Final Answer:
Segmentation is the method used to classify customers by profitability. This process involves dividing customers into distinct groups based on certain characteristics or behaviors. Thus the correct option is 1.
Step-by-step explanation:
Segmentation is a strategic approach used by businesses to categorize customers into different segments or groups based on various criteria such as purchasing behavior, demographics, psychographics, or profitability.
By analyzing these segments, companies can tailor their marketing strategies, products, and services to better meet the needs and preferences of each group. This method helps in identifying the most profitable customer segments and allows businesses to allocate resources more efficiently by focusing on high-profit segments while devising targeted strategies to enhance profitability within each segment.
Therefore, segmentation stands out as the appropriate method for classifying customers by profitability among the options provided.
Therefore, the correct option is 1.