I wouldn't do that but if they feel it would work for their son I have no problem with them doing that.
I probably would have refused to take the kid to something he wanted to attend.
But I think that the rules should be clear BEFORE the bad grade pops up.
And I think I would really try to do something about it earlier.
And I don't want to publicly humiliate my kid, I think that would just make the kid angry and more stubborn about doing his work.
I think that kid, I might have made him volunteer at a homeless shelter, and then talked about how the people got there, and how doing well in school can keep your life from taking a bad turn.
But that family looked like they didn't have much and lived in a tough area. I'd want to counter-act all the negative messages my kid got all day from angry, hopeless, bitter people, about how life is short and who cares what happens to you. I might get him a job working for a lawyer, doctor or college professor, and make sure he saw some other part of the world, some other aspect of life.
Most of my friends had an 'arrangement' when it came to grades. As long as the kid keeps a B in each class, every weekend, he can go out with his friends. Grades below B? No going out with his friends.
But it wasn't something they beat into the kid or started worrying about when they were teens. They put their kids in activities from the time they were babies, where people were constantly telling the kid, 'WOW this kid is smart'.
Some parents have luck with an arrangement like, 'You keep all your grades up, I'll buy you your own car when you graduate', or something like that.
It might be hard for kids, even very smart sounding kids, to keep in mind a long distant reward, because they just aren't that mature. A friend of mine used to put money in a fund every time the kid got an acceptable report card - another paid into a savings account every week the kid did his chores and homework.
A friend of mine told when his boy's grades were turning into a struggle to maintain, he let his son stay with a friend's family for the weekend. The kid came back and said the visit was horrible. It was boring, the house was crowded and run down, people were bickering. The family had no money for games, videos or cable. The yard was tiny and you couldn't just go out and walk down the street.
When the kid came home, he talked to the kid about it and he told him, that it was up to him how he wanted to live as an adult. He could work hard in school, get good grades, and learn a good trade or profession. He said he would support him in learning any trade or profession he would choose to do, but it needed to be something that was practical and would make him a decent living. Or, he could go on like he was doing, and wind up living a life like his friend's family.