Conversational AI: A Complete Guide

Intro

For enterprise organizations, AI-driven automation has the potential to streamline your operations, reduce costs and even improve customer satisfaction – but only if you can implement it in a way that satisfies your customers and their complex needs.

One of the fastest ways to alienate customers with automation is during conversations. Users will quickly grow frustrated and potentially even abandon your brand if they feel like they’re talking to an impersonal, error-prone robotic agent. 

Though customers value the speed, accessibility, and ease of use of automated solutions, they will only accept them if they can interact smoothly and feel like their needs are being met. 

This is where Conversational AI comes in – a technology designed to create AI Agents that communicate in a transformative way for all of your customer-facing interactions. With natural, human-like conversations across both voice and text channels, Conversational AI makes automation more engaging and efficient.

What Is Conversational AI?

Conversational AI is a type of artificial intelligence that allows automated systems to understand, interpret, and respond to natural language. Conversational AI is not a standalone technology and is usually combined with Generative AI – but it can also be used alongside Agentic AI to create human-like AI Agents that can communicate directly with your customers.

In the context of this guide, Conversational AI refers to the technology that allows AI Agents, rule-based chatbots, and other automated systems to understand the intent and structure of conversations. 

To achieve this, Conversational AI combines Natural Language Processing (NLP) and Machine Learning (ML) to understand spoken and written language. The AI can interpret the nature of a query and then respond – either by following a defined process and workflow pre-defined by your organization or by leveraging Agentic AI for a more dynamic approach that allows the AI to ‘think on its feet.’ 

To explore the difference between Conversational AI and other forms of AI, read our guide to Conversational AI vs Generative AI.

How Does Conversational AI Work?

Conversational AI uses Natural Language Understanding (NLU) and ML to recognize text or voice inputs and understand sentence structure, user intent, and important terms such as dates, times, places, and parts of your systems/processes. In an optimal integration, Conversational AI is leveraged as one aspect of an automated AI Agent that also has access to your backend systems and knowledge hubs. 

Together, these allow the AI Agent to interpret a user’s input, match their needs to a recognized issue, and then begin processing the optimal follow-up. Conversational AI is task-orientated and can carry out actions while communicating with your customers. 

With 24/7 availability and instant response times, Conversational AI operates as a top layer above your other systems. It can harness various elements of your customer service workflows to resolve customer problems quickly.

As technology has progressed, new systems have advanced the capabilities of Conversational AI. A new system called Agentic AI gives AI Agents the ability to break down user needs into a series of goals and automatically work towards a resolution – meaning that the AI Agent no longer simply understands what a user says, but it can also reason its way through their request to understand their needs and plot the tasks required to reach them. 

A basic example of Conversational AI in action

When a customer inputs the phrase, “I want to order a pizza with ham,” how would the AI process this? It would first decode the conversation intent (order food) and then capture details such as the food type (pizza) and choice of topping (ham).

Similarly, had the phrase been “I want to order a pizza with ham but not cheese for tomorrow morning at 8:00”, additional details would have included a negative marker for ‘cheese’ as a topping, and the delivery slot would have been set to ‘tomorrow morning at 8’. 

To get a better grasp of how Conversational AI represents an evolution from previous chatbot technology, read  Chatbots vs Conversational AI here.

What Are The Benefits Of Conversational AI?

Digital automation is not a buzzword – it is an integral part of growth strategies for enterprise organizations across the globe. But to enjoy the cost-savings and productivity gains associated with automation, you need a way to ensure customers are not left alienated and frustrated. 

Conversational AI allows you to provide personalization, quality communications, and intuitive interactions throughout every customer service interaction. Conversational AI provides a framework for self-service options that help resolve queries, save time, and even free up hours and hours of mundane labor for your human agents. 

Let’s explore the benefits of conversational AI in more detail to help demonstrate why you can’t ignore this technology in your own enterprise…

Increased Operational Efficiency

The most significant immediate benefit of Conversational AI is that it improves an organization's operational efficiency. Conversational AI is crucial in designing AI Agents that can confidently communicate with customers, either to resolve simple tasks or to qualify a call before passing it on to a human agent. 

These AI Agents allow you to either fully or partially automate repetitive tasks across every aspect of your customer service process, which reduces costs and frees up your human agent’s time to focus on more complex issues.

But Conversational AI doesn’t only help alleviate the burden of low-complexity customer cases for your human agents; it can also streamline tasks like call summarization, which is a repetitive yet highly valuable process that must be completed at the end of every call. 

Enhanced Scalability

With Conversational AI in place, enterprise organizations can scale in a cost-efficient manner. AI Agents allow you to handle a dramatic increase in interactions without compromising call quality or customer outcomes, especially during peak times.

