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How do chatbots work?

We know that developing a chatbot is quite demanding, but following the best practices can ensure a successful implementation that will delight your customers and help drive business growth.

16 March, 2023
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Why did the chatbot go to therapy? Because it had a lot of unresolved dialogues.

That was a meta joke about chatbots made by a chatbot. While it may seem like a stretch to personify a computer program in need of therapy, the truth is that chatbots have become more and more common in our daily lives.

Just look at virtual assistants like Siri and Alexa or customer service bots on e-commerce websites and how they have pretty dramatically altered the way businesses communicate with their customers, providing round-the-clock customer service and sales support.

These computer programs mimic human conversation, using natural language processing (NLP) and machine learning algorithms to understand and respond to user queries.

We know that developing a chatbot is quite demanding, but following the best practices and choosing the right AI development company can ensure a successful implementation that will delight your customers and help drive business growth. Let’s delve deeper into this subject to understand the nature of chatbots. And if you're interested in AI, read our latest article on building an AI app or upcoming article on AI APIs.

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Types of chatbots

Did you know that chatbots have been around for over 50 years? The very first one, ELIZA, was developed in the 1960s by MIT professor Joseph Weizenbaum. It is one of the first chatbots that used simple pattern-matching rules to mimic human conversation and a predecessor to the rule-based type of chatbots we have today.

As was expected, over the years, they have evolved and become more sophisticated, with different types now catering to different needs, like keyword recognition-based, AI-powered, hybrid chatbots, etc. The following are the ones that you should definitely become acquainted with.

Types of chatbots
Types of chatbots

Rule-based chatbots

Rule-based chatbots, a.k.a decision-tree chatbots, use a pre-programmed set of rules to understand and respond to user queries. They are typically designed to handle specific questions or tasks, such as answering frequently asked questions, providing technical support, or booking appointments.

Rule-based chatbots break down a user's question into keywords and phrases and then match those to predetermined responses. The chatbot then follows a decision-tree flowchart that guides it through a series of questions and answers, ultimately leading to a response that satisfies the user's inquiry.

Rule-based chatbots are currently utilized in various industries, from healthcare and finance to e-commerce and customer service. They come to aid when someone needs quick and efficient responses to frequently asked questions, reducing the workload on human customer service agents.

Keyword recognition-based chatbots

Keyword recognition-based or keyword-based chatbots rely on machine learning algorithms to recognize and interpret keywords and phrases within user queries. They first analyze large datasets of text to identify patterns and relationships between words and phrases and then use this information to respond in a more natural and human-like way.

Keyword recognition-based chatbots are thriving in industries like healthcare, finance, retail, and hospitality, where they are often used to provide personalized recommendations, assist with product searches, and even process customer orders.

The development of keyword recognition-based chatbots can be traced back to the early 2000s when natural language processing and machine learning technologies began to gain traction. Since then, these chatbots have become increasingly sophisticated, with some models able to analyze user sentiment and emotion in addition to keyword recognition.

Machine learning chatbots

Next up are machine-learning chatbots, using artificial intelligence and ML algorithms to improve their responses over time. Their ability to learn from previous interactions with users allows them to provide more personalized and accurate answers and handle complex queries that require a high degree of nuance.

ML chatbots work by analyzing large datasets of text and speech to identify patterns and relationships between words and phrases. They then use this information to generate responses to user queries and learn from the user's feedback on the accuracy and relevance of those responses.

Thriving as virtual assistants, customer service bots, and chat-based sales agents, ML chatbots have been closely tied to advancing AI and natural language processing (NLP) technologies over the past few decades. These chatbots are to become even more refined very soon, with the ability to recognize and interpret user emotions and sentiments and provide even more personalized responses.

The hybrid model

Hybrid model chatbots combine elements of both rule-based and machine-learning chatbots and are designed to provide the benefits of both, offering quick and efficient responses to common queries while also providing more personalized and nuanced responses when necessary.

These chatbots work by using pre-programmed rules to handle routine queries and tasks while incorporating machine learning algorithms to learn from user interactions and improve their responses over time.

