What is Conversational AI? How It Works, Examples, and Tools!

Do you remember the time when having a conversation with a machine felt cold, robotic, and painfully scripted? You know exactly what I mean if you’ve ever shouted, “Speak to a human!” at a voice assistant. 

But things have changed drastically over the years. 

Conversational AI, the sophisticated technology powering many virtual assistants and chatbots today, has evolved to feel natural, engaging, and—dare I say—almost human.

Why does this matter? Because conversational AI is no longer just about helping customers check their order status or reset passwords. It’s about building real connections and providing practical benefits—whether you’re a business looking to streamline support or a customer searching for quick, reliable assistance without jumping through hoops.

In this blog, we’ll explore conversational AI, how it works, and the tools that make it accessible, empowering you with knowledge and understanding.

What is Conversational AI?

Conversational AI is a type of Artificial Intelligence technology that enables machines to understand and respond to human language. It uses natural language processing (NLP),machine learning, and other AI technologies to translate human conversations into machine-understandable language and react to it based on the information they obtain from a knowledge base. 

In customer service, conversational AI forms the backbone of tools like chatbots and voice bots that help simplify operations. For instance, chatbots powered by conversational AI can easily recognize text and voice inputs, understand user intent, and interact with users in a natural, human-like way. 

How Conversational AI Differs from Traditional Chatbots

Often, the terms conversational AI and chatbots are used interchangeably. However, there is a significant difference between the two. 

Chatbots, for instance, are virtual assistants that handle specific tasks and respond to user queries based on programmed rules. Conversational AI, on the other hand, takes these robotic chatbot conversations to another level. It combines technologies like AI, NLP, intent recognition, and contextual understanding to comprehend user’s context and respond to them with relevant information. 

Here is a quick comparison between the two to help you understand better:

Key Components of Conversational AI

Let’s look at the core components of conversational AI that come together to offer advanced interactions and experiences to the users.

1. NLP and NLU

Natural Language Processing (NLP) is the brain behind conversational AI. It equips conversational AI agents like chatbots to understand and generate human language. Through NLP, these agents can comprehend user context, intent, and sentiment behind user inputs and engage in natural conversations. 

Natural Language Understanding (NLU) is a subset of NLP. It goes deeper by analyzing meaning, emotions, and even slang to interpret what users genuinely mean. Both technologies allow conversational AI to move beyond rigid scripts to deliver intuitive and natural responses.

Here’s how the two work together:

2. Machine Learning and Deep Learning

Machine learning enables conversational AI to get smarter over time. By analyzing past interactions, it learns patterns and refines its responses. Deep learning takes it a step further, using neural networks to process large volumes of data, recognize complex relationships, and generate human-like conversations. This constant learning cycle ensures interactions keep improving with use.

3. Contextual Awareness and Memory

Conversational AI agents remember your preferences and past queries. Ever wonder how? That’s contextual awareness and memory at work. Conversational AI responds to user inputs and keeps track of context within conversations. 

4. Speech-to-Text and Text-to-Speech

This is another crucial component of conversational AI that bridges the gap between spoken and written communication. Speech-to-text converts spoken words into text, enabling users to interact with voice commands. On the other hand, Text-to-Speech transforms AI-generated responses into lifelike audio, making interactions accessible and user-friendly for all. 

Benefits of Conversational AI in Customer Service

Conversational AI in customer service offers a plethora of benefits. The most notable ones are: 

Round-the-Clock Support

Conversational AI can deliver 24/7 support, eliminating long waiting hours. This quick and constant availability is critical to how customers perceive your business. 

Improved Customer Satisfaction

Conversational AI ensures consistent, high-quality service by delivering personalized and detailed responses. Recalling past interactions creates a seamless experience that enhances customer satisfaction.

Personalization and Contextualization in Responses

Conversational AI can access and recall customer data from previous interactions. Thus, they can quickly deliver personalized support, such as recommending a product based on past purchases or resolving a query with detailed context. 

Scalability and Flexibility

Conversational AI can handle thousands of queries simultaneously without compromising response quality. Whether during a product launch or seasonal sale, businesses can scale support effortlessly to meet demand, making sure every customer receives timely assistance.

Efficiency and Cost Savings for Businesses

By automating repetitive tasks and handling a high volume of queries simultaneously, conversational AI reduces the need for extensive customer support teams. This reduces operational costs and allows human agents to focus on more complex issues.

Data-Driven Insights

Every interaction with conversational AI generates valuable data. Businesses can analyze this data to identify trends, understand customer pain points, and continuously improve their offerings. 

