Which market segment categorizes customers based on their physical location?

The correct answer is based on the understanding that geographical segmentation involves categorizing customers according to their physical location. This type of segmentation takes into account factors such as country, region, city, or neighborhood. It allows businesses to tailor their marketing strategies and services to the specific needs and preferences of customers in different locations.

In contrast, demographic segmentation focuses on characteristics such as age, gender, income, and education level. Behavioral segmentation looks at customer behaviors, including purchasing patterns and product usage. Psychographic segmentation delves into customers' lifestyles, values, and personalities. Each of these methods provides valuable insights but does not specifically address the physical location of customers in the way that geographical segmentation does. Thus, the classification of customers by their physical location is clearly defined by geographical factors.