What Are Chatbots? The Definitive Guide to Conversational eCommerce

80% of businesses currently use chatbots or plan on using them by the end of 2020. They work, they’re relatable, and they’re quickly becoming a necessity for successful eCommerce.

But what are chatbots really? And more importantly, can they actually help your business?

In this complete chatbot guide, you’ll learn everything you need to know about eCommerce chatbots in 2020 including types of chatbots, how chatbots work, the benefits of using chatbots and measuring chatbot ROI.

Let’s start with the chatbot basics:

What are Chatbots?

Chatbots are software applications that replicate written and spoken conversational experiences. Chatbots are used to replace human sales agents during experiences like online shopping or customer service. 

Some chatbots use artificial intelligence (AI) to create dynamic conversations, while others rely on simple scripts that move customers through a series of questions. 

The goal of chatbots is to increase engagement and satisfaction throughout eCommerce environments by providing a relatable, fast and stress-free customer experience.

Types of Chatbots

There’s tons of chatbot types available today. Understanding and defining all of them would take… awhile. To keep it simple, most chatbots fit 3 broad types.

The 3 main chatbot types are:

1. Active

Active chatbots lead conversations by presenting questions and possible answers to customers. Questions and answers map a path towards a specific goal such as a purchase, a refund or other goal-oriented outcomes.

2. Reactive

Reactive chatbots react and respond to inquiries and answers typed by a user. Reactive chatbots are flexible, adaptive and open ended based on a customers needs or desired outcome.

3. Dynamic

Dynamic chatbots combine aspects of active and reactive chatbots. Depending on the context and needs of a customer, dynamic chatbots can adapt to be open-ended or goal oriented and support active and reactive conversations.

So how do dynamic chatbots adapt? Here’s some examples:

  • Questions and answers are added or removed automatically depending on the inventory status of products over time. For example, a dynamic chatbot will automatically pause suggesting products until they are available again.
  • Dynamic chatbots can adapt to the context of their placement. For example, a chatbot placed on a landing page targeted to customers with dry skin will adapt to only suggest moisturizers
  • Dynamic chat experiences can adapt to a single product depending on their context. For example, a conversational landing page (CLP) selling a specific product will automatically provide a chat experience centered solely around the product being sold by the CLP.

These are just a few of the examples of how dynamic chatbots can adapt to several use-cases and provide active and reactive experiences. 

Dynamic chatbots are typically powered by conversational AI. You’ll learn all about conversational AI later on in this guide, but first…

Chatbot Benefits: How Does Chat Impact Business?

The benefits of chatbots impact all parts of the customer journey. The aim of chatbots is to help customers arrive at what they need quickly without the help of a human sales agent.

To put it simply, the main benefit of chatbots is a fast and frictionless experience for customers. 

But how does an improved customer experience benefit sales and revenue? Here’s the 6 biggest ways chatbots impact core marketing metrics:

1. Increased conversion

Chatbots show customers the products they need faster than traditional marketing tactics. The sooner a customer finds what they are looking for, the less time they have to bounce. 

The result is increased conversion earlier in the customer journey and increased overall revenue.

2. Engaged customers

Conversational selling makes the online shopping experience relatable. By transforming the consideration phase into the familiar context of chat, customers interact with a personalized and gamified experience that increases engagement and trust.

3. Higher retention

Brand loyalty is increasingly based on the ability to adapt and understand the unique needs of a customer. In fact, 66% of customers are likely to switch brands if they feel misunderstood during their shopping experience. 

Chatbots drive higher engagement and loyalty by adapting to customers’ needs in real time and getting them what they need fast.

4. Higher satisfaction

Chatbots provide a personable support structure throughout the customer journey. Through an interactive framework, chatbot experiences drive 90% CSAT simply by reducing friction and providing more accurate recommendations.

5. Personal, personable and personalized

Overall, chatbots and conversational AI provide adaptive recommendations and personalized experiences that remove indecision and confusion from the consideration and buying phase.

Chatbot Applications: How Does Chatbot Data Help my Business?

According to a 2019 study by Juniper Research, global retail sales from chatbot-based interactions will rise from $7.3 billion to $112 billion by 2023.

But chatbot growth doesn’t automatically mean a chatbot is right for your business.

Small, basic chatbots are good for small businesses. More complex chatbots driven by conversational AI work best for enterprise businesses that manage hundreds or thousands of SKUs. 

