What are Chatbots?

July 22, 2025

Chatbots are AI-powered tools that simulate human conversation, helping businesses automate support, answer queries, and improve user engagement.

Chatbots are computer or software programs that simulate human conversations either through voice or text interactions. Nowadays, chatbots are integrating conversational AI, including NLP (natural language processing), to understand questions comprehensively even when they contain some grammatical errors.

A chatbot might prompt a user to describe an issue or ask a question, to which it would clarify. A few chatbots are simple and respond to only the asked questions, whereas some are sophisticated and learn information about a person based on the collected data.

These chatbots also evolve to assist users over time. The market of chatbots seems promising, and it is anticipated that by 2028, it will be worth $15.5 billion.

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How do Chatbots Work?

A chatbot uses NLP, machine learning, and pre-defined conversation flows to answer the questions of users. Chatbots also help in guiding customers through various situations in real time too. Lots of businesses use generative AI chatbots for answering frequently asked questions.

Chatbots seem to be the best for answering complex queries regarding exchanges, refunds, and other nuanced scenarios. In fact, chatbots work exceptionally well when it comes to enhancing customer experience (CX).

They connect to a company’s knowledge base, enabling quick and accurate responses to FAQs. Chatbots can also anticipate customer needs and offer personalized suggestions.

Main Types of Chatbots

To use a chatbot for your purpose, you need to be aware of its types. Again, you must also know its working mechanism besides its pros and cons. A few popular types of chatbots are:

1. Menu-based Chatbots

If you look for the most common type of chatbot, your first choice should be a menu-based chatbot. Menu-based chatbots are less detailed in comparison to other chatbots, and they seem to be excellent for offering each customer access to information, such as business hours, account balances, and information that can be easily automated and disseminated.

2. Rule-based Chatbots

A rule-based chatbot is a further expansion of menu-based chatbots. The rule-based chatbots follow some set of responses and work the best for offering basic customer support. They work extremely well when asked some predefined questions, like about features or pricing. As rule-based chatbots do their job on a definite set of commands only, they can respond to queries that sync well with their programmed logic.

3. Hybrid Chatbots

Hybrid chatbots are conversational AI systems that combine machine learning capabilities with rule-based logic. This integration enables them to deliver versatile user experiences, handling tasks of varying complexity thanks to the incorporation of AI. Businesses often prefer hybrid chatbots because they offer both personalized and straightforward experiences to end users.

4. Generative AI Chatbots

If you choose chatbots that have generative AI capacities, you will enjoy improved functionalities. These chatbots can understand common language well and can adapt to users’ way of conversation. Chatbots that interface with generative AI become capable of summarizing, translating, recognizing, predicting, and creating content in response to the general queries of users, and the good thing is they don’t require human interaction.

Applications of Chatbots

A chatbot has become a mandatory tool that improves the interactions of customers. Again, chatbots also help in enhancing user satisfaction and operational efficiency across different industries. They have various applications that are mentioned below one by one:

1. Support Human Agents

An AI chatbot helps customer service representatives by answering some basic questions. It also accumulates the information of customers and offers responses. Thus, staff get sufficient time to concentrate on highly challenging tasks as the chatbots deal with routine inquiries. All in all, chatbots streamline workflows and automate repetitive jobs, and this way, they make the teams of customer service more effective.

2. Handle Healthcare Inquiries

Chatbots give access to healthcare information as they assist users in understanding their coverage options, eligibility, and benefits. In the healthcare space, they enhance customer satisfaction by automating inquiries and significantly reducing wait times. They can also help schedule appointments, send prescription reminders, and even offer initial symptom checks.

3. Streamline Travel Planning

Travel chatbots take the hassle out of trip planning by assisting with flight and hotel bookings while keeping travelers updated on schedule changes. By handling these details, they help ensure a smoother, stress-free travel experience from start to finish. Some chatbots even offer destination suggestions, real-time weather updates, and local travel tips.

4. Order Placements

Chatbots simplify the shopping of customers by letting them place orders through chat directly. Thus, they aren’t required to navigate different websites. Chatbots can handle payments and use NLP to suggest products. Additionally, they also offer updates on orders. This approach eases online shopping across different channels. Chatbots have an astounding growth rate of 24.9%; hence, they have turned out to be the fastest-growing medium for brand communication.

Risks and Limitations of Chatbots

Though chatbots offer limitless advantages, they aren’t devoid of limitations. Some challenges you might come across while using chatbots are as follows:

1. Chatbots can’t Solve Complicated Matters

Though chatbots seem magnificent in dealing with routine jobs and basic questions, they can’t answer complicated queries. They reply according to the data only. When the questions of a customer fall outside of its data, the chatbot provides imprecise information.

2. A Chatbot Lacks Human Emotions

Most chatbots fail to understand the emotions humans have. On top of that, they do not get sarcasm and can’t apprehend frustration. Most often, chatbots rely on pattern recognition and keywords to generate responses.

3. Chatbots Also Make Errors

Sometimes, AI chatbots generate responses that, though they look like facts, aren’t actually correct, and this phenomenon is acknowledged as AI hallucination. It happens as AI models sometimes mix up things. AI models also draw incorrect conclusions to please users.

4. A Chatbot Lacks Personalization

It does not seem gratifying to communicate with chatbots, as they don’t have the empathy. Due to this, they don’t understand people and offer only the pre-programmed responses that lack personal touch. The rule-based chatbots offer only one programmed answer and don’t understand the issues, goals, or needs of people.

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