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What Is Interactive Voice Response (IVR)?

This article was updated on June 4, 2024

As enterprises grow, so do their communication challenges. Networks take on more and more traffic to accommodate increased customer interactions. Directing callers to the right person gets more complicated as teams grow and departments become increasingly specialized. Today, interactive voice response (IVR) can get the job done far more quickly and accurately. Unsure what IVR is or how it works? In this guide, we’ll answer these questions and show you the advantages, disadvantages, and use cases of IVR.

Illustration of a hand holding a cellphone. An IVR option is being selected on the phone's number pad. Money is floating in the background.

What Is IVR (Interactive Voice Response)?

IVR (interactive voice response) is a phone system that allows callers to choose options from interactive menus by using voice commands. Through IVR, callers can direct their calls to relevant agents, access information, and complete actions without outside assistance.

The most basic use for IVR is call routing. Instead of having a receptionist answer and direct incoming calls, IVR allows callers to route their own calls to the relevant agents or departments.

IVR can also be programmed to answer simple questions and enable self-service options. For example,  customers can use IVR systems to check the status of an order or make a digital payment. As part of a unified communications solution, IVR can automate call management, integrate with your CRM, and drive customer experience improvements.

How Does IVR Work?

Modern IVR systems rely on voice commands and speech recognition. IVR menus give callers options or directions, and callers state their commands in response. IVR systems then use artificial intelligence to identify these commands and take the correct action.

In older versions of IVR, customers would press numbers on their phone or had to state exact words to choose menu options. Today’s systems make IVR much more conversational for users through speech recognition technology.

Below, we’ll quickly explain the different types of iVR systems and how this technology has evolved with natural language processing.

DTMF Tones

Dual tone multi-frequency (DTMF) tones — one high-frequency tone and one low-frequency tone sent simultaneously — are created when a number key is pressed on a touch tone phone. In an IVR system, callers can navigate menus and transfer to the right agent by pressing a number on their keypad that corresponds to the menu option they want. DTMF can also be used to enter account and order numbers without the need to tell an agent the details.

Directed Dialogue

Directed dialogue IVR solutions give callers an array of specific verbal prompts to choose from depending on what they’re inquiring about. For example, the recording might ask, “Are you looking for store hours or location information?” In response, the caller might say “store hours.”

Natural Language Processing (NLP)

Natural Language Processing uses speech recognition to better understand user requests. The idea is to turn human language, which can be chaotic and hard to fathom, into something a machine can process. Using the example above, with NLP the recording might ask, “What can I help you with?” and the caller might reply with “What are your store hours?” or other similar phrases.

Benefits of IVR Systems

Interactive voice response offers a wide range of benefits to businesses and their customers.

Even basic IVR systems can direct customer traffic far more efficiently than human operators and enable simple self-service options.

Reducing the friction and frustration associated with getting customers to the right company representative improves both the customer and employee experiences. At the same time, IVR makes customer service more cost-effective and gives businesses new ways to scale customer experience solutions.

Improved Customer Service

Improving customer service is a top priority for contact centers. That's because there's a direct connection between customer experience and profitability. For example, according to the Vonage 2024 Global Customer Engagement Report, 36% of customers will buy additional products during a transaction with companies that provide a poisitive CX.

A better user experience is one of the key benefits of interactive voice response. With IVR, customers don't have to wait for a representative or press a series of numbers to navigate complicated phone trees. They simply say what they need. The phone system then determines who they need to talk to and directs them to the most relevant person.

Simplified Call Management

IVR systems can handle call management for dozens or even hundreds of callers at once. This reduces customer wait times and frees up human contact center agents to focus on higher-value interactions.

With CRM integrations, call routing becomes even more powerful and accurate. IVR can easily recognize a users’ needs during the initial interaction, and then direct calls to qualified agents. An IVR system can even recognize repeat contacts and then direct them to the representatives who manage their accounts.

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Self-Service Functionality

IVR allows customers to resolve issues without the need for an agent. At the same time, IVR takes more straightforward or simple tasks off employees’ hands, freeing them to focus on more complex issues.

