Any well-prepared performance will not only motivate students to practice, but it will also enable students to improve substantially. The reason is apparent. People tend to like and enjoy activities that they are good at. Through participating in any kinds of performances (recitals, festivals, exams, talent shows, etc), the student’s presentation skills will excel every time he/she works hard towards each performance. Also, the student will very likely receive a lot positive reinforcement along the way and thus will further motivate the kids to level-up. However, fear might develop if the performance is under-prepared. This fear often might lead to unwillingness to attempt. Children, I think, are easier to overcome, or to cope with this kind of fear than adolescents/adults. The earlier and the more frequent the child expose to performance, the easier the child learn to overcome fear and to build up self-confidence.
I have encountered parents assuming that their kid is not ready to perform and thus they do not want to enrol their kid for performance until they think their kid is ready. I understand the logic. Some parents might afraid that the child would loss interest if the performance, or the end results, did not go well. I think this concern has more to do with how the parents express their expectations and focuses. If the parents just want the child to learn the process of preparing for a presentation (playing a piece in front of an audience) and to observe other’s presentations, the child is still in the game even if anything goes wrong. Being supportive and being encouraged is very crucial at this point. However, some parents are more result-oriented and place great emphasis on the “end prize”. Under such scenario, the kid would probably work very hard to meet the parent’s or the teacher’s expectations, but if that effort fails, the kid might start to doubt his/her abilities. Once this doubt has established, more “successful” presentations are needed to clear the doubt. However, if many subsequent trials fail, the kid would really be discouraged and eventually loss interest because he/she would really think he/she is not good at this activity.
To help children to build up their confidence and to motivate them to work hard, the focus should be on how to fulfill a personal improvement rather than placing emphasis on the competition. I believe that setting a performance goal is a positive incentive to motivate students to level-up.
Please also see Ten Tips to Motivate Your Child to Practice

[...] Positive Reinforcement 2. Reward 3. Negative Reinforcement 4. Punishment 5. Performance Opportunities 6. Exposure 7. Steady Evaluation 8. Understand the purpose of doing such practice 9. Knowing the [...]