What Is Interactive Voice Response (IVR) & How Do Businesses Use It?

March 5, 2021 | 9 min read

What is an Interactive Voice Response (IVR) System?

When call volume increases, it’s vital to deliver a personal touch. You’ll need a practical solution to accommodate your expanding customer base.
Sustaining a high call volume is a good problem to have. It just takes some delegation to handle it effectively. An Interactive Voice Response (IVR) phone system feature does just that.
While a staple of cloud-based call center, an IVR is a standard component included with many business phone systems.
In this guide, you’ll gain a solid understanding of what IVR systems offer, including some crucial dos and don’ts to be successful.

What is Interactive Voice Response (IVR)?

IVR is an automated phone system with call routing capabilities. Simply put, it allows customers to interact with a computer before being connected to a representative. This technology works in tandem with Automatic Call Distribution, typically found in a call center.

IVR phone system diagram showing how a phone call is routed to an agent.

IVR phone systems have become so widely used that you’ve probably found yourself communicating with a virtual assistant over the phone more times than you can count.
IVRs manage inbound phone calls by collecting information about the customer inquiry before automatically transferring the call to the right department. It can tailor the conversation even based on the virtual phone number the person dialed.
Typically, customers are presented with a prerecorded voice menu as soon as they call. After navigating the menu either verbally or manually (using the phone keypad), the customer is automatically connected to an agent who can help.

Picture a line of people waiting to check in to an event. An IVR might split the line, so people with last names of A-L go one way, and M-Z go another. This tactic increases the speed and load placed upon your staff. That’s the most fundamental goal of an IVR. Not only does this keep everything running more efficiently, but it also boosts the productivity of the call center staff.
We’ll cover some other significant advantages of IVRs in a moment. First, let’s go through a brief overview of how IVR works.

How Does IVR Work?

Even the most basic IVR solution saves time and money by trimming hold times and requiring less workforce. That said, more advanced systems deliver an even better experience for the customer.

Basic IVR Systems

IVR phone systems route calls to individuals or departments.

There are two primary components of IVRs that enable the computer to understand and process the caller’s requests. One is voice recognition technology, and the other is called Dual-Tone Multi-Frequency signaling (or DTMF).
DTMF signaling occurs between the phone and the computer when callers use the keypad on their phone to select menu options. This touch-tone technology allows intelligent call routing to take place without a human operator.

IVR platforms with voice recognition capabilities enable what’s called Directed Dialogue, which means callers can give verbal responses instead of using the keypad to navigate the menu. For example, an IVR menu might say, “For billing, press three or say ‘billing.’”

Advanced IVR Systems

As IVR technology develops, advanced systems make the customer’s IVR interactions increasingly more natural, faster, and more enjoyable. Among the most customer-friendly advancements is in Natural Language Processing software (or NLP), which is a form of conversational AI.
Thanks to this sophisticated voice recognition technology, the computer can understand and process full sentences rather than limiting the caller’s word choice by recognizing only particular commands. An IVR with built-in NLP can answer open-ended questions such as “what can we help you with today?”
As you can imagine, callers appreciate this conversational approach to customer service because it gives them more freedom. It’s also a much faster way to navigate the IVR because callers can get to the point right away.
Related: 9 Powerful Ways to Use NLP to Improve Customer Service
Let’s explore some of the reasons why an IVR is a game-changer for your business.

Nextiva’s next-gen IVR functionality is available now!
See how Conversational AI wows your customers.

Benefits of IVR Systems

First and foremost, IVRs offer the core advantage of an automatic filtering process. Instead of reaching into a grab bag every time they pick up the phone, agents get an idea of what type of issue they’ll be tackling before they answer. This type of call is based on which menu items the caller selected.
Meanwhile, the caller benefits from speaking with an agent who’s prepared to answer their questions. This means bypassing the time-consuming and frustrating process of being manually transferred by agents from one department to another before speaking to someone who can help.
While the customer avoids being put on hold multiple times on the same call, your business avoids the hefty costs associated with unnecessarily long call handling times. In other words, it’s the ultimate win-win.

