What Is Interactive Voice Response (IVR)? Definition & Benefits

Updated Dec 6, 2022.
What Is Interactive Voice Response (IVR) - Definition & Benefits

Whenever you make a call to Bell Canada’s customer service department, your call is answered by Emily. Emily politely greets you, finds out your reason for calling, and then provides you with the required assistance, or transfers you to an appropriate customer service agent.

At first, it seems like there’s nothing out of the ordinary here. There’s one twist, however. Emily is not human. She is a computer.

Emily is an example of what is known as an Interactive Voice Response (IVR) system. IVRs automate call handling and routing, helping businesses save money that would have been spent on dozens of call center agents, and at the same time helping businesses improve efficiency and productivity.

Over the last decade, IVR systems have become very popular among customer-oriented businesses. But how exactly do these systems work? What are their benefits? And how can you get the most out of your IVR system?

In this guide, we’ll give you answers to all these questions and more. Let’s dive in…

What Is Interactive Voice Response (IVR)?

Interactive Voice Response refers to an automated phone system that allows callers to interact with a computer through prerecorded voice messages before talking to a human agent.

Sometimes, the IVR will even resolve the customer’s issue without having to transfer them to a human agent.

For instance, if you call a utilities company, a prerecorded voice might welcome you and give you some menu options to choose from, such as checking your bill, reporting an outage, or getting in touch with a customer service representative. You can choose an option either verbally or through the phone keypad.

If you choose an option like checking your bill, the IVR will then ask for information about your meter or account number, access your account information, and then read out your bill for you, or have it sent to your phone number.

If you want to speak to a customer service representative, the IVR will ask for information about your issue and then direct your call to someone from the appropriate department.

Here is an image showing how a call moves through an IVR system.

What is IVR technology
Source: IT Precision

Today, IVR systems are quite advanced and can be used to handle many types of requests without the need for human assistance – from booking flights and making hotel reservations to checking bank account balances, checking bills, and refilling medical prescriptions.

How Do IVR Systems Work?

An IVR system consists of three key elements; an office phone system, a computer, and dedicated IVR software. The IVR software runs on the computer, and is what allows you to play pre recorded messages and provide callers with menu options. The computer is in turn connected to the phone system using a telephony card or a telephony board.

Advanced IVR systems that are capable of handling customer issues without the need for human assistance will also need access to a database containing customer information.

For instance, if you want to check your bank account balance, the IVR will need to access the database containing this information.

So, how do these four elements interact together?

When someone calls the customer service line, the IVR system kicks in immediately and welcomes the caller with a pre recorded greeting or welcome message. The IVR then presents the caller with the various menu options and gives the caller prompts to select the most appropriate option.

There are two ways through which callers can interact with the IVR menu:

DTMF Signaling

DTMF stands for Dual-Tone Mutli-Frequency signaling. Whenever you press your phone’s keypad during a call, a keypad dial tone is produced.

Each number on the keypad produces a unique tone consisting of both a low frequency and a high frequency signal. By analyzing these tones, the IVR can tell what number you pressed on the keypad.

For instance, let’s say an IVR system asks callers to press 1 for English and 2 for Spanish. When you press on your keypad, the IVR analyses the frequency of the tone and determines what option you selected.

Speech Recognition

Advanced IVR systems are equipped with speech-recognition technology, which allows callers to interact with the IVR verbally, rather than by pressing buttons on their phones.

For such IVR systems, the caller is presented with a menu and asked to say a command corresponding to the menu option. For instance, the caller could say “English” to choose to proceed in English, or say something like “Support” when they want to talk to a customer service representative.

Some even more advanced IVR systems use a subset of AI technology known as natural language processing to allow callers to interact with the IVR naturally, rather than having to use predetermined voice commands.

As the caller interacts with the IVR by selecting various menu options, the IVR gathers enough information about the caller to determine the purpose of the call.