The development of hybrid model chatbots is a relatively recent phenomenon, reflecting the increasing sophistication of NLP and ML technologies, and they are popular in industries like customer service, sales, healthcare, and education.

Slightly less sophisticated than other types of chatbots, menu-based chatbots have been around for many years, predating more advanced chatbot technologies like machine learning and natural language processing.

They offer users a predefined set of options to choose from rather than responding to open-ended queries, such as a series of menus or buttons that they can click on to navigate through different options and obtain the information or assistance they need.

Giving users a structured set of options, which they can then select based on their needs, gives these chatbots a spotlight in situations where a limited set of options is sufficient for the user's needs, such as ordering food from a restaurant or selecting from a list of frequently asked questions.

AI-powered chatbots

And the last type you should know about is AI-powered chatbots that utilize artificial intelligence technologies to understand and respond to user queries.

These chatbots are designed to provide more sophisticated and nuanced responses than traditional rule-based chatbots and can learn and adapt over time based on user interactions.

AI-powered chatbots work by using NLP algorithms to understand user queries and extract relevant information before using ML to generate a response, which has been made possible by recent advances in AI, including the development of deep learning algorithms and the increasing availability of large amounts of data to train these algorithms.


Benefits of chatbots

Let’s now explore some of the key benefits of chatbots, including their ability to provide instant support, ease of use, and ability to learn and adapt over time. We will also examine some of the technologies that enable these benefits, such as knowledge base systems, natural language processing, and AI and machine learning.

How do chatbots work?

Simply put, chatbots work by leveraging a combination of technologies to understand user queries and provide relevant responses.

When users interact with a chatbot, their query is first analyzed using natural language processing algorithms, allowing the chatbot to understand its intent.

The chatbot then searches a knowledge base or content management system to find the most relevant response to the user's query. In some cases, chatbots also use AI and machine learning algorithms to improve their responses over time.

Now, let’s look closer at these technologies.

Knowledge base/CMS

Knowledge base systems and content management systems (CMS) are integral to the functioning of chatbots, as they are the ones that enable these bots to provide accurate and relevant responses to user queries.

A knowledge base is a centralized information database designed to support customer service and other similar functions. It contains a wealth of information about a particular product or service and can be searched by a chatbot to provide relevant responses to user queries.

Similarly, a CMS is a software application used to create, manage, and publish digital content. By integrating a chatbot with a CMS, companies can provide users with access to a wealth of information about their products or services. This information can be used to answer common questions and provide users with personalized recommendations, improving the overall user experience.

Natural language processing (NLP)

Natural language processing is a branch of AI that enables computers to understand, interpret, and generate human language. It allows chatbots to understand the context of a user's query, which is essential for providing accurate responses.

By analyzing language structure, NLP algorithms can identify important words and phrases and their relationships. This information is then used to determine the intent behind the user's query and provide a response relevant to their needs.

Using NLP in chatbots has several benefits, including improved accuracy and a more natural user experience. By understanding the context of user queries, chatbots can provide responses tailored to the user's needs rather than simply matching keywords.

NLP also allows chatbots to learn from user interactions, improving their ability to understand and respond to queries over time. This means that chatbots can continuously improve their performance and provide even better support to users in the future.

AI and machine learning

Machine learning algorithms use statistical models to identify patterns in user data, enabling chatbots to understand user behavior and provide responses that are tailored to their needs. This means that chatbots can learn from each user interaction, continually improving their performance and providing better support.

The benefits of using AI and machine learning in chatbots include increased accuracy and speed, improved user engagement, and reduced workload for customer service representatives. Chatbots can quickly and efficiently handle a large volume of user inquiries, reducing wait times and improving the overall customer experience.

Context understanding for chatbot training

And the final piece of the inner workings of chatbots is context understanding, enabling them to understand the context of a conversation and provide more accurate and relevant responses by analyzing user input and identifying patterns in the data.

Context understanding involves several key aspects, including understanding the user's intent, identifying relevant keywords, and tracking the conversation's flow. For example, a user might ask a chatbot for recommendations on nearby restaurants.

