Targeting multiple local cities for your site

I was just wondering what the best way of targeting muliplte cities for your site would be to not get the whoopass from Google?

Ive tried about 4 months ago (and it worked well, though Im sure not the best way) to create subfolders of cities for each particular service that I offer.. as an example:

domain.com/service1/state/citykeyword

I did get page 1 listings tho not many clicks, the content was duplicate but didnt get penalized.

My PR's gone up and am looking to target high-searched city areas for my service.. would create a "Location" menu and then list states and then cities within those states work best? Just trying to find the best solution for targeting multiple local cities for my site.

Thanks,

Anyone?

Here is a site doing something similar, http://www.veindirectory.org/

and an example of this on blue hat seo blog
http://www.bluehatseo.com/seo-empire-part-1/

For instance if you are designing a real estate website. The main page will display all the unique states with links to each one. Once they click on a specific state, say Oregon. It will display all the cities in Oregon. Once you click on a city, say Portland, it will display all the real estate companies in Portland. Once you click on a specific company, we'll use REMAX, it will display the ending page which will have all the contact information for REMAX IN PORTLAND OREGON. <-your longtailed phrase and remember even the other pages will bring in search traffic such as Real Estate Companies In Portland Oregon and Real Estate Companies In Oregon..etc.

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