What Is Conversational AI and How Does It Work?

April 6, 2024 6 min read

Chris Reaburn

Chris Reaburn

Conversational AI Definition

Conversational AI is the technology that enables computers to understand, process, and conversationally respond to human language.

If you’ve used a voice assistant like Google Home or Amazon’s Alexa, you’ve experienced conversational AI in action. Conversational AI uses machine learning to talk with users in a natural and personalized way. 

While it’s fun and convenient for personal use, businesses also see its potential. For example, a contact center that uses a chatbot for customer support interactions is leveraging the capabilities of conversational AI. 

In this post, we’ll delve into how conversational AI works, its benefits, and practical strategies for businesses to leverage this technology to enhance customer experiences and streamline operations.

How Conversational AI Works

Conversational AI combines natural language processing (NLP) and machine learning (ML) to help machines engage in human-like conversation and answer questions.

NLP enables computers to naturally understand and generate human language, including context, intent, and sentiment. This fosters more meaningful interactions within conversational AI systems.

Machine learning is crucial for systems to learn and improve from user interactions. By analyzing large datasets, machine learning algorithms adapt and evolve to improve conversational AI’s accuracy and effectiveness over time. 

Additional components of conversational AI:

Conversational AI example

Conversational AI simplifies requests to understand what people want and acts accordingly. Here’s how it breaks down a request like booking a flight from Los Angeles to Hawaii for under $300:

Graphic showing the components of conversational AI in action.

Benefits of Conversational AI

AI is the future of customer service, whether before, during, or after a sale. So, what makes conversational AI an excellent customer engagement tool? Check out these benefits of conversational AI.

Enhance your customer experience 

Conversational AI tools redefine the customer experience by providing immediate, personalized, and round-the-clock assistance. Whether customers seek product information, troubleshooting guidance, or order status updates, conversational AI ensures timely and personalized responses. 

Conversational AI also helps bridge the gap between channels in a seamless omnichannel environment.

omnichannel vs multichannel

This includes: 

  • Phone calls
  • Live web chat
  • SMS
  • Mobile apps
  • Social media 
  • Messaging platforms

By integrating across various touchpoints, conversational AI ensures consistent and cohesive interactions, regardless of the customer’s preferred communication channel. 

Improve agent efficiency and productivity

By incorporating advanced conversational AI applications, businesses can significantly improve work performance within their customer service operations. 

Unlike traditional systems limited to handling basic yes or no inquiries, conversational AI-powered agents excel in managing a wider range of complex user queries. 

With conversational AI solutions handling a substantial portion of customer interactions, human agents are liberated to dedicate their expertise to resolving intricate inquiries and tackling tasks that demand specialized attention. 

Make communication accessible

Conversational AI technology breaks down communication barriers, making information and assistance easily available to all users. Intuitive interfaces and language understanding enable effortless interaction regardless of language skills or technical know-how. 

By providing inclusive digital customer service channels like text-based chat, businesses ensure everyone can engage effectively, promoting inclusivity and equal access to support.

Scale operations with ease

The scalability of conversational AI is another major benefit. Implementing conversational AI platforms is more cost-effective than hiring and onboarding new employees. This is particularly handy during demand spikes, like the holiday season. It can also help firms quickly adapt to customer needs without sacrificing efficiency or overspending.

Get better data insights and analytics

Since conversational AI uses machine learning at its core, it’s always listening and learning. It gathers call center analytics to provide deeper insights into customer needs and preferences, including:

  • Business intelligence: Analyze past interactions.
  • Speech analytics: Discern positive or negative tones.

With this customer data at hand, businesses can optimize customer experiences and boost satisfaction levels.

How to Use Conversational AI in Your Business

The uses for conversational AI are endless across the business cycle. Bots have a role to play in each step, from lead generation to customer support to post-purchase customer insights and analytics. As more businesses continue to switch to VoIP phone systems and other cloud-based technologies, features like AI become easier to employ.

Graphic listing ways to use conversational AI in small, medium and enterprise level businesses.

