What Is Interactive Voice Response (IVR)? Why & How To Use It

“Press 1 for Sales,” “Press 2 for Support” — this is an interactive voice response (IVR) system in action.

For businesses, IVR is more than just an automated voice. It’s one of the first touchpoints when customers call you up and makes for a powerful tool that drives and improves customer service experiences.

73% of customers have an average first impression with IVR and 63% expect a personalized IVR experience. To offer a better customer experience, you need to better understand how these automated technologies work and create user-friendly IVR flows that keep customers engaged.

We’ll dissect what exactly an IVR is, how it works, key benefits, and share some best practices to create an optimized interactive voice response system.

What Is IVR?

Interactive voice response (IVR) is an automated telecommunication technology that interacts with callers through voice or touch-tone input. It uses pre-recorded messages, speech recognition, and dynamic menu options to guide users to desired information or services.

IVR systems can:

1. Answer and route calls
2. Provide self-service options
3. Collect caller data
4. Integrate with databases for personalized responses

IVR acts as a virtual receptionist. It handles routine tasks and efficiently directs complex issues to appropriate human agents, streamlining customer service operations. Businesses can configure IVR rules based on factors like agent skills, call volume, or time periods.

Industries like banking, healthcare, and customer support typically use an IVR for better accessibility and operational efficiency. These systems offer 24/7 availability, reduce wait times, and help businesses manage high call volumes effectively.

IVR balances automation with human interaction. It’s an integral tool for optimizing customer service across various sectors.

How Does IVR Work?

Let’s understand an IVR call flow with a simple example.

A customer calls a bank to check their balance. The IVR system first greets them and might offer language options.

Then, it presents a menu of choices, like checking account balances, making a transfer, or speaking to a customer service representative. The customer can respond by pressing the corresponding number on their keypad or saying the desired option.

The IVR system interprets the input and directs callers accordingly. Could be directing the customer to pre-recorded information, transferring to a live agent, or even collecting relevant information using voice prompts.

Here’s what’s happening behind the scenes:

1. Caller interaction and menu navigation

A customer dials a company’s phone number and is greeted by an IVR welcome message, which is an auto-attendant of the automatic call distribution (ACD) system IVR uses. This menu can be one or several layers deep.

The IVR presents the caller with a series of options, typically via pre-recorded messages or text-to-speech technology. These options can be accessed by pressing a number on their keypad.

The option your caller chooses is recognized by the press of a button on a touch-tone keypad. This technology is called dual-tone multi-frequency signaling (DTMF). 

For example, you could offer:

1. Sales.
2. Support.
3. Accounts.

But you could also offer submenus inside each of those options. So, when someone presses 3 for accounts, they get a second menu. 

This could include:

1. Make a payment.
2. Query an invoice.
3. Request a copy of an invoice.

The option pressed by the caller on their keypad routes the call to the relevant department.

3. Call routing

When an option gets selected, the IVR routes the call to the individual, department, queue, or message you’ve configured in your IVR application.

• Live agent: The call is connected to a representative in the most relevant department.
• Self-service options: The IVR provides automated services like account balance inquiries, bill payments, or appointment scheduling.
• Information retrieval: The IVR accesses databases to retrieve information for the caller, such as business hours or product details.

In some queues, you might want to offer a callback option. Here, the caller can opt to leave the call but keep their position in the queue to receive a callback. 

When it’s their turn, your call center software triggers an outbound call. The caller carries on with their day without the need for long wait times.

4. Error handling

If a caller makes a selection error or needs further assistance, the IVR can offer options to repeat the menu, connect them to a contact center agent, or provide a clear path for escalation.

• Press 9 to repeat the menu.
• Repeat the menu automatically if no option gets selected.
• Press # to speak to an agent.

If a customer gets stuck in a self-service option, you can enable your IVR to automatically escalate the call to a human agent.

5. Analytics and reporting

Modern IVR systems track call interactions (both self-service and agent-assisted) providing valuable data on call volume, resolution rates, and customer satisfaction. This data helps businesses optimize their IVR for better performance.

What Are the Benefits of an IVR?

When thinking about the benefits of an IVR system, it’s important to consider not only the benefits to your business but also the benefits to your customers. Here are a few reasons why you need to use IVR systems.

For businesses:

• Improved customer service: IVR offers 24/7 availability, reduces wait times, and directs incoming calls to the right agent, leading to a more efficient and satisfying customer experience.
• Reduced operational costs: Automating routine tasks frees up call center agents to handle more complex inquiries, saving businesses on operational expenses.
• Increased productivity: Agents can focus on resolving complex issues while the IVR handles simple questions, which improves efficiency.
• Data-driven insights: IVR analytics provide valuable data on customer behavior and call trends, allowing businesses to make informed decisions regarding their communication strategy.
• After-hours call handling: An IVR lets you provide a distinct call flow outside of business hours. The after-hours IVR menu can exclude the ability to talk with an agent and instead encourage callers to leave a voicemail or call back during regular business hours.
• Scalability: IVRs adjust to handle varying call volumes without hiring more staff. You can expand it to include more options and functionality as your business grows.

For customers/callers:

• Faster service: IVR allows callers to get information or resolve basic issues quickly without waiting on hold.
• 24/7 availability: Customers can access information or self-service options outside of regular business hours.
• Convenience: IVR provides a user-friendly way for customers to get what they need without requiring interaction with a live agent.
• Multilingual support: Advanced IVR systems can offer options in multiple languages, catering to a broader customer base.

Related: Automated Telephone Systems: Key Features to Look For

Common IVR Applications & Use Cases

IVR systems have become imperative in our daily lives, serving a wide range of purposes across various industries. Let’s look at some of the most common uses of IVR systems.

1. Financial services and banking

Banks use an interactive voice response system as digital assistants to help customers perform various functions like checking their account balance, making payments, or reporting a lost card without waiting for a human representative.

Need to know if that check cleared? Just punch in your account details, and the IVR will give you a rundown of recent transactions. It’s like having a 24/7 teller at your fingertips, minus the small talk.

If you call Bank Of America, you’re asked to enter your unique identifier (card or account number) before being offered menu options. This allows them to check the status of your account and offer a more personalized experience.

2. Healthcare and appointment scheduling

IVRs help healthcare providers streamline patient services. Gone are the days of waiting on hold to book a doctor’s visit.

Now, customers can schedule, confirm, or cancel appointments with a few button presses. Some systems even handle prescription refill requests or provide basic health information. It’s not quite a robot doctor, but it’s a handy first point of contact for many medical needs.

Veterans Home Care, for example, uses Nextiva’s IVR to serve its at-risk veterans.

3. Logistics, shipping, & utilities

Whether tracking a package or reporting a power outage, IVR systems have got you covered.

Shipping companies use them to provide real-time updates on deliveries, while utility providers rely on IVR to manage service disruptions.

Say it’s 2 AM, and the power goes out. With IVR, customers can report the issue and get status updates without waking up a call center employee.

4. Customer service and account management

IVR systems have become integral to customer service operations across various industries, from telecom providers to retail stores. They serve as the first point of contact for many customers, efficiently handling a wide range of basic inquiries and account management tasks.

When customers call in, IVRs can quickly authenticate their identity using account numbers or personal information. Once verified, callers can access a variety of self-service options.

• Resetting passwords or PINs
• Updating personal information (address, phone number, email)
• Checking account balances or recent transactions
• Making payments
• Reviewing order status or delivery information
• Requesting product information or technical specifications

IVR systems significantly reduce the workload on human agents. Customer service representatives can focus on more complex issues that require human intervention, problem-solving skills, or empathy.

You can even integrate your IVR with other business systems (workforce management tools, payment processing, customer relationship management systems) to create a more efficient, personalized experience for your customers while optimizing your operations.

It’s about making every interaction smoother and more productive for both sides of the conversation.

5. Travel and hospitality

Airlines use it for flight status updates and booking modifications, while hotels employ IVR for reservations and information about amenities.