Just a single AI Agent can handle interactions at an incredible scale. Take this case, for example, where one insurance agent handles up to 20 million calls for a Fortune 100 insurance company.

More Productive Human Teams

Conversational AI benefits your customers, your organization, and your human team. Rather than worrying about having their roles replaced by AI, your team should be excited about its benefits.

Agent Copilots can support your agents during every call, transcribing a customer’s entire conversation and analyzing it in real-time to pick out changes in sentiment or identify questions – then presenting the appropriate response to your human team to help them reach satisfactory outcomes. 

The AI can also assist with post-call wrap-ups and other labor-intensive but necessary tasks, reducing the manual burden on your human team and leaving them free to focus on more valuable tasks. This leads to more productive agents who actually enjoy their roles, as the AI ensures their time is spent on complex, rewarding cases rather than the mundane ones best served by automation. 

Instant Omnichannel Support

Customers value speed in any customer service interaction, and Conversational AI helps reduce wait times and eliminate the need for long hold queues. AI Agents can be contacted via a range of channels, from social media apps to traditional telephone calls, meaning customers can get support at any time of day without the staffing costs associated with hiring human teams offering 24/7 service. 

With Conversational AI, AI Agents can answer calls instantly and begin efficiently serving your customers, regardless of what channel they use or where they are in the world. 

Multilingual Support

Conversational AI can seamlessly communicate in multiple languages, expanding global reach and reducing the costs of hiring translators or building offshored language centers to cater to other regions. With a multilingual AI Agent that can communicate fluently in a human-like way across both voice or text, you’ll be able to offer the support customers need to handle service problems in their native tongue. 

Improved Customer Experience

Though many of the benefits of AI Agents are operational, the value to your customer cannot be overstated. Thanks to many of the aspects we’ve already covered, such as multilingual, omnichannel support, instant answering speeds and task automation, Conversational AI also improves positive customer experiences. 

With an AI Agent that can capably recognize and respond to user input, customers will receive personalized, 24/7 support. This will lead to faster resolutions, more satisfactory outcomes, and happier customers who are more likely to remain loyal to your brand.

What Are the Use Cases of Conversational AI?

How does Conversational AI support your organization in situ? Here are some of the most obvious examples of efficient use cases where AI Agents can have the most significant impact… 

Identification & Verification

Identifying or verifying users who contact your service team is a vital but low-complexity task that can eat up time, demotivate human agents, and even frustrate customers. Conversational AI gives you the ability to fully automate the verification process, leading customers through a series of questions and accurately recording their input, matching it against your CRM system and then either passing the call to a human agent or dealing with simple queries fully autonomously. 

Even if you only used an AI Agent solely for the ID&V portion of your customer service calls and nothing else, you’d still be speeding up cases and saving valuable minutes on every call – which can quickly add up to potentially saving thousands of hours across a calendar year. 

Customer Support Automation

Conversational AI is an integral part of automating customer service processes. It provides the language recognition and understanding required to ensure that customers are satisfied with the interaction rather than feeling like they’re communicating with an inflexible robotic system. 

With Conversational AI, Generative AI and Agentic AI combined into an effective AI Agent, you can automate many aspects of your service processes and give your customers intuitive self-service options, which reduces the strain on your human team and allows them to concentrate on more complex problems. 

FAQ Chatbot

The majority of customer service queries involve common questions about account information, booking management, product status, etc. These questions can form the basis for an FAQ resource that provides quick, comprehensive answers. 

Unfortunately, even the best FAQ won’t make a difference if customers can’t find it. Rather than relying on them navigating to a page on your website, you can instead use an AI Agent to field a customer’s query, fetch or even generate the answer, and then provide it to them in a process mimicking a genuine human conversation.

This type of FAQ bot effectively reduces the burden associated with basic questions and common issues, saving you time and money and giving customers faster resolutions. Unlike a static FAQ page, the AI Agent can also field additional questions, clarify information, or route the case to a human agent if the customer is still dissatisfied. 

Agent Copilot

AI is not here to replace human teams but to enhance them. Conversational AI can instantly answer customer calls and begin handling the initial more mundane, repeatable elements of your service processes (such as ID&V). Then, provided the case is not easily automated, the AI can hand it over to a human agent and provide all the background details in advance.

This approach saves time and also improves the chances of a more satisfactory customer experience, as the human agent no longer needs to ask basic questions or ask the customer to repeat themselves. 

During the call, the AI Agent remains involved and helps support your human team by fetching knowledge articles to answer questions, analyzing sentiment, personalizing offers, and even translating them in real-time.

