towels are used when they are younger, because they are easy to use, somebody always has one laying around somewhere, and they fit into puppies mouths easily.
I would use something more sturdy as they get older, there are hundreds of tug toys, bite rolls, bite pillows etc to use, even balls with strings for play and tugging.
I get away from the towels, because when they get older, I don't want my bath towel going away as I stand under it naked and cold. I have a hard enough time transitioning them away from my pant leg to more appropriate toys, let alone transitioning them from something i've trained them was fair "prey" when they were impressionable puppies. Make sense?
as far as what to reward and for how long? my first preference is food, drive is usually lower, more can be taught easier. Then toys are later, drive is higher and things are a little more difficult, but with good foundation its not really any different. Of course that depends on the particular dog.
Some dogs like to possess the item, that is a high reward, I reward, quick tug, then they get to possess it for a short time, then I get it back and start again. how long they get it depends on lots of things like how they are gripping it, how much reward they earned, what we're trying to accomplish etc.
Some dogs really like the act of tugging. The biggest reward is to fight with you for the tug, if you let them win, the don't try to get away with it, they bring it right back and shove it at you, wanting you to fight more. If they deserve a really high reward, i'll fight with them for 2-3 minutes, sometimes just 5 seconds or so. It depends on a lot of things that are a little much to cover in one post.
Some dogs love to chase more than anything, those I toss it far away assuming i've laid the foundation for getting it back. You don't want to toss a toy to a dog that wants to possess it. they just take it and run off if you haven't trained the rest of it.
If they don't know drop it, use two. LEt them have one, pull the other one out when you're ready to get it back, make it move, and when they're about to drop the one in their mouth, tell them to "drop it" or whatever you use and let them chase the one in your hand. You can either let them win that new one, and I suggest that, so they have incentive to drop the one they have thinking a new game is starting. and further along you can let them drop, chase then give more commands till they get the new toy.
Hope some makes sense, granted lots of steps are missing, but that's some of the important stuff I can think of.