An IVR system is many customers’ first point of contact when booking a room, checking flight times, or finding out more details about an accommodation.

As the technology continues to evolve, we can expect these digital assistants to become even more capable and user-friendly.

Hertz’s IVR includes:

IVR Menu Choice	Action
“Press 1”	Upcoming rental
“Press 2”	Rental in progress
“Press 3”	Completed rentals
“Press 4”	Gold Plus rewards
“Press 9”	Hear these options again

6. Government agencies

IVR systems play a crucial role in managing the diverse needs of citizens contacting government agencies. When calling local, state, or federal offices, callers are greeted with important announcements and can access a range of self-service options.

For example, California State’s IVR offers services like:

• Requesting birth certificates
• Getting information on laws, regulations, or public projects
• Locating nearby schools or farmer’s markets
• Filing for unemployment or disability
• Registering to vote
• Applying for licenses or health coverage

If self-service can’t fulfill a request, callers are connected to appropriate agents based on their selection. This system efficiently routes calls, reducing wait times and minimizing transfers. For complex situations, some agencies may use a dedicated operator to triage requests.

Related: What Is Outbound IVR? Use Cases and Examples

How To Design an Effective IVR System

A well-designed IVR system significantly impacts the customer experience. It’s about creating an experience that’s efficient, user-friendly, and meets customer needs. Creating an IVR system that enhances customer experience requires careful planning and execution.

1️⃣ Offer clear menu options

The foundation of a good IVR is clarity and simplicity. Keep your menus concise and use straightforward language, avoiding technical jargon. Think of how you’d explain something to a friend — direct and easy to understand.

Make sure to also have a dedicated IVR phone number. For example, 1-800-123-4567 might connect to your company’s IVR system for customer support.

To minimize user frustration:

• Offer an “opt-out” option for callers who prefer a live agent immediately.
• Include estimated wait times during high call volume periods.
• Provide a clear path to escalate complex issues to a human representative.

🌐 Improve accessibility

Make your IVR systems accessible for people with impairments. This could involve:

• Offering options for users with visual impairments, like text-to-speech menus.
• Providing support for users with hearing impairments, such as compatibility with TTY devices.

This could go a long way in helping all kinds of users without bias.

🖇 Personalize your options

Personalization and language options can significantly improve user experience. Use caller data to tailor interactions, greeting returning customers by name and offering relevant options based on their history.

In our diverse society, providing multiple language choices makes your service more inclusive and accessible to a broader audience.

☎️ Simplify live agent access

While automation is the goal, always provide a clear path to human assistance. Some callers will inevitably need or prefer to speak with a person, so make this option easy to find.

Also, consider offering call-back options for those who’d rather not wait on hold, showing respect for their time.

📝 Use natural language prompts

The interface of your IVR should feel natural and intuitive. Use conversational language in your prompts, aiming for an interaction that flows like a normal dialogue.

Implementing accurate voice recognition technology can further enhance this, allowing callers to speak their choices instead of relying solely on keypad inputs.

📈 Keep it current

Regular maintenance and updates are crucial. Continuously test your system to identify and fix issues, checking for dead ends or confusing options.

Keep your IVR content current, reflecting any new services, promotions, or changes in your business. This ongoing attention ensures your system remains effective and relevant. That also includes embracing modern technology.

With a modern IVR, such as an intelligent virtual assistant (IVA), you can respond to customers using artificial intelligence and natural language processing.

🤝 Align your IVR with your business

Consider the broader context of your IVR. Ensure it’s mobile-friendly and works well with smartphone interactions.

Align its tone and messaging with your brand identity for a cohesive customer experience. And don’t forget to use IVR data — integrate analytics to gain insights into customer behavior to improve both the system and your customer service.

Challenges To Overcome When Using an IVR (And Solutions)

Implementing an IVR system can present several challenges, but with the right approach, you can effectively address them:

1. Team morale & agent performance

Contrary to common fears, IVR systems can actually boost agent morale and performance. By handling routine queries, IVRs allow agents to focus on more complex, specialized tasks. This leads to more engaging work and improved job satisfaction.

