If there is no sign by the bay where you parked, then no contravention has occurred. Their letter is the usual Fob-Off letter we see so often on this forum. However, did you include a photo in your reps showing the bay had no sign ?
TBH, I cannot see your case failing at London Tribunals, but wait a bit to see what others say; they should confirm my opinion.
So, if you want to take them all the way, you now have to wait for the Notice to Owner, and submit representations against that. This means the discount would be lost, but the council may well reoffer it if they reject your representations to avoid the work they have to do if you take them to London Tribunals.
The NtO is sent to the name and address on the V5 Registration Certificated for the car. Is this you and is the address up-to-date ?