To be clear it seems the store are offering:
1) full refund and they take the watch back.
2) £200 off agreed price plus "help" with the cost of future servicing by way of picking up the cost of refurbishing the case.
Not sure there is much more they can do. I think you have 3 options.
1) accept option 1 above.
2) accept option 2 above.
3) go into the store face to face and see if you can improve the deal.
Oh yes - be careful about buyers remorse. If you wear a watch it'll pick up damage sooner or later, it's a fact of life. So this watch would have acquired some damage while in your ownership anyway if you choose to keep it. It become a part of the watch and it's history. As to when the damage is too much, well that's a personal thing, only you can decide.
My Zenith, bought in a sale, has v minor shop damage, most of which I polished out with a cape cod. I got a further £100 knocked off when I bought the watch and I'm totally happy with it but again it's simply a personal thing.