If the purpose behind the call is something that allows for self-resolution, the IVR will guide the caller through until their issue is resolved.

If the caller’s issue cannot be resolved through the self-service process, the call will be routed to a live agent who is qualified enough to resolve the problem.

Benefits of IVR Systems

IVR systems provide a lot of benefits, which explains why they have become so popular to businesses and organizations. Below are some of the benefits you get with an IVR system…

1. Better Customer Experience

One of the most frustrating things for customers is calling a business when you have an issue, only to be kept on hold for minutes on end, or worse, have your call go unanswered. This is a huge contributor to bad customer experience.

Customers who have had bad experiences with your business will not only abandon your business and move to your competitors, but will also tell their friends and family about their bad experience with your business, which means you’ll also miss out on new clients.

IVR systems help you avoid such scenarios by ensuring that every caller is attended to immediately. The IVR picks every single call coming into your business, helps resolve some customer issues without the need for human intervention, and when need be, connects the callers to the right live agent with minimal wait times. All this leads to an overall improvement in customer experience.

2. Round The Clock Access

Unless your business has the budget to employ enough customer service agents to work both day and night shifts, customers only have access to your business during normal working hours. Unfortunately, customer issues could arise any time – even when there is no one in the office.

With an IVR system, customers can call your business and get attended to at any time, whether there is someone in the office or not.

Of course, the IVR might not be able to handle all customer issues, but it will be able to provide a basic level of customer service that can go a long way in making your business appear professional.

Even when an issue needs a human support agent, the IVR can find out the issue and create a support ticket for the customer. Knowing that their issue will be resolved first thing in the morning can still provide great relief for customers.

3. Self-Service Customer Service

A lot of people make calls to businesses not because they have a complex problem they need resolved, but simply because they need information. Rather than having to wait until a live customer support agent is available, an IVR system allows such customers to serve themselves, leading to faster resolution.

For instance, let’s say a customer is calling an airline to find out about flight schedules and make a flight booking. If they find all customer service reps on calls, such a customer would be forced to wait on line before they can make their booking – sometimes for several minutes.

Through IVR self-service, however, such a customer can easily find out information about flight schedules and make a booking without having to wait until there’s a free live agent.

4. Cost Savings

If your business receives lots of calls from customers, hiring enough customer service agents to handle all these calls can quickly get very expensive.

An IVR acts as a virtual receptionist who is capable of handling multiple calls simultaneously. This allows you to serve a high number of customers with a very lean customer service department, which in turn leads to huge cost savings.

With a good IVR system, you can reduce the labor costs of your customer service department by more than 50%.

5. Learn More About Your Customers

During the interactions with your customers, the IVR collects and stores information about customers and their reasons for calling. This information can help you figure out how to improve your business and offer a better experience to your customers.

For instance, if a lot of customers call asking for guidance on how to improve your product, this could be an indicator that your product is not user-friendly. With this in mind, you can then come up with ways to make your product more intuitive to use.

6. Increased Productivity

An IVR system takes over the most mundane aspects of call handling – routing calls to the right person, answering common customer questions, helping customers resolve common problems, and so on.

This frees up your customer service representatives’ time and allows them to focus on more urgent and complex issues that require one on one handling. This leads to improved productivity for your customer service reps and greater satisfaction for your customers.

Call Center Features Available In Interactive Voice Response Systems

A good IVR system should work in tandem with your call center software to provide a better experience for customers interacting with your business through telephone. Some of the call center features that should be available in a good IVR system include…

1. Automatic Call Distribution (ACD)

The ACD feature allows automatic routing of calls to an available customer service agent, thus helping reduce the amount of time customers have to wait on line before talking to an agent.

Depending on your phone system, some IVR systems will even allow you to customize the routing criteria, such as location based routing, performance based routing, routing to the least occupied system, and so on.

2. Skill-Based Routing

This is a telephony service that allows calls to be routed to the most qualified agent depending on the needs of the caller, resulting in faster resolution and higher customer satisfaction.