Examples of Conversational AI

Looking for genuine cases that demonstrate how the technology works and what it can do for you? Here are some great Conversational AI examples from Cognigy customers…

Airline Keeps Customers Flying With Conversational AI 

During the COVID-19 pandemic, Lufthansa Group needed a way to cope with an increased volume of anxiety-laden customer support queries. 

Working with Cognigy, Lufthansa deployed a team of AI Agents capable of managing more than 16 million conversations annually across multiple channels and languages. This automation enabled passengers to rebook flights, access travel information, explore alternative travel, and request refunds efficiently. 

At peak times, the system handled up to 375,000 daily interactions – which meant far less burden on human service agents, reduced average handling times across all teams and greatly improved customer satisfaction.

Optician Optimizes Customer Support

Mister Spex, Europe's leading omnichannel optician, aims to offer a customer-centric approach – but the customer excellence team recognized that high call volumes and agent shortages were leading to gaps in service quality. To offer better customer service, the team needed to be able to handle these higher call volumes efficiently.

Working with Cognigy, they deployed an AI Agent to automate routine telephone inquiries, such as "Where is My Order" (WISMO) and return label requests, and to verify customers over the phone. 

This automation led to significant improvements, including the AI agent handling 50% of all WISMO queries and reducing the average handling time per call by 30 seconds. 

Bank Puts Customer Conversations First

Rentenbank, an agribusiness development agency, needed to provide customers with help and advice about a new government initiative. To cater to demand at scale and ensure every request was served, Rentenbank decided to implement a digital-first solution using Conversational AI.

By deploying an AI Agent named Lara, Rentenbank was able to provide a more engaging way to disseminate information to customers than relying on complex PDF documentation. Lara has since fielded thousands of customer service inquiries on a 24/7 basis, driving high rates of customer satisfaction and leading digital transformation within Rentenbank.

Best Practices for Implementing Conversational AI

Before implementing automation, you should follow clear best practices to minimize disruption and avoid costly mistakes. Here are some common issues to be aware of to ensure any AI system you choose fits seamlessly into your business… 

Define Clear Use Cases

AI can solve many business problems – but only if you first define what they are. Find use cases where problems and inefficiencies are the most apparent and start with them. ID&V is a perfect use case for most contact centers, as it’s an important but mundane aspect of every single call. 

Integrate with Existing Systems

Conversational AI empowers action – your AI Agents don’t just listen and respond to customers; they also take action. To accomplish these actions, you must audit your technology stack and ensure the AI can interact with essential systems such as your CRM, ERP and other enterprise tools. 

Choose An Experienced Provider

To realize the benefits of Conversational AI, you need a provider that understands the unique needs and structures within enterprise-level organizations. The provider should also have sector-specific knowledge that can help pre-train AI Agents in specialist terminology and other niche topics. 

Cater to Omnichannel Needs

AI Agents can be deployed across a wide range of channels, so it’s worth analyzing your customer habits and ensuring you can connect with them using the channels and devices they prefer. 

Monitor and Optimize

AI Agents allow you to perform performance monitoring at scale, analyzing thousands of conversations and call logs to find patterns, identify common queries, spot inefficiencies, and more. Once you have an AI Agent up and running, you can use Cognigy’s insights platform to monitor its progress and optimize performance as you go. You can improve efficiency and get better results by using careful tweaks to conversation flows. 

Prioritize Data Security

Conversational AI allows for tight control at an operational level. Thus, you can ensure the AI Agent adheres to predefined conversational flows and follows strict processes for any heavily regulated task. When working with an experienced provider like Cognigy, we’ll ensure all data is kept secure and that the AI Agent complies with all global and regional privacy laws.

Conversational AI & AI Agents Are the Future

Automation is necessary for the future of contact centers. As customer demands continue to rise, enterprise organizations must find ways to scale cost-effectively, which is only possible through AI. 

Conversational AI plays a necessary role in adopting AI Agents. It gives customers the feeling of talking to a flexible, adaptable agent rather than an inflexible robot tied to strict rules. By understanding natural language, Conversational AI allows for human-like conversations and fluid responses. 

By deploying AI Agents built with Conversational AI, Generative AI and Agentic AI, enterprises can achieve unparalleled efficiency, deliver exceptional customer experiences, and remain competitive in a rapidly evolving market.

Cognigy Conversational AI Solutions

Take the next step in revolutionizing your enterprise communication with Cognigy. Our platform is purpose-built for the needs of enterprise businesses and we work with some of the world’s most prominent institutions. 

Don’t miss out on the opportunity afforded by AI —schedule a demo today!