I'm playing in two bands with very different goals and methods of picking songs.
I manage a Top 40 Variety Dance Party horn band that is specifically aimed at the mainstream dance party audience who wants a party band, and we specialize in private, formal, and community events. We'll only play the better public rooms that can actually pay us appropriately for our significant efforts, which involves full P.A. and lighting for dance floor and stage. It's a bit of a production. We basically let our target audience pick the songs, which gives us a much better chance of acquiring gigs with that kind of client. I researched many most-requested playlists of mainstream songs and ripped off my competitions' playlists. Yes, it is a lot of "Brick House" and "You Shook Me All Night Long," but we are doing well in this market. And it warmed my heart to hand my band members $350.00 each after the last wedding reception we played.
The other band is led by a female lead singer who has a great set of pipes and good instincts. She picks songs that she enjoys singing, sings extremely well, and that she can sell to an audience that may not be familiar with all the songs we play. It's about a 50/50 mix of the familiar and unfamiliar, but there is a common musical theme (think Black Crowes kind of music for the most part, but pretty eclectic). She plays a little guitar too, so she makes for a compelling visual. I'm playing lead and rhythm. We have a solid bass player and drummer. This band is not aimed at any target audience in particular, but the music is engaging and I enjoy it much more from a musician's perspective. We win the hearts and minds of our audiences, but we're doing a lot of multi-band bills, breweries, etc., small stages, small $. This band is successful in a different way because of the lead singer's ability to make tasteful choices that she can sing and sell to the audience.
There are many ways to skin that cat, but I have found that some thought and strategy toward an end goal with the rooms and audiences you want to play for can make a huge difference. Sometimes the "target audience" consists of just the musicians in the band and a little table of their friends and spouses. And some bands are perfectly happy with that. I've always tried to think beyond that, because ever since I figured out how to get paid for entertaining, I'm more about winning the hearts and minds of the strangers in the room. No right or wrong here, YMMV.