For this to work, your customer service reps need to be categorized by skill set. The IVR will then choose the best agent based on the caller’s input. For instance, if a caller selects an option that is categorized under technical, the call will be routed to a technical agent.

3. Time-Based Routing

This feature allows calls to be routed to customer service agents only during business hours when there are people in the office. Outside of office hours, the IVR will only provide basic self-service and help callers create support tickets.

4. IVR-To-Phone Forwarding

This feature allows the IVR to seamlessly forward calls to the mobile phones of agents working remotely.

5. Ring Groups

Your IVR needs to support linking of phone numbers and extensions, such that dialing one of the extensions results in the simultaneous ringing of all the other linked numbers.

6. Call Queueing

With this feature, the IVR puts calls on hold while waiting for the next available customer service agent. This way, inbound calls will not get lost, even when all agents are busy.

7. Callback Number

Sometimes, all customer service agents could be busy, yet the caller might not be willing to wait on hold. In such situations, the IVR could ask the caller to provide their phone number and schedule a callback.

8. Hold Music

This is a simple feature that allows the IVR to play some music while waiting for their call to be connected to the next available agent. Hold music makes it easier for callers to wait on hold, compared to just waiting in silence.

In addition, the hold music feature provides businesses with an opportunity to advertise their business, make company announcements, and reassure callers that a customer service agent will attend to them shortly.

Which Phone System Do I Need For My Contact Center?

There are two kinds of phone systems that you can use for your contact center:

  • Analogue phone systems: These are older phone systems that convert audio into electrical impulses that are then transmitted to the recipient over copper wires. Analogue phone systems can be connected to an IVR system – however, you’ll need some special hardware for this to work.
  • Voice over internet (VoIP) phone systems: These are more advanced phone systems that convert your voice into digital data packets that are then transmitted to the recipient over the internet. VoIP phone systems are very easy to integrate with IVR systems since they already rely on digital data and signals.

While both analogue and VoIP phone systems can be used in a contact center and allow IVR system integration, we recommend using VoIP phone systems, since they offer major advantages over analogue phone systems.

Connecting your IVR system with a VoIP phone system allows you to take advantage of advanced features such as AI-based intelligent routing, multimedia support, voicemail to email, CRM integration, and so on.

If you opt for a VoIP phone system for your contact center, you can check out some of the best VoIP providers in the market.

Best IVR Systems To Try

IVR systems usually come as part of a contact center platform or phone system, rather than standalone IVR systems. Below, let’s check out 7 of the best IVR systems you should consider trying…

1. RingCentral

Best Overall IVR

RingCentral is the Best Overall Provider of Vanity Phone Numbers

RingCentral is a call center and VoIP caller service provider that comes with an inbuilt IVR system. The RingCentral IVR system comes with an impressive set of features, including support for over 72 languages, compatibility with popular third party applications, and AI technology that allows the system to automatically categorize and route calls to the agents based on skills and competencies.

This IVR system allows merging of customer identities from multiple channels, ensuring that all customer data is easily accessible in one place. RingCentral also provides real-time analytics about all calls handled by the IVR.

2. Vonage

Vonage - Accelerate connections that matter to your business

Vonage is a fully-featured contact center platform that comes with an IVR system as part of the package. One of the things we love about the Vonage IVR system is that it provides customer support agents with customer information before a call, allowing your agents to be better prepared for the call.

Other features on the Vonage IVR system include agentless PCI compliant card payments, personalized greetings, welcome messages and IVR options based on who is calling, as well the ability to notify a customer how long they might have to wait in line, accompanied with the option to request a call back.

You can also configure the Vonage IVR to automatically administer surveys to callers, with the survey results being directly recorded to your CRM.

3. Ooma

Best For Small Businesses

Ooma is the best VoIP provider that offers high scalability for small businesses

Ooma is an easy to use IVR system that is best suited for small businesses looking for a phone system that they can easily scale as they grow.

