See the solution below in Explanation.
* Create a Custom Content Type:
* Go to your SharePoint Online site.
* Click on Settings (gear icon) and select Site settings.
* Under Web Designer Galleries, choose Site content types.
* Create a new content type (e.g., "Product1 Classification") based on the Document parent content type.
* Add a custom column (e.g., "Classification") to this content type.
* Apply the Content Type to Document Libraries:
* Navigate to the document library where the files are stored.
* Click on Library settings.
* Under General Settings, select Advanced settings.
* Choose Yes for "Allow management of content types."
* Add your custom content type ("Product1 Classification") to the library.
* Manually Classify Files:
* Upload or edit a file in the library.
* In the file properties, select the Classification field and set it to "Product1."
* Permissions and Encryption:
* Ensure that all authenticated users have at least View permissions on the library.
* For encryption, SharePoint Online automatically encrypts files at rest using BitLocker disk-level encryption.
* Files classified as "Product1" will be encrypted and accessible only to authorized users.