IMPACT OF AI-POWERED CHATBOTS ON CUSTOMER RETENTION: MODERATING ROLE OF SERVICE QUALITY PERCEPTION

Abstract

The employment of Artificial Intelligence (AI) for customer service, and even more so through chatbots, is increasingly becoming the standard by which organizations interact with customers. Online services being rapidly expanded in Pakistan too, AI chatbots are increasingly becoming the norm for interacting with customers. The present research investigates the power of AI chatbots to retain customers, as well as whether the perception of customers regarding the general quality of service will impact this relationship. Customers of online shopping and digital banking in Pakistan were surveyed using a systematic quantitative questionnaire. Results reveal that correct, timely, and personalized responses by chatbots play an important role in retaining customers. Also, the feeling of high quality of service—reliability, responsiveness, and assurance—positively affects the role of chatbot performance in customer loyalty. These conclusions propose that chatbot performance is meaningful but effective achievement in its customer retention is entangled with the general sense of service quality. The study offers practical recommendations for emerging economy companies to supplement technology resources with robust design principles for service in order to build greater customer trust and ensure long-term engagement. The study highlights the imperative of a balance model of combining AI effectiveness and customer-focused delivery of services in Pakistan's digital economy.

Keywords: AI-powered chatbots, customer retention, service quality perception, Pakistan, digital services