Duplicate Content- Best Practise Usage of the canonical url

[WMA]

Canonical urls stop self competition - from duplicate content. So instead of a 2 pages with a rank of 5 out of 10, it is one page with a rank of 7 out of 10.
However what disadvantages come from using canonical urls. For example am I excluding some products like green widet, blue widget.

I have a customer with 2 e-commerce websites(selling different manufacturers of a type jewellery).

Both websites have massive duplicate content issues.
It is a hosted CMS system with very little SEO functionality, no plugins etc.

The crawling report- comes back with 1000 of pages that are duplicates. It seems that almost every page on the website has a duplicate partner or more.

The problem starts in that they have 2 categorys for each product type, instead of one category for each product type.
A wholesale category and a small pack category.

So I have considered using a canonical url or de-optimizing the small pack category as I believe it receives less traffic than the whole category.

On the original website I tried de- optimizing one of the pages that gets less traffic. I did this by changing the order of the meta title(keyword at the back, not front- by using small to start of with). I also removed content from the page. This helped a bit.

Or I was thinking about just using a canonical url on the page that gets less traffic.
However what are the implications of this? What happens if some one searches for "small packs" of the product- will this no longer be indexed as a page.

The next problem I have is the other 1000s of pages that are showing as duplicates. These are all the different products within the categories. The CMS does not have a front office that allows for canonical urls to be inserted. Instead it would have to be done going into the html of the pages. This would take ages. Another issue is that these product pages are not actually duplicate, but I think it is because they have such little content- that the rodger(seo moz crawler, and probably googles one too) cant tell the difference.
Also even if I did use the canonical url - what happened if people searched for the product by attributes(the variations of each product type)- like blue widget, black widget, brown widget. Would these all be excluded from Googles index.
On the one hand I want to get rid of the duplicate content, but I also want to have these pages included in the search.

Perhaps I am taking too idealistic approach- trying to optimize a website for too many keywords. Should I just focus on the category keywords, and forget about product variations.

Perhaps I look into Google Analytics, to determine the top landing pages, and which ones should be applied with a canonical.

Also this website(hosted CMS) seems to have more duplicate content issues than I have seen with other e-commerce sites that I have applied SEO MOZ to

On final related question. The first website has 2 landing pages- I think this is a techical issue. For example  www.test.com and www.test.com/index.

I realise I should use a canonical url on the page that gets less traffic. How do I determine this? (or should I just use the SEO MOZ Page rank tool?)

[HiveDigitalInc]

1. Use the canonical tag. The assumption is that whatever rankings you may have garnered for the "small pack" version would now simply land on the other page. The duplicate content implications are far greater than the potential loss of some rankings.

2. Yes, use the canonical tag on the /index to point to just http://www.yoursite.com/