Small businesses 

Small businesses can leverage conversational AI across key areas:

  • Automate customer support: Deploy chatbots to handle common customer inquiries and reduce wait times.
  • Schedule appointments: Use conversational AI for seamless appointment scheduling, reducing administrative tasks.
  • Generate and qualify leads: Automate lead generation processes by engaging with potential customers in personalized conversations to qualify leads and drive conversions.
Example: A small law firm can integrate an AI-powered chatbot on their website to provide instant answers to frequently asked legal questions.

Medium-sized businesses

As medium-sized businesses navigate growth, conversational AI proves invaluable across various operations:

  • Assist sales and customer support teams: Conversational AI assists sales and e-commerce teams by engaging customers, providing product information, and guiding them through the purchasing journey, driving sales and enhancing customer satisfaction.
  • Create marketing campaigns and surveys: Medium-sized businesses leverage conversational AI to craft interactive marketing campaigns and surveys, fostering personalized customer interactions and gathering insightful feedback to refine strategies and offerings.
  • Communicate and collaborate internally: Employees can interact with conversational AI via messaging platforms like Slack or Microsoft Teams to access project updates, assign tasks, schedule meetings, and retrieve relevant documents.
Example: A medium-sized tech company can implement conversational AI to streamline customer support, utilizing chatbots to assist users with troubleshooting and inquiries.


Enterprises leverage conversational AI across diverse functions:

  • Integrate enterprise resource planning (ERP): Conversational AI streamlines operations by linking with ERP systems, enabling seamless data management and real-time insights, improving efficiency and decision-making.
  • Recruit talent and support human resources: Conversational AI can automate recruitment processes, engage with candidates, and provide personalized support to employees.
  • Create virtual assistants for different departments: Conversational AI creates department-specific virtual assistants, like those for IT support, customer service, or finance, streamlining tasks, retrieving information, and solving problems organization-wide.
Example: A large corporation implements conversational AI to enhance its HR operations, using virtual call centers to streamline employee onboarding, handle HR inquiries, and facilitate performance evaluations.

Get More from Customer Conversations

If you’re eager to embark on the journey with conversational AI, now is the perfect time. With advancing technology, we’ll see even greater possibilities in the near future.

Selecting the right platform is crucial to kickstart your conversational AI journey. Numerous custom options, such as AI-powered conversational chat windows and embedded interfaces, are available for your website or tailored integration.

The sooner you develop a strategy for implementing conversational AI, the sooner you’ll witness its benefits. Major companies invest millions in this technology for a reason — it enhances customer interactions and aligns with the latest technological advancements.

Related: How to Use Conversational Analytics Software Effectively

Scale up with contact center AI.

The modern contact center has arrived. See how Nextiva  helps you deliver the best customer experience at scale.

Conversational AI FAQs

Conversational AI offers a seamless blend of technology and human-like interaction, revolutionizing various industries and customer experiences.

What is an example of conversational AI?

Some examples of conversational AI are voice assistants like Siri and virtual assistants like website chatbots, which can understand and respond to natural language input from users.

What risks come from conversational AI?

Risks associated with conversational AI include data privacy concerns, inadequate training leading to errors, and potential issues like hallucination in AI-generated content.

What industries benefit most from conversational AI adoption?

Conversational AI is ideal for customer-centric industries needing round-the-clock service, technological innovation, and enhanced customer experiences. Some examples include healthcare, financial services, retail, travel, and legal services.

Can conversational AI understand and translate different languages?

Yes, conversational AI can understand and translate different languages. This enables seamless communication across diverse linguistic backgrounds.

What are the potential future advancements of conversational AI?

Future advancements in conversational AI may include deeper personalization, optimized contextual understanding, and improved emotional intelligence in AI interactions.

What is the difference between a chatbot vs. conversational AI?

While chatbots typically follow predefined rules and responses, conversational AI employs advanced natural language processing and machine learning to understand context, intent, and nuances in human conversation, resulting in more dynamic and personalized interactions.

Chris Reaburn


Chris Reaburn

Chris Reaburn is the Chief of Strategic Execution at Nextiva. Known as "Reaburn" by friends/family, he is responsible for championing Nextiva's brand and products into the market in support of the company's vision to change the way businesses around the world work and serve their customers. With his previous leadership roles in the communications industry…

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