One feature we love about Ooma is their drag and drop interface that allows you to design call flows and routing without any code. This means you can design your own call flows even if you have no technical expertise.

Ooma also supports intelligent routing, which allows calls to be routed depending on the customer’s information contained in Salesforce. You can route calls using criteria like account owner, case owner, type of client, and so on. This allows a more personalized experience and faster resolution.

4. CallHippo

Best For Multi-Level IVR

CallHippo is a modern and easy to use call center software that offers advanced power dialer

CallHippo is a cloud-based virtual phone system that offers a bespoke IVR system. Some of CallHippo’s main features include support for multiple languages, support for multi-level IVR, and call forwarding to mobile numbers for agents working remotely.

CallHippo also supports on-hold music, and allows you to monitor how your phone support is performing. You can check each agent’s call load, the percentage of missed calls, and so on.

5. GoToConnect

Best For Omnichannel Support

GoToConnect is the Best Full Featured Office Phone System

Formerly known as Jive, GoToConnect is an easy to deploy, cloud-based phone system that comes with an IVR system built in.

Some of the features you get with GoToConnect include support for multiple languages, custom call greetings, auto-attendants, call recording, on hold music, and call analytics.

We also love the fact that GoToConnect is also compatible with popular third party business tools, including Salesforce, Google Suite, Microsoft Azure, and Zoho CRM.

6. Voicent

Best For Beginners

Voicent - easy-to-use IVR system

If you are looking for an easy-to-use IVR system that allows you to quickly create various IVR paths and prompts, Voicent is a very great option, owing to its drag and drop call flow builder tool.

We also love the fact that Voicent supports multiple interactive options, including speech command response, touch digit response, as well as audio recording and playback. The recorded audio is automatically logged into the CRM along with the caller’s information.

Other features that come with Voicent IVR system include call queuing, on hold music, in-call surveys, support ticket creation, voicemail to email, pre-sales qualification questionnaires, account activation and updates, and in-call subscription renewal.

7. 8×8

Best For AI-Based Routing

8x8 - Empower all your employees globally with integrated contact center, voice, video and chat

8×8 is a virtual contact center that comes equipped with an inbuilt IVR system. The main features you get with 8×8 include self-service options supported by advanced conversational AI technology, skill-based routing, a graphical, drag and drop environment for designing and editing call flows, as well as inbuilt analytics and reporting tools.

Another amazing feature on the 8×8 IVR system is the personal agent connect feature, which allows a caller to be automatically routed to their personal agent. This promotes relationship building between customers and agents, and enables faster resolution.

Improve First-Call Resolution With Call Center IVR

One of the keys to offering great customer experience and having a successful customer service department is improving your first-call resolution rates – the rate at which customer issues are solved on the first call, without the need for subsequent calls.

A great interactive voice response system can be very crucial in helping you improve your first-call resolution rate. Here are some ways through which a contact center IVR helps boost first-call resolution and improve your customer experience…

1. Efficient Call Routing

When customers’ calls are simply routed to any available customer service agent, there is a chance that the customer will get connected to an agent who is not the most qualified to handle their issue – leading to frustration and the need for customers to call back again.

A good IVR system takes the time to collect information about the caller and understand why they are calling. Based on this information, the IVR then directs the call to an agent with the skills and competence required to handle the issue, thus increasing the likelihood of the customer’s issue being resolved on the first call.

Some IVR systems even use machine learning and natural language processing to better understand the caller’s intent for more effective call routing, while others allow specific customers to be automatically routed to their personal agent, all of which increase the likelihood of first call resolution.

2. Automated Self-Service

When all customers have to wait until there is an available live agent for them to have their issue resolved, the call waiting times are bound to be long. The result is that customers get frustrated.

