges that require improvements to reach optimal performance, including: 

• Lack of empathy: Chatbots don’t have the human capability to understand your customer’s tone or intent when interacting with them. This lack of emotional intelligence could cause a chatbot to answer your customers unemotionally or inappropriately, which customers could misconstrue as inconsiderate or rude.

• Limited engagement: Because chatbots rely on predefined responses, they cannot understand inquiries or issues outside their pre-programmed parameters. This restriction could cause the chatbot to repeat an incorrect answer, lead to a delayed response, or not respond at all. This situation could frustrate your customers and lead to a lack of interest.

• Security risks: Because your businesses may need to ask for personal information from your customers, save exchanges, or get information about them online to store it for future use, your business must be transparent about the customer data you gather and the processes you use to collect it. Utilizing end-to-end encryption guarantees the security of transmitted data and helps avoid hackers. 

What is conversational AI?

Conversational AI uses NLP, machine learning (ML) processes, and other technologies to teach computers how to understand, process, and simulate human conversations. NLP interprets the meaning of the user’s inquiry, and ML gathers new information to make future interactions with the user easier. Conversational AI also combines techniques like part-of-speech tagging, a method done automatically by an algorithm that matches words with parts of speech, such as nouns, verbs, and adjectives, to ensure that the meaning of the user's input is understood. Your business can build and use different types of conversational AI to meet its needs.

Conversational AI software must receive training from billions of customer interactions to determine what it needs to provide accurate, personalized customer support. 

What is conversational AI used for?

Conversational AI is mainly used when you want to personalize your customer care support and offer accurate information to your customers’ inquiries while sounding human. You can also use conversational AI to gather customer details, get feedback about your business, and provide transactional offerings, such as placing online orders, making reservations, booking tickets, and scheduling appointments. 

Similar to chatbots, conversational AI is a useful tool for many industries. While chatbots can assist your customers with simple questions and issues, conversational AI works better to help with more complicated or detailed issues that may require information from more than one team or department within your business to satisfy your customers’ inquiries and help your business. Examples include:

• Customer service: Conversational AI not only answers basic queries but also responds to customers naturally and pleasantly. It is programmed to understand context and can even detect mood and tone of voice so it can respond appropriately.

• Retail: Like a personal assistant, conversational AI can help customers find what they want by saying or typing it. It can help streamline retail businesses by accessing information about customers, products and services, stores, and the customer’s experience. These all come together to create a better, more personalized, and satisfactory customer experience.

• Health care: Customers can use conversational AI to better understand their health care. This includes offering support or information at any time, alerting patients of any changes to their health care needs, and providing suggestions on how to get the best health care for their particular needs. It can also help find a doctor, refill a prescription, and assist with insurance claims.

• Finance: When used in finance, conversational AI can help you customize products and services that may interest your clients, help control any risk or fraud, and stay on top of changes in regulation and compliance rules by monitoring regulatory databases. 

Advantages of conversational AI

Conversational AI has many advantages for your customers and your business. In addition to being available all day and night, which is a benefit for your customers around the world, and the cost efficiency of saving money on paying employees to work at all hours, some other advantages of incorporating conversational AI into your business include: 

• Personalized customer service: Conversational AI uses data from past interactions with your customers and other sources, such as web analytics, social media, and surveys, to make recommendations based on your customer’s past purchases or search inquiries. This data allows your business to provide your customers with personalized products, services, and messages. 

• Realistic interactions: Conversational AI can handle open-ended interactions with your customers. It can recognize different inputs, such as text or speech, making it convenient for your customers. Because it combines ML, NLP, and intelligent context gathering, conversational AI can better understand a conversation’s context in a natural language.

• Sales increase: A sales-focused conversational AI program can help your sales representatives work with potential customers to close more sales by helping them answer questions and significantly reducing customer service wait times, which leads to more satisfied customers. Additionally, using gathered data, your business can cross-sell products or services to your customers that they may not have considered originally, bringing in more revenue. 

Disadvantages of conversational AI

While conversational AI can be very beneficial for your customers and business, challenges remain, such as:

• Training and maintenance costs: Data collection is the backbone of conversational AI, but it can be costly, especially if the data you need to provide isn’t available internally and you need to purchase it. Different types of data also require unique levels of training, so the more complex your data, the higher your cost of training for the AI model. Other factors to consider are how quickly you want to offer results and how many devices, such as computers, tablets, and smartphones, you would like the tool to work on. 

• Privacy concerns: Conversational AI can have issues with threat actors, individuals, or groups that attack specific targets and gain access to sensitive information from your business’s data stores. This access can lead to data breaches or cyberattacks. Another concern is the manipulation of the data set that your business uses for training the conversational AI. Your business could unknowingly use falsified or tampered-with information, damaging the model’s training.

• Ethical issues: In addition to the possibility of spreading misinformation, AI-driven content generators may also offer your customers biased responses. If the large language models (LLMs) use biased information in the training process, deliberately or not, they will provide biased results to your customers. This bias can lead to discriminatory results against specific users or groups, inaccurate, or unfair when the AI converses with your customers.

Other things to consider when choosing a chatbot vs. conversational AI

Both chatbots and conversational AI are beneficial in customer service, often offering your customers a seamless experience while reducing your business’s service costs. When choosing between a chatbot versus conversational AI, determine the simplicity or complexity of your business’s needs.

Traditional, rule-based chatbots work well for basic inquiries but have limits. They cannot help with problems outside their predetermined parameters but work well if your business has simpler interaction expectations.

In contrast, conversational AI uses algorithms to understand human language and the intent of your customer’s inquiry. It can also interact more personally and gather information to convert potential customers into paying customers. Becoming educated in different areas of technology and AI development can arm you with useful information to decide whether a chatbot or conversational AI is best for your business.

Getting started in AI with Coursera

If you want to learn more about the world of AI and what it can offer your business, many courses available on Coursera to guide you in the right direction. If you are just starting out with AI, the AI Foundations for Everyone Specialization from IBM on Coursera is a great place to begin your journey. IBM designed this four-course series to help you become familiar with AI terms, applications, and hands-on interaction. If your goal is to discover how to use AI to further your business, check out the University of Virginia’s Artificial Intelligence in Marketing course on Coursera to learn how to use data-driven AI to improve your business’s customer service.