In gaming, customizing individual characters, can create personal bonds between players and their characters. Hence, character customization is a standard component in many games. While mobile Augmented Reality (AR) games become popular, to date, no 3D character editor for AR games exists. We investigate the feasibility of 3D character customization for smartphone-based AR in an iterative design process.Specifically, we present findings from creating AR prototypes in a handheld AR setting. In a first user study, we found that a tangible AR prototype resulted in higher hedonistic measures than a camerabased approach. In a follow up study, we compared the tangible AR prototype with a non-AR touchscreen version for selection, scaling, translation and rotation tasks in a 3D character customization setting. The tangible AR version resulted in significantly better results for stimulation and novelty measures than the non-AR version. At the same time, it maintained a proficient level in pragmatic measures such as accuracy and efficiency.