Some will hang up and try calling later when customer service agents are less busy, while others will hang up and never call again, opting instead to switch to your competitors. All this can be avoided by enabling automated self-service through your IVR system.

Think about some of the common reasons why customers call your business, and design an IVR call flow that allows customers to self-resolve these problems without having to wait for an available customer service agent.

Some of the common tasks and requests that can be automated using a contact center IVR include account balance inquiries, appointment bookings, billing inquiries, payment due date inquiries, utility meter readings, service status inquiries, store location inquiries, outage reporting, flight and hotel bookings, and so on.

3. Personalization

Good IVR systems allow you to offer a high level of personalization. You can customize the welcome greeting, the IVR menu options, and give special information depending on the caller.

By personalizing your IVR system to the special needs and requirements of a client, you increase the chances of having the customer’s issue resolved on that first call.

4. On-Time Agent Assistance

Even when a customer’s call has been routed to a customer support agent, the agent will often require some specific information about the customer, as well as guidance and assistance in order to easily and quickly find solutions to the customer’s issue on the first call.

A good IVR system allows integration with your CRM, allowing customer support agents to seamlessly access customer information while on a call with the customer.

A good IVR system should also support features like call listening, call whispering and call barging, which allow managers to listen in and join live communications to provide assistance to the agent and ensure that the customer’s issue is resolved on that first call.

Tips And Best Practices To Get The Most Out Of Your IVR System

Having a good IVR system won’t have much of an impact if you don’t take maximum advantage of the system. With that in mind, let’s check out some tips and best practices to help you get the most out of your IVR system.

1. Use Conversational Context

When someone calls your business for the first time, it is a good idea to have your IVR ask for their details – name, phone number, location, and so on.

When they call the second time, however, you don’t have to request the same information again.

Instead, you should design your IVR such that it remembers details about your customers, and personalizes the interaction based on the customer information it already has. This will make your customers feel that you really care about them.

2. Avoid An Over Complicated Menu

The more complicated your IVR menu is, the more likely your customers are to get confused and frustrated, and the harder it is going to be for them to get their problems resolved.

To avoid this, always keep your IVR menus short and sweet. If you have lots of options to pick from, you can group them by topics to avoid forcing your customers to listen to lots of options that are irrelevant to them.

At the same time, you don’t want your IVR to have too many sub menus either, since this could make your customers feel like they are not making any progress, causing some of them to hang up.

3. Provide Easy Access To An Agent

Regardless of how good your IVR menu is, there are some customers who will still want to speak to a live agent – either because they don’t know under what category their issue falls in the IVR menu, or because they simply want their issue to be handled by a real person.

To provide such customers with a good experience, make sure that the option to talk to a real human is easily accessible – don’t bury it under multiple levels of sub menus. Remember, the role of the IVR is to help your customers resolve their issues quickly, not to prevent them from talking to live agents.

4. Think About After-Work Hours

By design, a good IVR system needs to provide customers with a resolution to their issue, either by enabling automated self-service, or by connecting customers to a live agent.

It’s good to note, however, that your IVR is always online around the clock, while your live agents will not be available during after-office hours.

If a customer is unable to resolve their issue through self-service, you don’t want your IVR to keep the caller on hold while waiting for human agents who are not in office.

Instead, you should customize your IVR such that customers who call past working hours and want to speak to a live agent can either be allowed to leave a voicemail, provide their number for a callback the next morning, or create a support ticket. This way, your IVR will still be useful, even when there is no one in the office.

5. Tailor Your IVR To Your Customer’s Vocabulary

Always keep in mind the fact that your IVR is there majorly to serve your customers, not you.

Therefore, when creating your voice prompts and prerecorded messages, always use language and vocabulary that your customers are conversant with, otherwise you’ll just make things confusing and make it harder for your customers to find the assistance they are seeking.

For instance, if someone is calling your business to pay a bill, imagine having your IVR say something like, “For accounts receivable, press 3.

