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What is IVR (Interactive Voice Response) and How Does it Work?

The faster you can provide customers with service and issue resolution, the happier they tend to be. One way companies do this is via Interactive Voice Response (IVR). If you’ve ever wondered what IVR stands for, and which one is best for your business, here’s a quick guide. 

What is an IVR? 

An interactive voice response or IVR is an automated phone system that enables customers to choose from a menu of pre-programmed options or speak to a human agent, either by using the touchpad on their phone or their voice. An IVR can perform basic customer service duties, such as checking account balances or order status, or it can be programmed to provide more elaborate customer service such as accepting simple payments. 

Modern cloud IVRs include intelligent call routing, which means they route calls to agents with the appropriate skills to resolve the issue without customers getting passed from one agent to another. The most advanced IVRs use speech recognition and natural language processing to apply conversational AI — which allows it to recognize words and understand sentences, so customers can simply state why they are calling without having to choose from limited options, a far more natural — and faster — way of interacting. 

IVRs can deliver a better customer experience, deflect inbound calls, reduce call handle time, and lower or control customer service costs. When designed with the customer experience in mind, they make engaging with your company an easy, time-saving, pleasant experience. 

How does an IVR work? 

Traditional IVRs were on-premise systems that ran alongside your telecommunications system. They required a heavy lift from IT, their own servers, and complex programming. If you’ve experienced working at a company with an on-premise IVR, you know how frustrating it can be to reprogram the menu options and how the constraints of on-premise hardware limit what you can do with the IVR. Its inflexible nature makes it hard to support the fast changing needs of the business. 

Modern cloud-based IVRs have eliminated those struggles. They are typically automatically built into cloud contact center platforms and use easy, drag-and-drop programming interfaces. Which means that changing up the IVR menu is fast and easy, giving businesses the flexibility they need to keep pace with evolving needs. Everything required to manage the IVR is handled by the contact center provider in the cloud. No on-premise hardware or servers. 

A modern IVR also integrates with key business systems, such as your customer relationship management software (CRM, like Salesforce) so it can pull key customer data to better inform how it routes calls or your payment system to allow pay-by-phone automated transactions. 

Here’s how it works: 

  1. A call is answered by your automated call distribution (ACD) system, which triggers the IVR to respond. 
  2. The caller selects from menu options either by touchpad or voice. These options are also called a phone tree, and they can be programmed with subsequent tiered levels (or branches) for more complex problem solving. However, great IVR design keeps things simple — more on that in a bit. 
  3. The IVR routes the selected option to the appropriate function or agent. 

What can an IVR do for customers?

The simple answer is whatever you want it to do. An IVR can be programmed to provide customers with the options your business feels would best support their needs. This can be anything from basic call routing for departments in a retail store, to making changes to an account, to ordering products or services, to making simple payments. The menu options depend on your business and what customers most often need when they contact you. 

IVRs that are designed well save customers time by resolving their issues through self-service or by routing them to the right agent who can help them. 

What are IVR benefits?

The benefits of an IVR are multifold. They include: 

  • Inbound call deflection. Wisely offloading the most common customer needs to an IVR can improve call deflection and help free agents to focus on more complex customer needs. 
  • Better service performance metrics. Both call handle times and first contact resolution should improve with an effective IVR serving customers. 
  • Reduced contact center costs. The average IVR call/minute is around $0.02 to $0.10 whereas a live agent call/minute can be $0.25 or higher. 
  • Improved agent productivity. Agent’s taking calls off an IVR know what the issue is about and are prepared to respond, if your contact center platform is enabled with other tools such as Agent Assist, it will also boost productivity by guiding agents through the best way to respond and meet the customer’s needs. Agents fielding calls that are intelligently routed to their skillsets will also find the bulk of their calls more fulfilling since they will be able to readily help those customers. 
  • 24/7 availability. An IVR is available around the clock in all time zones to respond to customers. It can also be used to manage customer expectations of when live agents are available by stating hours or informing them of when to expect a call back. 
  • Scalability. When call volumes spike, a cloud IVR can be quickly reprogrammed to answer pressing questions or inform customers of urgent information — deflecting much of the spike from agents and making sure that customers can access the info they need in the moment without having to wait. 

IVR design gone bad

As noted, an IVR improves customer experience only when it is designed to truly deliver a better experience. Far too many companies set up an IVR only to find that their call deflection rates don’t improve or worse, their customer retention drops. 

We’ve all interacted with frustrating IVRs that require us to wait through a long list of promotional information, hours of operation, and tedious menu selections — just to find out that the help we need isn’t listed, we’re unsure which selection is right for our problem, or to find that there’s no option to connect to an agent! 

Loading an IVR with a ton of information and options can seem like it’s good for customers, but the reality is it can be annoying. Remember, to the customer, the point of an IVR is to save them time. An IVR that wastes time — or just won’t let you enter the option you know you need and makes you wait through the whole list — isn’t helpful. 

So what should you do? 

How to design an IVR menu that makes customers happy

  1. Do your research and make sure the options you include in the IVR menu are best for the customer — not the business. 
  2. Simplify. An IVR that will save time will make it simple and easy to get to the right solution. Don’t overload your menu options. 
  3. Get them to an agent option fast. Do not bury the option to “speak to an agent” at the end of the list or by pressing “zero” after you’ve gone through 10 different options. Let customers know immediately how they can “speak to an agent anytime by pressing zero”. Remember, customers want to save time. If they feel the IVR menu will do that best, they will use it. If they know they need an agent, get them to one quickly. 
  4. Update your IVR menu often, but you can skip saying “Our menu has changed” — unless it’s a channel partner that calls you frequently, most customers won’t remember what your menu options are anyway. 
  5. Choose or upgrade to a conversational IVR, like Replicant, that uses conversational AI to facilitate more natural engagements. For example, a conversational IVR can simply ask: How can I help you today? And the customer can state their issue, and be routed to the best way to resolve it. This saves customers the most time. 

Why switch to a conversational IVR? 

Not only is it faster for customers to simply state what they need, but conversational AI opens up a whole new realm of what an IVR can do for the customer and company. Conversational IVR is not restricted to static options so it can deliver a more personalized experience. Since it flows with the context of conversation, it can open up possibilities to generate revenue by understanding when a customer might need a product recommendation or upgrade — something a traditional IVR would not be able to do. Acting more like a human agent than a traditional IVR, conversational IVR gives businesses a broader playing field for harnessing the power of an IVR. With a 90% resolution rate, it lifts Tier-1 issue resolution off agents and frees them to focus on complex calls that require empathy. 

Deploying an IVR is a great way to help route calls, provide self-service options, and reduce customer service costs. Designed with the customer experience in mind, it can improve customer satisfaction and ultimately help improve retention. 

Learn more about how Replicant conversational IVR can enhance your customer experience. 


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