Increase Credibility

The first step to improve your customer experience is to implement business phone service with an auto attendant. Overnight, you will increase the trust and credibility of your brand.
The next step is to take your auto attendant further with an Interactive Voice Response functionality.
IVRs are an excellent way to improve brand image because they present a consistent, welcoming, and on-brand greeting to every caller before they reach a representative.
This comes across as organized and professional, which boosts credibility in the eyes of customers. It also sends the message that your business is equipped to handle a wide range (and high volume) of customer calls.
Related: 12 Customer Service Trends You Must Know in 2020

Self-Service Customer Service

Speaking of consistency, an IVR allows you to serve your customers even when agents aren’t available. Callers can access basic information outside of regular business hours—or while agents are busy handling other calls—via your phone number and an IVR menu.
It’s like having the perfect voicemail with the added bonus of going beyond the greeting and offering information the customer might be calling about.
A well-crafted menu provides answers to common customer inquiries. This is a valuable aspect of IVR, as it resolves more trivial calls independently, allowing agents more time to settle complex requests.
If you think setting up an IVR means throwing all personalization out the window in the name of efficiency, think again. Advanced IVR systems incorporate biometric capabilities that recognize customer numbers and answer accordingly. Anything from scheduling an appointment to acknowledging the caller’s birthday can be accomplished without the assistance of a live agent.
With that said, no matter how advanced IVR technology becomes, customers always prefer speaking to a human rather than interacting with a computer—right? Wrong.
As many as 83% of customers prefer self-service rather than speaking with a representative—especially for simple tasks like checking into a flight, tracking a shipment, checking account balances, and so on. All these can be accomplished by way of an IVR.
Taking advantage of this customer preference makes a world of difference. Whatever your most common questions, be sure to work them into your cloud phone system’s menu for maximum customer satisfaction.
Related: Check out these 33 Phone System Features for Your Call Center

Learn More, Save More

Gathering information about your customer base is vital to the success of your business.
The advantage of your customers interacting with a computer before speaking with a live agent is that a computer is built to collect, process, and store high levels of information. The data that your IVR collects about caller’s inquiries is not only valuable for your business strategies in general, but it can also be used to continually improve your IVR setup.
IVR systems supplement market research and lower costs by eliminating the need to hire more agents. IVRs also cut call handling
times, which means even more money saved.

What Not to Do

The possibilities with an IVR are endless. Instead of a list of best practices, perhaps it’s more beneficial to start with “bad practices” to avoid.
The more effective your IVR is, the more it will benefit your customers. On the flip side, a poorly constructed IVR can ruin the experience and lead to customer frustration.
The goal here is to make things more convenient for the customer—not to make them want to throw their phone across the room.
Make sure your IVR setup is one of the good ones by avoiding the following fatal mistakes.
Related: Contact Center vs. Call Center: Which Does My Business Need?

The Overcomplicated Menu

One way to help out your callers is by simplifying the recorded menu as much as possible. Start with a few general categories in the opening menu (preferably no more than four or five), and make sure all the options are straightforward enough for the customer to navigate on the fly.
Keep it short and sweet. If you take the caller through too many submenus, they’re more likely to get confused or hang up because they feel they’re not getting anywhere.
Reserve the earliest parts of the menu for the topics customers call about the most. Otherwise, the caller will choose to bypass the menu altogether, believing the topic of their inquiry isn’t included in the menu at all.

The Elusive Agent

No matter how user-friendly your IVR menu is, don’t expect everyone to cooperate. Always provide the opportunity to speak with a representative—and don’t bury this option too deep in the menu.
The fact is that some callers do have questions that don’t fall under any of your menu categories. Failing to put them on the line with an agent makes the customer feel overlooked and always results in negative customer experience.

