Piloting - when the actual product/service is tested in a small segment of target population/domain to measure the effectiveness and study the impact. The full fledged product/service roll out will be done post achieving successful results from the pilot run.
Prototyping- in this scenario, actual product/service is never made, but a working prototype/sample model is rolled out to the target segment to measure the effectiveness. This is done when the product development requires more effort/time/cost and when it is important to understand the market requirements/feedback through a sample model immediately.