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I have a page that was only getting about 20 entries a day in late August. I re-inserted that page in my menu structure (I'd orphaned it 6 months ago), it now is averaging about 90 entries a day.
The question would be where was your traffic coming from prior to the drop vs. now?
Single keyphrase or many variants?
Do users stay on the page, or is it just a "landing" page?
If you can't find any differences between then and now, and the user experience seems to be satisfactory, that would be the time to start making changes.
Some of your traffic has shifted to other site pages, so I wouldn't consider that a problem but more an indicator Google feels your site is fine, but they are looking for a closer match to user intent.
I don't do links and on-page at the same time,
I've been satisfied changing existing phrases like "blue widgets" to phrases like: "small blue widgets"...
I use their keyword tool to find higher volume phrases I haven't used and that they feel are related to "blue widgets". Maybe something similar would be helpful in your situation.
You might also try looking at the time on page for that category page. If users are on the category page just long enough to select a different page, then the destination product level pages could be considered more appropriate for the term "blue widgets".
Can I ask which specific tool you use?