Lengthy Hold Times

Chart: Callback vs. Waiting on Hold (Stats)

Let’s face it—patience is not a virtue most possess when it comes to waiting on hold. And as it turns out, it’s often an unnecessary evil.
There’s a simple way to save your customers the time and frustration associated with being on hold for too long. Nextiva’s Q-for-Me feature is an example of a callback system that’s focused on reducing abandoned calls. Also known as the virtual hold, it enables customers to go about their day while reserving their place in line—all thanks to the IVR.
When customers select the callback option, they can hang up the phone and wait for their call to be returned when an agent becomes available. Not surprisingly, most people prefer to receive a callback rather than wait on hold.

Nearly two-thirds of customers prefer a callback instead of waiting on hold. (Source)

Related: Should You Get a Cloud-Based Phone System? (Pros and Cons)

IVR Recommendations

Venturing down the path to select an Interactive Voice Response system isn’t always easy. Unfortunately, IVRs have earned a bad rap for improper implementation decades ago. In 2020, that has all changed.
IVRs have emerged as one of the most effective ways for small businesses to lower costs, lighten the load on their staff, and deliver a better customer experience.

Recommendations for Setting up an IVR

  • Move your phone system to the cloud. Make that easy to navigate internally and externally. If you have an on-premises PBX, consider moving it to the cloud to unlock massive new functionality—like an IVR.
  • Align your experience for the customer journey. Align your phone system to serve current and future customers so they get in touch with the right people on your team.
  • Empower callers to reach a live person. Nothing upsets someone more than getting stuck in a phone menu. Provide a helpful path to reach a live agent so your IVR advances your customer experience.

If you’re a business leader, you never stop searching for ways to make improvements. An IVR enhances your brand image in every possible way and also providing a top-notch customer service experience to everyone who engages with your business.
If you recognize these items from your checklist, an IVR platform would be a huge step to achieve your business goals.

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Interactive Voice Response FAQs

How much does an IVR cost?

An Interactive Voice Response solution typically costs $0.02 to $0.10 per minute of talk time. It’s crucial to recognize the cost savings from diverting inbound calls from live agents, which could be $0.25/min multiplied by the average handle time.
Unlike cloud-based IVRs, the pricing for an on-premises setup is more than $1,500 per line, not including configuration and maintenance.

Who uses an IVR?

Conventional wisdom suggests that you need a call center to use an IVR. The reality is that companies from virtually every industry can benefit from Interactive Voice Response.
Typical use cases include:

  • Account identification
  • Transactional information
  • Product assistance
  • Sales call routing
  • Appointment confirmations

What is the purpose of IVR?

Businesses use Interactive Voice Response (IVR) for three primary purposes:

  1. Deflect inbound calls. Reduce the number of live calls handled by a live agent to lower costs.
  2. Enhance the customer experience. Offer self-service functionality to customers to solve simple account inquiries. Additionally, reaching the right department improves the first-contact resolution rate.
  3. Reduce handle times. Provide customer service agents with real-time intelligence about the caller, such as account verification and call drivers.

IVRs can save businesses thousands every year in wasted talk time and provide a better customer experience.

What is a smart IVR?

A smart IVR or intelligent IVR is an Interactive Voice Response system that adapts to callers’ real-time responses. Instead of static-based menus that are linear, callers can maintain a natural conversation with the virtual phone system.
Not every business needs a smart IVR. Designing your call flows with redundant menu paths can meet most customer’s expectations. Companies with a high-volume call center and a wide range of products are best suited for a smart IVR.

What is an IVR call flow?

An IVR call flow is the projected prompts and inputs you want callers to take before reaching an agent. It operates like a flowchart that branches out to help callers arrive at their destination. Instead of a live person transferring inbound calls, the Interactive Voice Response phone system handles it.
Nextiva provides a visual call flow builder as a part of its communications platform, NextOS.

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Julie Bai


Julie Bai

Julie Bai was a product manager at Nextiva, UCaaS evangelist, no-bull communicator, and translator for people, dog lover, and mother to an adorably active boy.

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