The reason various hot sauces and even weaker capsaicin compounds don't do much on skin, human skin is a fairly robust protectant (lol, not a surprise when you think about it) and most liquids simply do not penetrate, particularly water and water based liquids, but also many oils which will only partially and slowly penetrate. However, the inside of the mouth, internal anal areas, and internal and somewhat external areas of the female genitals are not protect by skin, but instead various kinds and thicknesses of mucous membrane. Water-based liquids penetrate most mucous membrane easily. So, capsaicin in most water based liquids will not penetrate skin well, but very definitely will penetrate mucous membrane. Capsaicin in oil based liquids, such as coconut oil, will somewhat penetrate skin, but usually not enough to create any sensation. On the other hand, capsaicin (I use cayenne pepper) dissolved in coconut oil wil generate a *hellacious* reaction in mucous membrane, including anal and female genital areas. Milk does tend to moderate these effects in the mouth, but I simply don't know whether milk will help in any of the other body areas we're interested in. I'm doubtful, because I think possibly the mouth may see a moderating effect because of taste bud reactions to the milk, creating a distracting effect, but I simply don't know.
I can tell you I've dissolved cayenne pepper in hot coconut oil on the stove (actually, just stirred, it doesn't dissolve for the most part), around half a heaping teaspoon to 1/4 cup of oil, and the oil turns a light orange brown as it extracts the capsaicin oil, leaving the pepper grounds behind. I've experimented with this by repeating the extraction again and again with another half teaspoon into the same 1/4 cup of oil, up to 4 iterations, which gets it darker and darker with more capsaicin. There is still little effect on external skin, such as in the male genital area. However, anything beyond the original 1/2 teaspoon will produce excruciating burning sensation in the anal area, and I would *not* go beyond the single 1/2 teaspoon extract until you've tried it. I would worry about causing actual physical burn inside the anal opening that might require medical attention. Entirely too embarassing, the pain aside! I've found that the single 1/2 teaspoon extract will burn really badly as long as it's also being stimulated with a dildo or whatever... It will calm down of itself when left alone for half an hour to 45 minutes. I hope no one jumps to the foolish side of this on the first take!
Slightly off-topic, but I happen to think pure coconut oil is the perfect lube. It's solid below 76* fahrenheit, turns liquid above 77. Keeps well, and creates a simply amazing silky feel on the skin. Lol end of lecture...