AbstractThis paper examines the design of the online discount coupon, which is a popular marketing tool that offers consumers group‐buying (GB) discounts when they prepay for participating firms’ goods and services. We develop a two‐stage model for a market in which consumers are heterogeneous in their valuation of a product. In our setup, consumers make purchase decisions at the first stage and update their perceptions of the product. As a result, they adjust their repurchase decisions at the second stage. Through the analysis of price discrimination effect and advertising effect, we demonstrate that consumers make their purchase decisions based on not only the discount rate but also the degree of perceived ease of use of the coupons. We then examine both single‐time and double‐time GB mechanisms, and recommend the optimal design for the firm to increase its profitability. Our model also accommodates uncertainty of the degree of consumers' perceived ease of use and shows that the conditions for the optimal GB mechanism are robust.