5 Conversational AI Tools for Customer Service

Conversational AI tools for customer service are becoming increasingly popular. Did you know that over 50% of shoppers prefer interacting with conversational AI tools to purchase items online? Here are the best AI platforms, key features, and pricing structures for your consideration. 

1. Hiver

Hiver is a multi-channel help desk tool that makes it easy for businesses to connect with customers across platforms like email, website chat, WhatsApp, and more. It also features a chatbot that assists users directly through chat channels on your website.

Hiver’s chatbot is built around three key modules:

• Admin module: For setting up and managing the chatbot.
• Agent module: For agents to oversee and step into live conversations when needed.
• End user module: For customers to enjoy quick and seamless interactions.

Whether you’re configuring the system, responding to customer queries, or seeking support as a customer, Hiver’s chatbot makes sure everything runs smoothly.

Key Features:

• Hiver’s chatbot quickly handles routine questions with automated responses.
• It offers 24/7 support to keep your customers covered, no matter the time.
• It transfers tricky queries to live agents seamlessly, ensuring no issue goes unresolved.
• You can manage chats and other customer interactions—via email, WhatsApp, or phone. 

Pricing:

Hiver offers a forever free Plan, allowing you to try out the platform and its chatbot at no cost. For access to the chatbot feature in paid plans, you can choose between the Pro Plan, priced at $49/user/month, or the Elite Plan at $79/user/month. Hiver also provides a 7-day free trial. 

2.Zendesk Conversational AI 

Zendesk integrates powerful conversational AI capabilities to enhance customer support across multiple channels. Zendesk’s conversational AI can easily detect what a ticket is about (its intent),its language, and whether the customer’s sentiments are positive or negative. It can also seamlessly hand off complex queries to human agents without losing context.

Key Features:

• Offers omnichannel customer support across messaging apps, email, and live chat.
• With AI-driven language detection and translation, Zendesk caters to global audiences, allowing support teams to communicate effortlessly across multiple languages.
• Combines customer interaction history and AI insights into a single dashboard for agents, giving them a unified view.

Pricing:

Zendesk’s AI-powered bots are part of all its Suite plans (Suite Team, Suite Growth, Suite Professional, and Suite Enterprise),starting at $19 per agent/month.

3.Uniphore’s U-Self Serve

Uniphore’s U-Self Serve is an intelligent, multilingual virtual assistant that automates conversations across voice and digital channels. It uses conversational AI to offer hyper-personalized responses to all customer queries, ensuring a smooth experience. In case of complex issues, the assistant seamlessly transfers the conversation to a live agent with complete context so the customers don’t have to repeat the same information.

Key Features:

• The virtual assistant uses Emotion AI to accurately detect customer tone and sentiment in each conversation and generate empathetic responses based on that.
• The multimodal CX combines chat, voice, and text to deliver both voice and visual guidance, helping resolve issues faster and more efficiently.
• U-Self Serve offers quick integration with your existing systems, including CCaaS solutions, CRM, ERP platforms, communication channels, and other third-party systems.

Pricing:

Pricing is customized based on business needs. Contact Uniphore for a quote.

4.Salesforce’s Einstein GPT

Salesforce is one of the world’s most trusted customer relationship management (CRM) platforms. It also offers Einstein Bots, AI-powered chatbots built directly into your CRM.

These intelligent and sophisticated bots can be deployed on your preferred channel, including your website, mobile app, WhatsApp, Facebook Messenger, and even Slack. They can offer proactive customer support and speed up issue resolution, enabling teams to achieve more using AI-generated responses and automating routine tasks.

Key Features:

• Salesforce Einstein Bots integrate with your Salesforce data and automate mundane tasks to drive productivity.
• These bots are multilingual and multi-channel, and can easily integrate with the widest suite of Salesforce products.
• They offer robust analytics to continuously measure and optimize your bot’s performance and track its impact against essential business KPIs. 

Pricing 

Einstein Bot is available as part of Salesforce Service Cloud Unlimited Edition, which is priced at $330/per user/per month. Additionally, Salesforce recommends opting for the Digital Engagement package priced at $75/per user/per month as an add-on service to maximize chatbot functionality.

5.Intercom Conversational AI 

Intercom is a conversational relationship platform that helps businesses connect with customers in real-time—whether it’s through their app, website, social media, or email. 

One of its standout features is Fin, an AI-powered customer service bot that can handle a wide range of queries, even those requiring multiple follow-ups or clarifications. Essentially, Fin works as your frontline support, making customer interactions faster and easier.

Key Features: 

• Fin taps into your company’s existing resources, like help center articles and product guides, to deliver accurate answers. It learns about your business and uses this knowledge to assist customers. 

• Fin personalizes interactions for every customer. It can take actions on their behalf, adapt to their specific needs, and make sure the service feels personalized. 