While bills are logged under accounts receivables, customers don’t think of them this way. Therefore, it is far much better to have your IVR say something like, “To pay your bill, press 3.”

6. Allow Callers To Move Backwards Through Menus

If your IVR has multiple menu levels, it is inevitable that some callers will choose an option, and then realize that they picked the wrong option.

A good IVR system should be designed in such a way that it allows such customers to easily return to the previous menu without having to disconnect the call and start the whole process again.

Sometimes, even callers who had opted to wait for the next available live agent could decide to try out the self-service option again if the wait times become too long. You should design your IVR such that such customers, who are already in queue, can return to the IVR menu without having to disconnect the call.

7. Give Your Agents Access To Information Collected By IVR

Before talking to a live agent, a caller will already have provided some information to your IVR – such as their name, account number, reason for calling, and so on. No caller wants to have to repeat all this information again once they are connected to a live agent.

You’ll want to make sure that all information collected by the IVR is accessible to your live agents. This way, when the caller is connected to the agent, there will be a seamless continuation of the process they already started with the IVR, rather than feeling like they are having to start the whole process again.

How To Set Up An Interactive Voice Response Flow

An interactive voice response flow refers to the sequence of actions you want your IVR to execute once someone makes a call to your customer service number.

While the actual process of setting up an IVR flow will vary based on the IVR system you are using, here are some of the key steps you’ll need to take when setting up your IVR flow…

  • Create your welcome message: This is the prerecorded greeting that welcomes callers. If your IVR system allows it, you can personalize the welcome message to include the caller’s name. You might also need to have a separate prerecorded message for after-office hours.
  • Create a high level menu: This is the main menu that allows customers to choose their preferred language, or select the main customer service categories.
  • Create sub menus: These are lower level menus that allow callers to select the specific reason for their call. Sometimes, you might have multiple levels of submenus, depending on the complexity of your business and common customer issues in your business.
  • Add hold music: Here, you are going to add the music or pre recorded looping messages that will be played while customers are on hold waiting to speak to a live agent. This option can also be used for prerecorded messages providing callers with guidance on how to resolve their issue.
  • Add call routing option: Finally, you’ll also need to add an option that allows callers to be redirected to a live agent, or to leave a voicemail in case no one is available.

An important thing to keep in mind when setting up an IVR flow is to keep the IVR flow focused on the needs of your customers. Once you’re done setting up, you also need to test your IVR flow and ensure that everything works as expected before deploying it on your phone system.

Interactive Voice Response FAQ

Where Is IVR Used?

An IVR can be used by any business that handles lots of customer calls and is looking for an easy way to manage the calls, collect information from callers before routing them to appropriate agents, or provide information to callers without them having to talk to a live agent.

Some of the areas where IVR systems are commonly used include the airline industry, banking and financial services, utilities, retail orders, telecommunications, the health sector, and any other mass customer businesses.

What Are IVR Prompts?

IVR prompts are the instructions and directions that guide callers on how to interact with the IVR and access desired information.

For instance, if a customer wants to know their bank account balance, you will need a prerecorded voice message asking the caller to key in their bank account number. This is what is referred to as an IVR prompt.

How Much Do IVR Systems Cost?

The cost of an IVR system will vary depending on your IVR system of choice. Some IVR systems will cost you just a few dollars per month, while others could run into thousands of dollars.

Some of the factors affecting the cost of an IVR system include whether it is an on-premise or a cloud IVR, the features that come with the IVR, the level of customizability offered, whether the IVR system is managed or offered on a SaaS model, as well as the pricing model used by the IVR provider.

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Anastasia Belyh

Editor at FounderJar

Anastasia has been a professional blogger and researcher since 2014. She loves to perform in-depth software reviews to help software buyers make informed decisions when choosing project management software, CRM tools, website builders, and everything around growing a startup business.

Anastasia worked in management consulting and tech startups, so she has lots of experience in helping professionals choosing the right business software.