So are interesting characters more important than a well-thought out plot? I'm of the opinion that you can succeed based on characters and setting alone. Taken to the extreme, you don't even need a story as long as readers are hooked on either aspect. Just take a look at Garfield. Those comic strips literally just rely on his catty attitude and now the series is a classic. It's not really riveting stuff, but the character is definitely well-defined. Another example could be Sherlock Holmes - it's got great mysteries, but I'd argue that without Sherlock's cold charm and big-brain shenanigans readers couldn't engage to the extent that they would. Long-running tv shows with filler arcs, or sitcoms like The Simpsons, also fit the bill. On the other hand, works that fail to capture readers usually have problems with their characters (citation needed but it shouldn't be hard to find an example). Basically, the bare minimum you need are scenarios to put your characters through.
Given that character motivations are usually what makes up the meat of a story, and that they drive the development of the plot, incongruities between theme, plot and character development are usually symptomatic of issues within character design. They may not be well-defined. Their actions, personality and(or) motivations may be contradictory. So what should I expect from a good character? The most important thing should be clarity. Can I sum up the character in one or two sentences and distinguish it from all the others in my story? For example: 'He's dedicated to his friends and his school and, despite struggling with great responsibilities, possesses the determination to succeed over evil. He bears a lightning-bolt scar which dictates the course of his life.' Pretty hard to mistake that for anyone but Harry Potter. Just like that, you only need to figure out a situation to put your character in - bam you have a chapter, or another episode, or another short story. Everything else - such as complexity, capacity to build empathy with the reader, the role it plays for the plot, themes and other characters - is secondary. Therefore, having these well-defined (and preferably interesting) characters are infinitely more useful than any great, poetic plot-line.
In my design phase the two questions I reckon needs answering are: 'What does my character want to do?' and 'What is my character's name?'. Character motivation is self-explanatory; establishing the purpose of the character is paramount. Personality can be introduced and developed later. Names reveal information about one's parents - their values and demographic. Same goes for self-made names, or names pinned onto anything by society. They also determine the direction you'll take with your character. How would you treat someone named Bob? Or Annabelle?
But I've come across a problem. If characters are the most important thing in my story, how should I go about making and planning one? Unlike plotlines, I think it is essential to have a good grasp of my characters from the outset. Sure, I can always change or erase them later on. Knowing who's going to be driving the damn thing, and what their motivations are, would indicate where things should go, however.
Anyways, feel free to add to or challenge whatever. Main question is: 'What's your character planning process?'
In regards to your first question: Do I prefer character-driven stories to plot-driven stories?
I am clearly drawn toward character-driven stories. In fact, action-based stories (punches thrown, objects exploding, dialog that serves only to set up the next scene, villains getting their just desserts) bore me to no end. Really.
As a writer, I just see the other writer(s) creating a machine that is intended to get from Plot Point A to B to C to D, making X amount of money along the way. Macguffins, love interests, comic relief, catastrophic setbacks followed by the hero(es) rising up and triumphing over evil. Bores me to tears. I could count the number of Marvel movies I've seen on one hand, because if you've seen one, you've seen them all. If I can see your plot machinations at work--your calculated attempts to make me laugh, cry, despair, and cheer on cue--then I don't think you have much of a story. And most likely, you don't have any real characters either, just roles that espouse certain popular and/or necessary attitudes.
I am more drawn to character-driven stories, because a major reason why I want to watch a movie / read a book is empathy. I've enjoyed some stories that have a pretty good character arcs, but no "plot" in the way most people would understand the word. Which is to say: the character undergoes a personally significant change, while superficially not much happens.
But character and plot are not mutually exclusive concepts; the best stories are perhaps the ones where the characters drive the plots. To this end, here are some of my favorite novels/movies/both so far this century:
Now for Part 2 of your question: How do I design characters?
Well first off, I don't "design" them per se. But dealing with characters is a big part of why I'm here, because writing fiction is somewhat new to me.
For my Orion stories, there are only a handful of characters I had strong opinions about long before I started to write. I knew that Captain Siggo liked to sing odd little ditties. I knew that Dionysya Andrade was middle-aged, had a grown son, was a good mentor, but was trying to stretch herself by moving into a command position. Captain Ynthramanni is always cool and in control, because you don't get to command a starship otherwise; I know little about his background (and I say as much in SotGP) but I love writing his dialog, because he knows what he wants and how to get it. Chief Dansmith is a plain-spoken guy from the Midwest; he has a robust personality with strong opinions; he is charismatic, popular among the crew, with a conservative streak that shows up now and then, as well as the occasional desire to be alone in his workroom.
The other characters I didn't know as much about, so I simply wrote their dialog and literally let them flesh themselves out. Lt. Ceta Hun-Spruk is mousish at first, but there are some topics that she is personally close to, and those get the better of her. Dr. Wildon turned out to be the practical adventurer, always looking to get off the ship, but never willing to do anything to get himself killed. Sisny Quabiss is quiet and observant, learning instead of speaking. Commander Diston was modeled after some random stranger I walked by at work one day: tall, broad-shouldered, clearly ex-military; but now my age, wearing a button-up shirt and tie, heading to a job where he's probably at a computer for most of the day.
So after writing their scenes and getting a sense of who these people were, I went back to the beginning and gave them all a stronger introduction, primarily in the mision briefing scene.
Then there was Lt. Skaxa of Tyuu, who was nameless in one of the MoGM endings, but almost got written into SotGP late in the process when I realized how much potential she has. Then wisdom prevailed, and I realized I didn't need her quite yet. Therefore she has only a background role in SotGP, with plans for a larger part in Orion III... although I'm not sure in what capacity yet.
In a decision that may frustrate some readers and go unnoticed by others, I don't dwell on physical descriptions, especially ones regarding skin/eye/hair color. First off, I can only assume that a thousand years from now, race won't have the same significance that it does now, and so the characters will be less preoccupied with who is black, yellow, brown, red, or white; they might, however, take notice of the Tyuuans, because that is significant to the history of the world in which they're living. And if I'm going to write: "And you notice that Lt. Hun-Spruk has brown hair and green eyes," that just begs the question why are you noticing this? Do you have a crush on her, or something? (She's married, by the way.)
So in terms of visual descriptions, I try to just give the overall impression. The hair color, eye color, and weight of a character doesn't tell me squat about who they are. If I do mention one of those aspects, it better be a key detail.
But whether or not my approach to any of this is actually any good remains to be seen. I knew that I'd have to be patient in terms of feedback on SotGP, partly because there are two concurrent contests right now, and partly because I wrote the story to be a long, narrative maze. And there are characters who appear late in that story that required a bit of risk to write for; I really don't know how readers will respond to them, and that's one reason why I'm holding off on Orion III for the moment.