Solution: Position IVR as a tool to enhance, not replace, human agents. Use it to streamline simple requests, freeing up agents for more personalized customer interactions.

2. Navigation complexity

Overly complex IVR menus can frustrate callers, leading to hang-ups and dissatisfaction.

Solution: Simplify call flow navigation. Design direct routes with minimal steps, but ensure they effectively address customer needs. Regularly review and optimize your IVR structure using contact center analytics.

If you’re a small business, fewer menu options are better. Your IVR will likely be one layer (the term for the number of menus you offer callers).

📖 Read more: Creating a Phone Menu in Nextiva

3. Impersonal customer service

The lack of human touch in IVR interactions can be off-putting for some customers.

Solution: Always provide clear options to speak with a human agent. Consider implementing voice recognition to allow callers to request an agent verbally, enhancing the system’s responsiveness.

4. Excessive wait times

Poor call routing can lead to long wait times, starting customer interactions on a negative note.

Solution: Use data analytics to identify and address bottlenecks in your call flow. Implement callback options (like Q-for-Me) to respect customer time and reduce frustration during peak periods.

5. Continuous improvement

To maintain effectiveness, IVR systems need ongoing attention.

Solution: Regularly track key call center metrics like most-used options, average hold times, and success rates. Make incremental improvements based on this data, and communicate significant changes to frequent callers.

Key Takeaway: Enhancing Customer Experience With Modern IVR

Advancements in speech recognition technology and machine learning are constantly improving the capabilities of IVR software. We can expect IVR to become even more sophisticated, with features like natural language processing allowing for more conversational interactions.

AI-powered IVR systems might be able to understand the context of a customer’s request and provide more personalized responses. The future is bright for call centers and contact centers that heavily use IVR technology.

Here’s more on how IVRs are transforming customer service:

• AI-powered personalization: Modern IVRs use artificial intelligence to recognize callers and tailor interactions based on their history. They integrate with CRM systems, offer personalized options, and streamline customer support.
• Advanced self-service: IVRs now handle complex tasks like payments, account updates, and detailed inquiries. Natural language processing allows callers to speak naturally rather than navigate rigid menus.
• Intelligent routing and insights: Sophisticated algorithms route callers to the most appropriate agents, improving first-contact resolution. IVRs also generate valuable data, helping optimize staffing and improve service strategies.
• Omnichannel integration: IVRs seamlessly connect voice, text, and web interfaces, allowing customers to switch channels effortlessly during interactions.
• Visual IVR: Some IVR platforms offer visual menus on smartphones, combining the ease of touch navigation with voice support.
• Conversational AI: Chatbots and virtual assistants are being integrated with IVRs, providing more natural, conversation-like interactions.
• Biometric authentication: Voice recognition and other biometric methods are enhancing security and speeding up caller verification.

As technology continues to evolve, IVRs are becoming increasingly sophisticated, adapting to customer preferences and business needs in real time.

Call center IVR systems now offer contact center as a service (CCaaS), unifying customer data, and allowing personalized interactions based on the customer’s history and preferences.

I Need an IVR System; Now What?

Eight in 10 people regularly have negative experiences with customer service. Traditional customer service can be a pain. But, IVR systems change that by automating tasks and routing calls efficiently.

Here’s what to do before getting an IVR:

1. Define your goals: Improve service, boost sales?
2. Identify automation options: Payments? Sure. Emergencies? No.
3. Plan for updates: Use data to make your IVR better.
4. Understand caller needs: Which departments get slammed?

Once you’ve planned, choose the right partner. Nextiva provides both a basic IVR and an advanced IVR as part of its contact center solution.

Nextiva simplifies the whole IVR setup with a visual call flow designer that lets you intuitively direct inbound calls to your team. More advanced IVRs can be set up with additional planning and fully integrated with your office phone system.

If you need an IVR solution and want to partner with a communications platform, recognizing that customers and businesses deserve better, see what Nextiva can do for you.

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