Keywords are the central focus of any Search Engine Marketing strategy. Keywords need to be researched rather intensively to gain insight as to popularity, relative competition and, if you are engaging in PPC, the bidding data as it relates to budget.
There are various arguments, discussions, proponents for targeting less competitive keywords in the early phases of Search Engine Marketing work and an equal opposing view promoting the proposition that the more competitive keywords are the ones that are most popular. In other words, the competitive keywords are where the most honey is and therefore they should be targeted first.
However, it comes down to doing the real consulting of online marketing. Asking good questions of the client to understand exactly what the client wants to sell, where he wants the business to come from, and how he actually wants to execute the business of his / her business. It is only through this understanding that you can create a priority list of keywords and therefore focus on those keywords as the first target of generating all manner of SEO content.
Well planned, well written content generation targeting the priority list of keywords e.g. the top 25 keywords you and your client agree upon really answers both sides of the argument … less competitive or more competitive … less popular or more popular. Well written targeted and RELEVANT content does not play favorites, nor does it have to. It will address the most competitive and the less competitive; the more popular and the less popular. The fact is that you cannot afford to make a choice as to which is better, short term or long term. More general / more competitive keywords are generally searched for in more volume so you have the opportunity to get noticed by more people. If you get your “eye share” you will get business. Less competitive / more specific keywords will be seen by less folks but can also be indicative of a more serious buyer because they are being more specific about what they are looking for.
We have clients that are ranking on the top 3 pages for well more than 1,000 keyword phrases each. We know from our stats that there were over 900 keywords that were used as “entrance paths” for each of these clients. Some of these I assure you are “popular” and many are not. However, they are all valuable because the searcher was looking … AND … YOU NEVER KNOW WHO IS SEARCHING.

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One Comment
I really like this post because of your focus on the customer. I believe in SEO and the scientific approach to keyword selection, but sometimes it seems as we take the focus off of real people who are looking for information they need.
It seems to me that if you start with your customers and figure out the words they use when they describe their problems to you, you’ll go a long way toward figuring out which keywords will bring in targeted visitors. Plus, you’ll have the right kind of content so that your pages are optimized for your target audience and not just the search engines.
To be clear, I'm not saying that SEO expertise (internal or external) is not valuable. A good SEO expert can teach you a lot of things about how to be found. However, the selection of keywords and crafting of quality content is not a responsibility that you should leave up to those who are closer to Google, Yahoo! and BING than they are to your customers.