The chatbot must understand the user's location, food preferences, and dietary restrictions to provide relevant recommendations. It also needs to understand the intent behind the user's request, such as whether the user is looking for a specific type of cuisine or a nearby coffee shop.

To enable context understanding, chatbots must be trained on large amounts of data that includes examples of conversations and their context. This data is then used to train machine learning algorithms to recognize patterns and make predictions based on new inputs.

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Major chatbot challenges

Several challenges and drawbacks are associated with using chatbots, and why they sometimes fail to do the job you think they should do. Here are a few:

  • Limited abilities. Handling basic tasks and answering simple questions comes easy for chatbots, but they may struggle with more complex requests or fail to understand natural language.
  • Lack of personal touch. Lacking the human touch may lead chatbots to not be able to provide the level of empathy or understanding that a human worker can offer.
  • Integration issues. Integrating a chatbot with existing systems and processes can be challenging, mainly if the chatbot is built on a different platform.
  • Data privacy and security. Chatbots are sometimes trusted to handle sensitive customer data, and protecting this data is crucial. Any security breaches or data leaks can damage customer trust and reputation.
  • Maintenance and updates. Chatbots require ongoing maintenance and updates to stay relevant and effective, and failure to maintain one can result in errors or out-of-date information being provided to customers.

Building a chatbot

If you want to build your own chatbot, take a look at the overview of what you should do:

  1. First, determine your chatbot's purpose and target audience to ensure it meets its intended goals and audience needs.
  2. Select your chatbot’s development platform and programming language based on your project's requirements, technology expertise, and budget.
  3. Then design the chatbot's conversation flow and user interface since it’s the part that ensures a smooth and engaging user experience.
  4. Necessary APIs, including natural language processing and machine learning, should be developed next and integrated to enable your chatbot to understand and respond to your user inputs accurately.
  5. The following step is to thoroughly test your chatbot and its responses and then refine its functionality to improve performance and effectiveness.
  6. Deploy your chatbot on a messaging platform or website to reach your intended audience.
  7. And lastly, monitor and analyze its performance and user feedback and make necessary improvements and ensure its continued success.

Best practices for chatbot development

Some of the best practices for current chatbot development involve pretty obvious yet often overlooked aspects, for example, defining a clear objective and scope for the chatbot. You need to determine specific tasks or functions your chatbot is meant to perform and design it with your user's needs in mind and a clear purpose that aligns with your company's goals.

Another crucial practice is mapping out the various paths your chatbot can take in a conversation and designing clear prompts and responses that make sense to your user. Keeping the conversation natural and intuitive is important, so users don't get frustrated or confused.

Moreover, incorporating natural language processing and machine learning algorithms is your key best practice for chatbot development. NLP enables the chatbot to understand and interpret user inputs, while machine learning algorithms will allow the chatbot to learn from previous interactions and improve its responses over time.

And lastly, one of the less apparent practices is providing human backup for your chatbot. Even the most advanced chatbots can't replace the human touch entirely, so it's crucial to provide customers with the option to speak to a human customer service representative if necessary.


In summary, chatbots are modern computer programs designed to mimic human conversation, and you have probably noticed them becoming increasingly popular due to their ability to streamline customer service and automate tasks, and you can definitely expect to see even more advanced features and capabilities.

There are various types of chatbots, including rule-based, keyword recognition-based, machine learning, hybrid model, and AI-powered chatbots. Each operates using a specific technology, like knowledge base systems, natural language processing, and AI and machine learning. That technology, in turn, determines its functionality and benefits.

If you want to develop an effective chatbot, our developer team advises you to follow best practices such as defining a clear objective, creating a clear and concise conversation flow, incorporating NLP and ML algorithms, and having a human backup in store.

And, as usual, don’t forget to reach out if you have any questions or an exciting project in mind, and stay tuned for more helpful articles on this and a myriad of other topics regarding SaaS, startups, design, development, etc.

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My mission is to help startups build software, experiment with new features, and bring their product vision to life.

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