As a top professional instructor within the FADS system, I must say, this onion has a LOT of layers.
Firstly, most students do not walk into a studio looking to be "the best dancers". There are many reasons students walk through the doors.
1)a fun way to exercise
2)social outlet
3)aren't feeling challenged in life and want a new hobby
4)Stress relief
5)lonely and want someone that will listen
6)trying to save their marriage
7) just want a date night away from the kids
And the list goes on... For many, many students, it's enough to have an instructor that is just a bit above them. In fact it often makes the relationship easier. A very experienced, champion level dancer can sometimes be intimidating. That said, a good instructor will be able to identify why the student is there pretty quickly and give them the service they want. Occasionally, however an instructor won't have the knowledge to give solid techniques or to figure out how to motivate the student. But this can happen anywhere. Not everyone is cut out to be a GREAT teacher, just as not everyone is cut out to be a champion. Many of the instructors you find at "independent" studios are GREAT dancers, but that doesn't always mean they know how to teach. It also doesn't necessarily mean they have the tools to identify when a student is getting frustrated, bored, needs someone to talk to for 5 minutes. A good instructor, manager, and/or owner should be able to find what a student wants, and how to motivate them in a very short amount of time. I always say it's my job to keep their interest, then grow their desire, and finally inspire passion. It is possible to take a non-serious student to a place where they want to be "the best dancer", but as an instructor it's much easier to know that most students do not have that kind of passion the first time they walk through the door.
As for "holding students back" or "making" them buy a program before finishing their last one...well those are old school sales techniques. at one point almost EVERY studio used those, but now VERY few studios use those methods. In fact they started dropping away around the time this post was first made. That said, if a student is motivated to be great, or they just aren't learning that fast, it may be in their best interest to stay at their level of "patterns" and work the techniques of those. And buying more lessons for a showcase is different than buying them for your syllabus work. It's much easier for an instructor to keep those separated by having 2 blocks of lessons to work from. For example, Tuesdays lesson is for Showcase and Thursday we work on Syllabus.