The retail industry has seen a rapid adoption of chat robots, or “chatbots,” by retailers looking to deploy new technologies to more effectively engage consumers and drive sales on their e-commerce platforms. So what exactly are chatbots? Chatbots are interactive software that can converse and interact with end users, much like a customer service representative would, by leveraging the power of artificial intelligence.

Retail Application

Retailers have successfully incorporated chatbots in their mobile applications, messenger platforms and email support platforms to connect with consumers on a more personal level. Retailers are implementing their own chatbots to connect with customers and provide product recommendations and updates, in-store help, and to better tailor location-based marketing campaigns. These implementations have not only driven higher customer satisfaction and engagement by providing customers with the answers and information they need far quicker than traditional methods, but they have also provided retailers with deep insight into how customers engage and perceive their brands.

For companies, chatbots provide a cost effective means of streamlining interactions with a wider base of customers. For customers, chatbots provide an efficient means to interact directly with a less traditional form of customer service. According to one study, 69 percent of respondents preferred to speak with a chatbot before engaging a human because of the chatbot’s ability to provide instantaneous answers. For these reasons, retailers are investing resources in evaluating and deploying chatbots.

Issues to Consider

Chatbots offer a tremendous opportunity for retailers to more effectively engage customers and drive sales. However, as with any new technology, chatbots are not without risk and present unique legal and business challenges. In addition to the normal risks inherent to the licensing and use of technology, retailers should keep in mind the following when considering launching chatbots:

  • Intellectual Property. Many third-party chatbot platforms require retailers to grant them a license to use any of the retailers trademarks displayed on their chatbots to display and promote a retailer’s chatbot. Given the importance of controlling and managing their brands, retailers need to consider the risk associated with granting third-party chatbot platforms such a broad right to use their trademarks.
  • Terms of Use. Retailers need to provide the terms of use governing the chatbot to their customers in a clear and concise manner. Retailers also need to ensure that they maintain record of customer’s acceptance of the terms of use. Furthermore, retailers should ensure that there is some method of human oversight available to assist, should the customer try to start negotiating terms or asking questions about the terms of use.
  • Reputational Risk. In addition to the legal considerations discussed above, retailers also need to be aware of the reputational risk associated with handling customer interactions over to a chatbot. Chatbot technology is still evolving and prone to mistakes. For example, just hours after launching “Tay,” Microsoft’s chatbot, it learned to use swear words and share offensive messages through interactions with consumers on Twitter and had to be temporarily shut down while Microsoft fixed the issue. The incident caused a significant public relations issue for Microsoft and could have negatively impacted the brand.


There is no doubt we are witnessing the rise of chatbots. In fact, according to one study, 80 percent of businesses are seeking to launch a chatbot by 2020. Retailers need to consider the potential risks, develop strategies and processes to mitigate the risks, and have the necessary controls and monitoring in place before setting their chatbots loose.