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Chatbot – How it Works, Types, Applications, Advantages & Disadvantages

Robots have amazed us for generations. With the correct combination of technology and need, Chatbots are the new buzzword. In this post, we will discuss in detail about what is Chatbot, its various types, how it works, its applications, advantages as well as disadvantages.

What is Chatbot

A chat robot (sometimes referred to as a Chatterbot) is a programmed module that simulates the conversation or “chatter” of a human being through text or voice interactions. Typically, a Chatbot will interact with a real person.

Introduction to Chatbot

Fig. 1 – Introduction to Chatbot

Chatbot virtual assistants are being used to handle simple, look-up tasks in both business-to-business (B2B) and business-to-customer (B2C) environments. The addition of Chatbots not only reduces overhead costs by making better use of support staff time, but it also allows companies to provide customer service during hours when live agents aren’t available.

How a Chatbot Works

There are two different tasks of a Chatbot:

  • User Request Analysis
  • Returning the Response

How Chatbot Works

Fig. 2 – Working of Chatbot

As you can see in above image, a Chatbot returns a response based on input from a user. This process may look simple but in practice, things are quite complex.

User Request Analysis

This is the first task for a Chatbot. It studies the user’s request to identify the user intent and to extract relevant entities. Ability to recognize the user’s intent and extract data and relevant entities contained in the user’s request is the priority condition and the most relevant step of a Chatbot. If you are not able to correctly identify the user’s request, you won’t be able to provide the correct answer.

Working of Chatbots

Fig. 3 –Data Flow in Chatbot Functionality

Returning the Response

Once the user’s intent has been identified, the Chatbot must provide the most accurate response for the user’s request. The answer can be:

  • A generic and predefined text.
  • A text received from a knowledge base that contains different answers.
  • A piece of information based on data the user has provided.
  • The result of an action that the Chatbot performed with one or more backend application.

Types of Chatbot

There are two types of Chatbots:

Artificial Intelligence Based Chatbots

These Chatbots works on dynamic learning and constantly update themselves using various customer interactions. They are intelligent, of superior design and provide better user experience.

How an Artificial Intelligence Based Chatbot Works

Fig. 4 – How an Artificial Intelligence Based Chatbot Works

Fixed Chatbots with Limited Set of Rules

These are bots with fixed information and therefore offer limited help. They have ability to reply only to fixed texts or commands. These types of Chatbots are not so popular due to their inability to understand perplexed human behavior.

How a Fixed Chatbots with Limited Set of Rules Works

Fig. 5 – How a Fixed Chatbot with Limited Set of Rules Works

Applications of Chatbot

The applications of Chatbot include:

  • e-Commerce – Chatbots can add new user experience to e-commerce beyond menus and buttons.
  • Travel – From booking travel to solving travel related problems, Chatbots have the potential to help.
  • Finance – Most banking Chatbots are capable to inform users about their balances, recent transactions, credit card payment dates, limits etc.
  • Healthcare – Chatbots have also made their way into health care line by easing the burden on medical worker by facilitating faster medical diagnosis, answering health related queries,- booking appointments and lots more.
  • Hospitality – Chatbots can handle menu related questions, can collect feedbacks etc.
  • Insurance – Chatbots can handle inquiry from agents and customers.
  • Information Services – Chatbots provide simple information services like weather. They also give context-dependent advice on topics like what to wear, makeup.
  • Media – Chatbots can be programmed to deliver only summaries of news and sharing details as users ask about them.

Applications of Chatbot

Fig. 6 – Applications of Chatbot

Advantages of Chatbot

The advantages of Chatbots include:

User Satisfaction

  • Immediate answers.
  • Available 24/7.
  • Personalized answers.
  • 90% correct answers.
  • Customer autonomy.
  • Innovative customer service.

Customer Service Enhancement

  • Quality and detail of responses.
  • Multiple Customer Handling.
  • Relieve congestion in contact centers = more free time for value added questions.
  • Valorization of advisers.
  • Knowledge centralization.

Simplify Employee’s Life

  • Enhance productivity and operational effectiveness.
  • Staff retention.
  • Decrease calls and e-mails to support service.
  • Resources reallocation on value added tasks.

Advantages of Chatbots

Fig. 7 – Advantages of Chatbot

Disadvantages of Chatbot

The disadvantages of Chatbot include:

  • Complex Interface – Chatbots are complicated and needs a lot of time to understand requirement. Poor processing which is not able to filter results in time sometimes can annoy people.
  • Inability to Understand – Due to fixed programs, Chatbots can be stuck if any query which is not saved is presented in front of them. This can lead to customer dissatisfaction and loss.
  • Time Consuming – Chatbots are installed to improve customer interaction and to speed-up the response. Sometimes, due to limited data availability and time required for self-updation, this process appears more expensive and time-taking.
  • Increased Installation Cost – Chatbot helps in saving a lot of manpower by ensuring the all-time availability and serving many clients at once. But every Chatbot needs to be programmed differently for a new business which increases the initial installation cost.
  • Zero Decision Making – Chatbots have inability to make decisions.
  • Poor Memory – Chatbots are unable to memorize the past conversation which forces the user to type the same thing again & again. This can be annoying for the customer and annoy them because of the effort required.


Chatbots or smart assistants with artificial intelligence are continuously changing businesses. There are many Chatbot building platforms that are available for various enterprises, such as e-commerce, retail, banking, leisure, travel, healthcare, and so on.

Chatbots can reach out to a large audience on messaging apps and be more effective than humans. They may develop into more capable information collecting tool in the near future.

Also Read: 
Robotic Process Automation (RPA) - Introduction, Works, Advantages and Applications
What is Artificial Intelligence AI - Introduction, Types and Application Areas
Intent Based Networking - Working Principle, Advantages and Disadvantages
Neetika Jain
Neetika Jain
Neetika is a B.Tech. (Computer Science) graduate and has 4 years of work experience in Infopro India Pvt. Ltd. as Software Tester. She is an author, editor and partner at Electricalfundablog.
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