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"ladies gold watches" would be easier than "ladies watches" and this would be a lot easier than simple "watches".
Using specific terms is a good idea, in the above example lets say you have a site selling ladies watches. Ranking for the word "watches" would be very difficult, by adding words to this, to make up a phrase it becomes a lot easier.
Hope this gives you some ideas.
With the example with "Watches" - then the company might have alot of different phrases linking to them - such as "gold watches" - "watches for ladies" - "designer watches" "clocks for everybody" etc etc on some websites which relates to the market in general - which for the search engines imply that they're selling alot of different products and thus they might rank very well for the term "watches" based on the outside link structure - or their internal site structure might imply that they have alot of different content about different types of watches - which makes them a more general resource, and thus they might just rank on the general search, instead of the individual phrases.. again, it's whitehat seo.
This gives them the market they're targeting for - if you are specializing in for instance "ladies watches" - then you're more likelely to rank on that as a better resource - and you don't have to compete with the general market for watches - and so it goes on - if there's nobody specializing in the market for "designer watches" - then they'll usually pull a supplemental result from the general market and if appropiate some of the other markets too - to give some options to the one looking for it
[edited by: RandomDot at 6:23 pm (utc) on Sep. 30, 2007]
As has already been mentioned, key 'phrases' are much easier to optimise for and achieve better results. Key 'words' are more difficult unless you are lucky enough to be optimising for something rare or perhaps a common spelling mistake.
I'm sure you are already aware of the following, but just in case:
Try to include the key words or phrases in the link text of any internal links from page to page within your site, and try to do the same with incoming or backlinks to your site.
Use 'strong' and 'em' instead of 'bold' and 'italics', key words or phrases in 'strong' or 'em' text will be picked up more readily by search engines.
Include good descriptive 'titles' in your links that provide additional information about each link, and try to add a key word or phrase if sensible.
Only optimise in a way that makes sense to your website visitors, don't go overboard to please the search engines.
What I'm most afraid of is to do too much optimising.
I'm more than satisfied with the trafic as it is, as I'm already on page 1 for most of the phrases I feel important at the moment. In fact I have alredy done some "de-optimising".
The trafic has grown steadily the 3 years the site has been active. Today about 20% of external visitors are coming back for more, and incoming backlinks are growing. It seems like nearby all of the visitors coming back have found me through different search engines.
I have made nearby 50% of the pages for visitors looking for problem solutions (not products). Some companies in similar business have said I have put too much info on my web pages, but I feel business also means thrust. And this is a part of what I have tried to give my customers.
I feel I have done what many have said earlier in this forums. I have made the pages for readers and not for search engines.
Still, I was courious how my competitor could rank high for one phrase only. I will in the future stay with my intensions makeing pages for my readers (not robots) as I think this will return the trafic we need in long the long term. But I think I still have to learn a lot about design ;-).