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In this tutorial, the instructor demonstrates how to create a drop-down menu in Excel. They start with a list of items such as animals and show how to set up a code for each item using a drop-down option. By highlighting the answer area, going to data validation, and selecting list, you can create a drop-down menu with different options. The instructor then shows how to set the source items for the drop-down menu, in this case using colors like red, green, blue, yellow, and black.