• Fin also provides AI-powered insights, giving you a clear view of how your support team is performing. 

Pricing 

Fin is free for the first 14 days, and after that, it costs $0.99 per resolution. While Intercom offers a comprehensive platform with advanced tools like Fin, costs can increase as you add more team members or features.

Real-World Conversational AI Examples and Use Cases

Businesses nowadays are using conversational AI for a variety of purposes. Let’s look at a few examples:

1.eCommerce

Browsing an online store and instantly getting tailored recommendations or answers to all your product queries? Conversational AI does this for e-commerce brands. 

For instance, H&M’s conversational AI chatbot is a classic example of this. It helps customers pick outfits that match their style, ensuring they never second-guess their choices.

2. Finance

Conversational AI makes finance operations, mainly routine tasks like checking balances or transferring funds as easy as chatting with a friend. It offers personalized financial insights, reminders, and fraud alerts, ensuring customers feel supported and informed.

For instance, Bank of America’s Erica is a brilliant chatbot that doesn’t just handle queries but also provides financial advice and alerts to help customers make smarter decisions. As per statistics, it has assisted over 42 million clients and offered personalized guidance over 1.2 billion times.

3. Travel

Traveling can be stressful, but conversational AI is making it more accessible. From managing bookings to giving real-time updates, it simplifies every step of the journey.

For example,Expedia’s virtual agent handles everything from flight changes to answering questions about baggage policies, making travel hassle-free.

4. Healthcare

Conversational AI in the healthcare sector helps patients by providing symptom assessments, scheduling medical appointments, and providing health advice.

Babylon Health demonstrates this by using chatbots to assess symptoms and connect users with healthcare professionals quickly.

Future of Conversational AI in Customer Support

The conversational AI industry is growing rapidly. Currently estimated at $15.5 billion, it is all set to reach $132.86 billion by the end of 2034, growing at a CAGR of 23.97% between the forecast period. Here’s what’s on the horizon:

• Voice Assistants: Voice technology is gaining widespread popularity. And it is all set to make hands-free customer support a norm. From smart speakers to in-app voice chats, customers will get assistance without typing a single word.

As a Reddit user aptly noted, “While artificial voices are not quite as advanced as the chat side of things, in five years time they will also be comparable with human voices.” 

• Multilingual Support: AI is becoming adept at understanding and responding in multiple languages and local dialects, enabling businesses to effortlessly serve diverse audiences.

• Sentiment Analysis: AI learns to recognize customer emotions through tone, language, or phrasing. This emotional intelligence will allow brands to adapt responses in real-time, offering empathy when needed and precision when solving problems.

• Predictive Capabilities: AI will predict customer needs based on past interactions, enabling proactive support like offering solutions before a problem is reported.

A Reddit thread noted, “AI chatbots are getting much more advanced, and the cost to run them, while, expensive to begin with, will significantly decrease. Companies may only need a handful of staff to monitor interactions and deal with more difficult queries, which the chatbots can then be trained on later.”

FAQs

How does conversational AI learn and adapt over time?

Conversational AI utilizes machine learning algorithms to enhance performance through user interactions. It examines customer questions, improves its answers, and identifies trends, becoming more intelligent and precise over time.

Is conversational AI secure for handling sensitive customer information?

Reputable conversational AI tools prioritize security by using end-to-end encryption, strict access controls, and compliance with data protection regulations like GDPR and CCPA. These steps guarantee the safety of confidential customer information.

What is the cost of implementing conversational AI in customer service?

The price depends on the complexity of the tool and the size of the deployment. Simple chatbot options could cost $50 per month, whereas more sophisticated omnichannel conversational AI systems that include voice and sentiment analysis features can cost $500 per month or more.

Can conversational AI handle complex customer queries effectively?

Advanced conversational AI systems with contextual awareness and deep learning can tackle complex queries. They refer important issues to human agents to ensure customers receive top-notch support.

How can I implement a conversational AI strategy in my company?

Start by identifying your customer support pain points and defining clear objectives. Choose a conversational AI tool that aligns with your business needs, integrate it with your existing systems, and train it with your data for optimal performance. Continuous monitoring and feedback will help refine its effectiveness over time.

Conclusion

Conversational AI is undeniably useful for businesses, but it’s not just about having a chatbot or virtual assistant in place. The real impact comes when it’s done thoughtfully—fitting seamlessly into your workflow and genuinely making life easier for both customers and your team.

If you’re considering adding conversational AI to your business, Hiver’s chatbot is worth exploring. It works right from your inbox, so you can keep customer interactions organized while providing instant responses. Plus, it’s designed to be as easy for your team to manage as it is for customers to use.

Try Hiver free for 7 days.