I would definitely award your answer 1 mark, for telling me the mnemonic technique was narrative chaining. The 2nd mark would go to the example, which you did not provide. Examples have to be very specific. So yeah, you're right, you were a bit too vague, and I get where you're coming from, trying to link the explanation of narrative chaining to the given scenario, which is good, but you still have to provide an example.
Yes, you would most definitely have to make up the example, as you would with other questions as well. If the question was: "Define state-dependent cues and provide an example" [2], you would be given a mark for stating what state-dependent cues are, and for giving an example, which you would have to make up. So you should not treat this question differently in that sense. Unless they give you specific facts, i.e. the address of the music store, then you should make up your own address to help with your example.