IVR systems typically offer self-service options like greeting customers with a message, asking customers to select a prompt, routing customers to an agent if needed, and completing simple tasks like setting up appointments.

24/7 Availability

Because IVR is an automated system that lets callers interact with a computer program instead of a human agent, it can be available all day, every day, whenever a customer needs help. IVR is never sick, never sleeps, never takes a day off, and it can eliminate the need for additional staff or multiple shifts.

Cost Savings

Since a call to a live agent generally costs more than a call handled by an IVR system, businesses save money, the total amount driven by the percentage of calls handled by IVR. The self-service and call routing capabilities of IVR can reduce staffing costs and operational costs.

Use Cases for IVR

The ability of Interactive Voice Response systems to automate processes and reduce the need for human agents makes them perfect for a wide range of industries and situations.

Call Centers and Contact Centers

With IVR manning the frontlines, agents can spend their time solving problems for customers and building business relationships. They also don't waste callers' time (or their own) transferring calls to colleagues who are better suited to answer certain questions. With IVR routing callers, agents only answer calls relevant to their areas of expertise.

Integrating your CRM and IVR systems enables your agents to make a more personal connection with callers, while callers enjoy flexible IVR menu options based on CRM data and their call histories.

Payments and Banking

The banking industry is particularly suited for IVR functions. IVRs can provide self-service options for customers to handle a wide range of banking tasks, such as:

  • Make payments for bills, credit cards, and debit cards 24/7 

  • Check balances, transaction histories, reward points, and more 

  • Set payment reminders and dates

  • Check the status of loan applications and open new accounts

  • Manage fraud alerts

  • Request to stop checking account payments or freeze credit cards

Remote Work

Remote and hybrid workforces have become the norm for many businesses. With IVR, businesses can make remote work even easier for teams.

By integrating IVR with unified communications, you can set up easy-to-use flows for making outbound calls, accessing voicemail, joining conference calls, and leaving voicemails for colleagues.

This gives team members a simple, conversational way to access remote communications tools.

Enterprise Applications

The power, flexibility, and scalability of IVR systems makes them an ideal fit for enterprise applications.

With interactive voice response, you can create a centralized digital hub in place of receptionists and operators. Customers can use your IVR system to get answers to simple questions, accomplish routine tasks, or be transferred quickly to an agent. What’s more, when callers get transferred, the agents will already have context about why they're calling.

IVR technology is tailor-made for automation, giving enterprise-scale businesses new paths to efficiency and profitability. Modern IVR systems also pair easily with CRM and analytics platforms, creating a seamless experience for customers and agents while generating new data and insights for your business.

Small Business Applications

With IVR, even small businesses can present a sophisticated customer experience for clients and prospects.

Interactive voice response systems can be quickly and affordably configured to give the same experience as larger companies. When a small business's telecommunications sound and work just like their biggest competitors, it boosts customer confidence and trust.

Skills-based routing, which cuts down on customers being bounced from agent to agent, and 24/7 availability make IVR especially suited for SMBs. Additionally, IVR can address multiple issues at once and help customers get quick resolutions for most common issues, helping small businesses streamline their call management.

Bring the Power of IVR to Your Business

So, what is IVR? The answer has shifted from the earliest iterations of interactive voice response to the artificially intelligent, integrated solutions available today.

At its core, the technology's purpose has always been to give callers access to computer data using their voices. Now interactive voice response is faster, more conversational, and more easily integrated with other business software. With modern IVR systems, you can automate processes, streamline business communications, and improve customer experience.

Vonage offers an intelligent, dynamic, AI-powered IVR system that integrates with your CRM. In that way, your agents have rich data on hand to anticipate customer needs and deliver memorable experiences.

CRM data enables personal connections, while callers enjoy flexible IVR menu options based on CRM data and call histories. Customers can self-direct by entering an existing case number, helping to quickly route them to the right agent, while allowing your teams to handle larger call volumes without additional staff.

Ready to bring AI-powered IVR to your business? Contact Vonage today for IVR solutions tailored to your business.

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