Where Do Chatbots Fit in a DTC Marketing Strategy?

The specifics of how and where successful chatbot strategies are deployed depend on business needs.

Here’s a snapshot of how custom chatbot strategies work in a traditional marketing funnel:

1. Top and mid-funnel conversations

Chatbots are added to marketing properties such as landing pages, ads, websites or banners. Customers engage with the chatbot early in their journey to find what they are looking for.

2. Email capture and personalized follow-up messaging

Regardless of whether they convert, customers are encouraged to leave their email. Based on the content of their chatbot conversation, personalized email messaging is sent to upsell, retain and convert long after the initial conversation.

3. Personalized remarketing

The content of a customer’s chatbot conversation is used to customize and personalize remarketing strategy. Ads are hyper-personalized to a customer’s interests, needs and persona (e.g. curly blond hair, washes daily, conditions weekly).

4. Personalization and recommendation-based browsing 

Based on what the chatbot learns, the entire browsing experience is customized for the user. Products appear with a match score and custom description. All inventory is sorted by relevance to a customer’s needs (e.g. 98% match, great for blond curly hair). Customers can also retrigger a chat anytime to find more products they love.

Chatbots vs. Conversational AI: What’s the difference?

The terms chatbots and conversational AI are often used interchangeably. But it’s not that simple.

The difference between chatbots and conversational AI is:


Chatbots is a broad term for any customer experience that leverages chat. Users interact with the bot and an answer is served to get customers to where they want to be.

While the user interface of most chatbots is the same (a typical chat interface), the complexity of how the chatbot serves responses is where conversational AI comes in…

Conversational AI

Conversational AI drives the content of a chatbot. Chatbots vary in complexity ranging from simple script or rules-based experiences to immersive conversational AI experiences that process natural language, adapt in real time and respond with personalized accuracy to a specific customer’s needs.

Think of a chatbot like a car. A simple script-based chatbot knows one route to a few destinations. A chatbot driven by conversational AI can adapt to traffic congestion, always knows the fastest route, adds quicker detours and suggests helpful information that extends beyond a customer’s trip.

Chatbots are the experience, conversational AI is what drives the quality of the experience.

How to Integrate Chatbots into Your Business

There’s 3 common approaches to adding chatbots to eCommerce platforms:

1. Build your own chatbot

Building your own chatbot experience is always an option. Script-based and rules-based bots can be effective in certain contexts. 

Small product catalogs that don’t do large volume and strategies that don’t need to scale can benefit from a simple chatbot, but for larger enterprise businesses that need to operate at scale, in-house chatbot development isn’t viable

2. Out-of-the-box chatbot services

There’s one-size-fits-all solutions for chatbots that provide a basic framework for creating a chatbot right off the shelf. 

Cookie-cutter chatbot services work best for small product catalogs and businesses with low-variance in customer personas and product offering. But for large catalogs, out-of-the-box options impose a hard ceiling on scalability, adaptability and preservation of branding.

3. Custom conversational AI

For large enterprise and DTC businesses that need conversational experiences at scale, custom chatbot builds driven by AI are the only option. 

Conversational AI can learn and manage hundreds of thousands of SKUs, adapt to changes in inventory in real time and automate significant portions of the user experience that would otherwise require human sales agents—all without expending internal project management resources, development time and ongoing maintenance.

Additionally, custom conversational AI data and insights extend beyond the chatbot and power personalization across properties including re-marketing, follow-up and personalized browsing experiences.

Chatbots Recap

Today’s customers have less time and need to find what they’re looking for fast. Chatbots are one of the quickest and most effective ways to provide a customer experience that provides both.

Here’s a quick recap of everything you need to know about chatbots:

  • Chatbots are software applications that provide text and speech based conversational experiences without the need for human sales agents.
  • There are many types of chatbots ranging from simple script-based bots, to immersive chat experiences driven by conversational AI
  • Well executed chatbot strategies increase conversion, engagement, retention and satisfaction by providing a relatable and personalized browsing experience.
  • Chatbots can be deployed across all marketing properties and at several stages in the sales funnel.
  • There are many ways to implement a chatbot into your marketing flow, but for high volume businesses with large product catalogs, custom chatbots driven by conversational AI are the best option.

Still have questions?  We’re fired up to help as many brands as possible to raise the bar of user and customer experience in eCommerce.  If you need help implementing website engagement tools for your brand or want to talk further about any of the tactics in this article, we should talk ASAP!

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