Teaching your dog to drop is a useful start to lots of other training. Even when you are playing tug with your dog it is good to be able to get him to stop when you want him to.
STEP 8: ALSO PRACTICE WHILE YOUR DOG IS LYING ON ITS BED.
As mentioned before you should practice in as many different situations as you can. If you have built a solid foundation with your dog you should notice that as soon as you say drop they start to orient towards the floor. They should do this before you have even dropped the treat. This tells you that you are ready to on to the next step
STEP 10: NEXT MOVE ON TO A TOY
Start with a toy which your dog is not too interested in. He should leave the toy and look for his treat as soon as you say "drop". Move on to more and more difficult toys. Still drop the food a second after you say the word "drop" regardless of the dog's behavior. This will develop a strong association between your dog hearing the word "drop" and letting the object drop from his mouth regardless of how exciting it is.
Here is the full training video: