I can't talk about positioning without mentioning Al Ries and Jack Trout's books written over 20 years ago:
"Positioning: the Battle for your Mind" was chosen by Advertising Age as one of the 75 most important moments of the last 75 years.The concept that sparked a revolution. Before the launch of "positioning" by Al Ries and Jack Trout, advertising was viewed as "communications." You studied your product or service and then decided which ideas or concepts your advertising should try to communicate to your prospects. But in today's overcommunicated society, that approach no longer works. There are just too many products, too many companies, too much marketing noise.Start with the prospect. Positioning turned the process upside down. Instead of starting with the product, you start with the prospect. You ask yourself what open hole exists in the minds of prospects. And then you try to fill that hole with your brand. If there are no open holes, then you need to reposition the brand that already occupies a position
The second book is "The 22 Immutable Laws of Marketing". One of my favorite laws is Law no. 4, the Law of Perception which says: Marketing is not a Battle of Products: it is a Battle of Perceptions.
The Law of Perception says that in the battle between products, perception is more important than reality.
People tend to think that the best product will win. However, as Ries and Trout say, "Marketing is not a battle of products, it's a battle of perceptions." Sometimes the best product does not win.
The Law of Perception is just one more reason why small ISVs need to get specific as they choose their competition. Don't try to create a "better" product. That strategy is too vague. Instead, try to create a product which is better for a specific group of people with specific problems that are not being solved very well by others. That specific group of people will perceive your product as the best.