Confidence can have a lot of power over thoughts. I don't believe it's a marketing strategy at all.
To be quite honest, my martial arts & my horse riding has helped a lot with my confidence. I never had confidence problems before, however, it certainly did aid in building it further along the way.
It's true that if you get more competent in something, you feel better about yourself, because you've fulfilled one of your needs as as a martial artist, you've achieved a specific goal (this will be categorised in the "self-actualization" needs, in the Maslow's hierachy of needs model).
In my own experience, competence is the driver of confidence. The better you become at something, the better you see yourself in your own eyes - you realise that you are actually CAPABLE of doing anything. You start to see yourself in a unique light, instead of comparing yourself to other people.
As this boy grows & becomes better at what he's doing in your classes, he will grow in his confidence daily. It IS a process though..
I'd say that perhaps one of the first things he should do is make some friends within the Taekwondo community, if he can. As another person on here said, his Taekwondo classes should be his break so-to-say from reality.
This will reassure him that there are people out there who care about him & want to see him succeed - a strong support system is necessary for a child in this situation. It's necessary for every individual, but more so in his case.
I would also start with self-defense drills so that he at least can be confident in defending himself if ever someone intends to hurt him in any way - I'm not certain how this works in Taekwondo & how broad the curriculum is surrounding self-defense in particular (I was always under the impression that a lot of the kata in Taekwondo is mostly designed for sport, but please enlighten me if I am wrong), but if he can do with more knowledge, perhaps pair him up with someone who specialises in self-defense tactics. Knowing how to defend himself, I think, is top priority.
As soon as he's familiar with these techniques & knows how to do them competently, you can start to introduce him to the rest of the techniques. By then, he will already feel better about himself, because he then knows how to defend himself.
As far as addressing teachers, I'm not exactly certain. Teachers, I have at times observed (in other countries), sometimes fail to actually LISTEN to the child's concerns in a lot of ways, they overlook it conveniently. The only advice that I can think of is if the boy's father attempts to arrange a serious meeting with the principal & the boy's teachers... Also, perhaps they can then in this meeting, talk about giving some of the seniors some authority to observe their school's environment for bullies, so that they can stop fights among students, & then address this to their teachers (as a different control strategy). Obviously some form of positive reinforcement is necessary in order to motivate the seniors to do something like this. Every senior then deserves an honorary mention, & a certificate (or any form of incentive) as a symbol of bravery.
Every school needs an anti-bully policy as part of their system.
The problem is, kids want to feel cool & in control, they think that the only way to feel like this, is by bullying others. They need to be taught that helping or serving others, & adding value to their lives, is what truly makes you a powerful being. Then again, you will always have an issue with bullies, because not everyone thinks alike, or has a similar home life. Usually bullies are children with problems too. I hope the school has a psychiatrist for the children as part of their policy? I know ours did, we never had any serious problems with bullying; bullies were dealt with immediately & called into the principal's office.
Good luck..*